'The trillion dollar gap' in pension funds

Debbie Dames at the Ventura County Fair. Dames retired after 30 years as a government clerical worker, but she's looking for another job since her husband got laid off.

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Kai Ryssdal:A lot of Americans have 401(k) retirement plans these days. They're what're called "defined contribution plans." You and most times, your company put money in and there's a nice little nest egg when you retire, if the economy's been OK. But if you've been working for a government -- local, state or federal -- chances are you're looking forward to a decent pension no matter what. Those pensions, called defined benefit plans, are paid out regardless of what the economy does. Right now, the governments that have to pay those pensions aren't doing so well, finance-wise. So they're looking to public employees and taxpayers to help 'em out of an ever-deepening pension hole.

Marketplace's Mitchell Hartman reports.


Mitchell Hartman: How bad is it right now? The Pew Center on the States reports pension funds are short at least a trillion dollars, says managing director Sue Uhran. And that doesn't even include all the investment losses from the recession.

Sue Uhran: States have a tendency to set benefit levels, know that it is a future cost and decide to worry about it tomorrow.

Governments did agree to these pensions in union contracts, often because it was cheaper than big pay increases. Now, they can't afford the annual contribution.

Uhran: For example, if you look at California -- $12 billion. Payments as significant as that begin to compete with the other kinds of things states would like to spend those revenues on.

California might not have to furlough so many state workers or raise tuition as much, if it could save on pensions. And the state is trying. In a deal with unions, new state employees will pay more into the system and get lower benefits at retirement. That'll save money down the road.

But cutting back on benefits already promised by contract to current workers and retirees -- legally, that's a lot harder. Other states have tried it, and faced lawsuits. Cities and counties often run their own pension funds and they're in trouble too.

Peter Foy: We knew the bubble was going to burst at some point, and it burst.

I'm meeting Ventura County Supervisor Peter Foy at an upscale Spanish-style mall in Simi Valley, a suburb of LA. His county's pension fund lost a third of its value in the recession.

Foy: We were in trouble. Because we have to make up the difference between what we're paying in benefits and what that shortfall is.

And that's taken a toll on services. There's a hiring freeze -- 500 vacant positions, including in the sheriff's department. And county workers, who haven't gotten a raise in years, now contribute 3 percent of pay to the pension fund.

Foy would like to raise the retirement age and have voters approve future pension increases for government workers. Given how much everyone else's retirement has suffered in the recession, he thinks public opinion's on his side.

Foy: We need to be making sure that people aren't getting excessive pay, because labor unions are pushing them harder and getting extra benefits that the average person doesn't get.

Sounds of rides and people at the Ventura County Fair

I head to the Ventura County Fair. And here it's not hard to find taxpayers who are fed up. Holly Barnes is retired from the phone company.

Holly Barnes: I also have family that has worked for the government -- county, federal -- and I think the public, if they really had any idea, would be appalled. They make more money sometimes when they're retired than when they're working.

Of course, many retirees don't see anything like that kind of money. Debbie Dames came to the county fair for one-buck admission day. She was a city clerical worker making $40,000 when she retired last year.

Debbie Dames: My monthly salary now is a little over $1,800.

Hartman: And is that what your whole family at this point is living on, you and your husband?

Dames: We are right now, because my husband just got laid off. I am gonna go back to work to help our family out.

Dames worries the state will cut her benefits to shore up its pension fund. But, as she says, she can try to find another job. After 30 years with the government, she retired at the ripe old age of 54.

Foy: It is a real problem.

County Supervisor Peter Foy.

Foy: I think it's critical that we ask people to work a normal work career. She lives to be 100 years old -- that pension is being paid.

These days, workers are also contributing more to pay for those pensions. Jesse Guzman helps administer health and welfare benefits for county residents. His wife cleans rooms in a county hospital.

Jesse Guzman: I figure it's about maybe $4,500 we're being cut a year. And we definitely notice it.

They've pulled their kids out of day care and aren't helping others as much, either.

Guzman: We're not contributing to our church as much as we used to, in order to offset that decrease in income.

Guzman says he's OK with that loss in income -- as long as the county pension is sound and can pay what it promised when he retires.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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