Second of a three-part series

State public pension systems are in such bad shape that some have called for allowing states to go bankrupt. Aspiring reformers have been reluctant to propose tackling the unfunded liabilities that portend financial catastrophe, yet there is more latitude to restructure retirement benefits than they think.

Legal precedent tells us that contracts are not suicide pacts or straitjackets, and sometimes need to be reworked to serve an important public purpose. The prospect of pension insolvency meets that threshold.

Because government accounting standards are so lax, state retirement systems have been drastically underestimating their liabilities, leaving economists to calculate the true extent of the problem as data become available….

States should not force taxpayers and citizens to shoulder a problem that can be fixed from within through reasonable changes.

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