Placing newly hired workers in 401(k) plans 14 years ago may have saved Michigan from falling into the pension crisis other states are now struggling with, analysts say. According to Bloomberg, 33 states currently have assets less than 80 percent of what is needed to pay promised benefits and Michigan’s example may lead the way out of financial disaster.
Bloomberg Rankings reported that median funding in states fell to 73.7 percent from 76.2 percent in 2009, virtually untouched by any economic recovery. And with rating companies now considering these types of liabilities in determining credit grades, states need to act fast.
“This is a crisis that is requiring states and municipalities to evaluate and take real, pro-active steps,” William Jasien of ING U.S. told the news agency. They face “very volatile markets, funding pressures—a lot of public eyes on these pension benefits.”
The answer may lie in something Michigan enacted 14 years ago. According to Bloomberg, the state placed all new employees in a 401(k) as a way to “head off future funding crunches,” as it enjoyed its lowest unemployment rate in the past 20 years.
“They were able to get around some of the challenges that other states face now,” said Scot Beaulier of the Johnson Center for Political Economy at Troy University.
Beaulier recommends that other states copy the “radical reform,” as Michigan’s pension-funding ration is now the 18th best among the 48 states ranked by Bloomberg. He concedes that this may be difficult for states with unfunded liabilities.
