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Gov't workers are losing their pensions
Pensions file
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TEXT OF STORY
Tess Vigeland: Used to be there was nothing more American than a pension to ensure a well-financed retirement. Most workers today have 401(k) plans. Government employees are an exception. But the guarantees they thought they had are going the way of pensions themselves. Because budget woes are forcing deep cuts in their promised benefits.
Marketplace's Mitchell Hartman reports.
Mitchell HartmanI don't have a pension, so I asked Ron Snell at the National Council of State Legislatures to give me the lowdown.
RON SNELL: You stay in the job 30 years, you have a guaranteed lifetime pension.
Here's how it works. Employer and employee contribute every month to a pension fund. It then invests the money and pays out a certain amount to each worker after they retire. Problem is, the funds that pay the pensions aren't so secure -- at least in the long-term. I point out to Snell a report from the Pew Center on the States. It found state pensions were under-funded by a trillion dollars. And that was before the financial crisis.
SNELL: It's a very large problem, a surprising number of states have started dealing with the issue in legislation this year.
In Wyoming, California, Iowa, and Vermont, workers will now pay more into their pension plans. In New Jersey, retirement benefits will be cut -- workers have sued. In Minnesota, New Mexico and Colorado, retirees' cost-of-living increases are being trimmed. And retirees have sued.
Brenda Scott of the Mississippi Alliance of State Employees told me about the changes there. As of July 1st, Mississippi will take about 2 percent more out of every worker's paycheck. And new employees will have to work an extra five years to get a full pension.
BRENDA SCOTT: So we thought that would be a pretty bitter pill to swallow, considering the fact we were going into the third year without any kind of pay increase.
Scott says her union fought back, but lost.
Earnest Simpson is philosophical about it. He's a supervisor in the state child support office in Gulfport, Miss. He's five years from getting his pension, for which he'll now have to pay a bit more.
EARNEST SIMPSON: I figured it up, it's about $50-$55 a month. You know, where the economy is now, anytime you take money from your pay it's going to hurt you. But if it's going to help us continue to have our retirement system financially sound, then I don't mind suffering.
Many public-employee unions are giving in grudgingly as well. They've realized they've got a choice between cutting pension benefits or losing jobs. Some states, meanwhile, are looking at a more radical solution. They're moving away from pensions altogether.
Dan LILJENQUIST: There's one thing that can bankrupt the state of Utah, and that is our pension system.
Dan Liljenquist is a state senator. He's behind Utah's decision to put new government workers into a defined contribution plan, like a 401(k). That means the state will pay its retirement bill right up front.
LILJENQUIST: Instead of saying, "Here's what we want to give to our new employees," and then hoping we can pay for it later; we said, "Here's how much we can afford to give, and what does it buy?'"
Liljenquist says other states' reforms trim pension costs a little, but they still leave governments on the hook if markets tank. For him, the beauty of the Utah plan is that it transfers market risk to plan participants and shields Utah's Treasury from the fallout of the next financial crisis.
I'm Mitchell Hartman for Marketplace Money.
The problem, as I see it, is the amount of the pensions. No pension should be more than what the lowest earner can make working 40 hours a week. Yes, it was paid into, but in government work, the "pay" was tax money to begin with, and often higher than any minimum wage; which unfortunately is what people first think about...all other wages are compared to it. So, basically when a goverment worker-whose pay itself is from taxes-pays taxes they are ultimately just paying themselves back and hence never really pay any income taxes at all. For example, My father retired in 2003 at the age of 53 from the State of Washington after 30 years as a Traffic Engineer (Bachelors degree only and never licensed; took the exam once in 1986 but did not pass. He always talked about what he could have made with it-- He still made $106,000 in 1998--with the Dot where most nights he drank alcohol and smoked Marijuana consistently the whole time...
Now, 10 years later, he has collected over $3000 a month for over 10 years. He is 63, worked only one easy ass job in his whole life, and now complains about how he needs more money and is "thinking" about trying to get another job (I think he knows the DUI conviction plus marijuana smoking limits that possibility). He spends his retirement drinking expensive alcoholic beverages and smoking dope. I realized a long tome ago that he was a dope; I remember he voted for Carter, Mondale, Dukakis, and Obama. My point is that just the money he has been paid in the last ten years has exceeded any amounts deducted from his checks, along with tax refunds from Mortgage interest deductions and Child deductions. And now here I am at 35, with a Bachelors and an honorable discharge from the Marines in 1999, listening to people like him bitch and thinking...You really can't see how good you have it, can you? The thing that many don't get is that they want high wages for themselves but don't want to pay them themselves if they had to...I say if your pro-union, everytime you pay for services, even if it's a guy mowing your lawn, pay him more than the minimum and you have to and change the world...but probably not.
"...the funds that pay the pensions aren't so secure -- at least in the long-term. ... state pensions were under-funded by a trillion dollars..."
Let's stop confusing these two concepts.
1. Underfunding is usually created by the state legislature, either overpromising or under-contributing (or both), thus passing the buck to future legislatures and taxpayers.
2. Lack of security in the pension fund is created when the fund is poorly managed or invested.
We need a national retirement system adapted to reality. People are living longer. Some current retirees have been retired longer than they worked. This is not sustainable. Everyone will have to work longer, pay more and accept less than we have been led to expect.
In Pennsylvania, Gov. Tom Ridge and a Republican controlled House and Senate began reducing the government contribution to the state pension plan when they took control of the gov't in 1994. By 1999, the state was contributing zero to the fund. Note these where the best possible times for the economy and the gov't was contributing zero. It was the Greenspan philosophy, "a surplus is a drag on the economy". In any event, the stock market bubble disappeared, but the Republicans insisted on no new taxes, so the state has never been able to restore more than 40% of pre-1994 contribution rates and the fund is going to run deficits. In PA, the pension fund issue is purely one of fiscal mismanagement, which is now being cast a moral issue. Somehow, a 401(k) is now the only morally justifiable pension plan. Unfortunately, the likely outcome in that scenario is poverty for those that are unfortunate enough to not die young.
A related question is, what is a morally acceptable company contribution to a 401(k)? When the concept appeared in the 1990's, employer contributions were 8~10% of employees salary. Today, those rates are often zero.
