Rising taxes may be on the way as federal, state and local governments face under-funding in corporate and public pension funds, says a Standard & Poor’s CreditWeek report.
The report, titled “When the Music Stops, Who Has the Chair?” found that demographics, including the baby boom and lengthening lifespan, are the primary culprit for inadequate funding for pensions.
US corporate pension funds fall about $140 billion short of a level that would adequately cover retirees, and state funds fall $284 billion short, says S&P.
But federal pension funds have the largest deficit, with federal civilian and military employee programs coming in at $4.5 trillion in the red.
“The cost of supporting retirees will fall on the work force,” says David Wyss, S&P’s chief economist and author of the report. “The problem arose because companies and especially governments were willing to use pensions as part of employee compensation, but discovered that they could get away with under-funding those pensions. The fact of life, however, is that everything retirees consume in retirement must come out of current consumption. And this must be done either through taxation, asset sales or interpersonal transfers.”