According to the Pew Center on the States, state pensions and other retiree benefit programs are underfunded by $1 trillion. And that estimate was made before the stock market swoon of 2008.
That number is an aggregate of all states, some of which are in relatively decent shape, and some of which are courting disaster. Too many states and localities created pension plans that are way too generous, allowing some workers, particularly those in law enforcement and other emergency response areas, to retire as early as their 40s, to “double dip” by collecting a salary and pension at the same time, or to manipulate pay in a way that inflates their pensions. In New Jersey, for example, a local lawyer and Democratic Party official cobbled together some part-time work for local government to claim a pension of more than $100,000.
The shortfall is made worse when cash-strapped governments make unrealistic projections about investment returns or underfund their plans by failing to make adequate annual contributions.
“Way too generous?” Do you really want a 67-year-old firefighter trying to carry you out of a burning building? Quite apart from public safety, consider the following fiscal implications: Would you rather encourage turnover that allows hiring younger folks who will have fewer injuries and thus make fewer demands on taxpayer-funded employee health plans? Also consider the lower pay for lower-seniority employees, which partially offsets the cost of pensions for those who leave–which in turn is partially offset by saving the cost of government benefits for replacement workers who would otherwise be unemployed or underemployed. Encouraging public-safety employees to “retire as early as their 40s” is just good conservative common sense.
Can you think of a way to encourage turnover without paying people for early retirement? Even if the Age Discrimination in Employment Act did not prohibit discharging workers just for being older, who would chose to go into a dangerous career that typically lasts no more than 20-30 years if you were choosing mandatory unemployment “as early as your 40s” with no prospect of any retirement income for another 20 years? Recruitment is one reason why military pensions and veteran’s benefits are relatively rich. What is the inducement for early retirement if retirees are prohibited from “double-dipping,” which is just a pejorative term for allowing retirees to work at a new job without reducing their pension payments.
While there are certainly exceptions, in most states public-sector employment pays a lot less than comparable private jobs. The only tools for recruitment are (1) relative job security and (2) relatively decent benefits. Legislatures have made a conscious decision to defer a larger portion of public employees’ compensation until retirement. As a taxpayer, do you want to pay them now, or pay them later (when inflation-adjusted dollars will cost less)?
Having promised the government workers that they will receive these benefits if they will forgo the higher salaries available in the private sector, is there not a “bait and switch” aspect to eliminating the benefits after someone has put in a career in reliance on them? Sure it will be expensive, but that isn’t the workers’ fault, but the responsibility of decades of legislators who didn’t have the gumption to raise enough tax revenue to fully fund the promised benefits. Quite apart from legal and political considerations, what is the moral implication of living in a society that doesn’t keep its promises?
In San Diego, public sector employees were allowed to “buy up” extra years so that they could retire at an earlier age as though they had worked the entire required number of years. There are retired employees whose pension is over 100% of their last year’s salary. This is management (elected officials) bowing to unions and figuring the public will just keep paying up, because they always couch it in terms of “the firefighters” and “the teachers” as opposed to the bulk of public-sector employees, who are neither. Welcome to California 2010 – one of the highest taxed states with one of the greatest public employee payrolls and about to go bankrupt.
There are a number of errors in Dale’s examples. Most significant is the emergence of studies disproving the long claim of lower public sector pay when the full compensation package is compared; average public employees fare better than private.
Double (and triple) dipping restrictions would hardly prevent a person from getting another job. But they should prevent one from retiring and taking a job with the same or related gov’t agency where the total compensation is increased. (Why get a raise for retiring?)
Contrary to his implication nothing prevents nothing prevents different pension and retirement standards based on job demands, e.g. cops or firemen. This is already done.
The comparison with military pay is hugely flawed. Military retirement (for 20-30 years service) has traditionally been 50-75% of BASE pay (which may only be 60-70% of total). Thus military retirement is often less than 50% of total pay. By contrast (and Branford alludes to this) public pensions normally include the full amount in the calculation, with many employees getting 90%, 100%, or even more. And there is no paid overtime in the military.
Finally, the CalPERS pension problem is not about breaking promises. Rather it resulted from a craven political decision that amounted to a gift of public funds by politicians who did not understand the difference between defined benefit and defined contribution plans. By squandering the surplus in boom times, the ensured a huge deficits during the busts. At least the governor lost his job over that (and Enron).