They aren’t borrowing money OUT of the pension fund.
Each year, there is an amount put in the pension fund for each employee, it’s 5%, and it used to be split between employee and employer but since 1983 the state pays it all. Anyway, each year they also calculate the estimated future need of the system, and if it needs more money the state puts more money into the system.
For this year and the next, the state will NOT be paying INTO the system that extra amount needed to fund the future retirement liabilities of the people now working. The budget does pay part of the liability next year, but only 20%, and only for teachers.
But in 2013 they will pay it back, with 7.5% interest. Now, this isn’t what you really WANT to do, but the unfunded liability is for the people currently employed, not people already retired. And if you were given a choice to either be fired, or to have your pension underfunded, possibly risking your future payout, which would you choose?
This was actually the idea of the Senate Democrats, and it was the House Republicans who forced the rule to pay back the money.
In addition, they ruled that for all NEW hires, the new hires will go back to paying the 2% (1% the first year) that they used to pay way back when. However, the law gives localities the right to pay that for the local workers — of course, no locality can afford that right now, I’m guessing.
Anyway, when you have a 4 billion deficit, you have to cut back on something. We are essentially back to 2006 spending levels — a REAL cut, not like all the “cuts” to the expected big increases.
Thank you for the information. Perhaps you can answer another question. It seems to me that the amount of pension paid by Arlington Country has not increased for a number of years, whereas the amount I have to take out for health insurance goes up each year. Do you have any info on why the state pays more each year, but the county does not?