Many city and state governments are finding that their practice of using pension funds to pay healthcare costs for retired employees--estimated at $1.1 trillion--is threatening both promised pensions and healthcare benefits, reports The New York Times. For retired Chicago Transit Authority workers, for example, money for healthcare benefits could be depleted by early next year, and the pension fund may be gone by 2012. In Battle Creek, Mich., retiree health benefits for police and firefighters have increased from $60,000 a year in 1980 to $1.8 million today with no funds left to pay future health bills. When investment returns on pension funds were healthy in the 1990s, many local governments used those gains to finance healthcare costs for retirees. But today’s lower returns and accelerating healthcare costs have created a financial crisis for pension funds. Solutions for rebuilding pension funds to accommodate retiree health benefits are so unattractive--raising taxes, selling bonds or public assets, or increasing mass-transit fares--that few governments are seriously considering them, according to the article.
