'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.


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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There is far more to the story in CA - when there is "windfall" in the fund, the agency's contributions are waived - but NOT the employees. But when there is a shortfall - as now, the agency must increase its contribution - at the worse possible moment. Need to create a rainy day fund with the windfalls...

Instead of calling Marketplace evil I think I'm going to comment on the subject matter. Without any evidence to back my claim up, I'm still going to throw out my idea on how this happened. When the pension funds were setup they were probably setup as expected. But then as time went on municipalities needed another source of income. By taking money out of the pension funds, and placing them in the market, they were able to make it look like they had enough money for the future, and have enough money to spend on current projects. Doing that worked for years, until the market assests lost over a third of their value.

This appears to be yet another biased attack piece on public employees, good government, and what's left of America's so called middle class. Many public employees traded the higher compensation that they could have received in the private sector for a sense of job security and a modest defined benefit (a.k.a. pension) at retirement. Average California public employee pension facts:

1. The average monthly pension for CalPERS retiree is $1,985—about $23,808 per year.

2. Approximately 78% of CalPERS retirees receive benefits of $36,000 or less.

3. CalPERS members pay for part of their retirement by contributing 5 to 9% of their pay to CalPERS.

And f.y.i. I'm a California state employee serving the public in the high cost of living Bay Area earning the same wages as state employees in Sacramento. Bay Area California state employees face a 20-30% pay disparity in this high cost of living region and now face a 15% pay cut via furloughs on top of that compliments of Arnold Schwarzenegger. Can you say IRREPARABLE HARM?

Note how all of this fits nicely into the Republican agenda, its "Contract on America" (pun intended), and the Grover Norquist "No Tax" Republicans' efforts to destroy government. Meanwhile the "Banksters" and "Wall Street Traitors" are laughing all the way to the bank. This is not the America that our Founding Fathers risked their lives, their fortunes, and their sacred honor for!

The Thursday, September 2, suggests that there is a problem with defined benefit pension plans. There is no problem unless the state or employer puts pesion money in risky investments or in the stock market. A prudent investor may still make a profit. The states should ask actuaries to plan pensions rather than trusting people on Wall Street.

My question to posters who say public pensions are good: who is going to pay for the short fall? Tax payers? Take the example of california, where public pensions have become such a burden that may cities are forced slash services.

(2nd try)This story is not balanced. It echos the shrill cries that real pension plans, especially public, are bad. The true facts are quite different: 401(k)s (really just tax deferred savings)are much more expensive than a comparable real pension plan. A real plan costs 25 cents on the dollar to pay retirees. 401(k)s shift the risk from the employer to the retiree, bad all around - for retirees, society and "main st". Foy is incorrect. The few retirees lucky enough to live to 100 will not break the bank, actuaries have already anticipated them. Most pension fund losses now are "paper" because well managed funds maintain sufficient liquidity to avoid selling at a loss. I know, I sit on a pension fund. I appreciate and expect Marketplace's balanced reporting which is absent here. Mr. Manning should follow up by interviewing Professor Teresa Ghilarducci, New School of Social Research to get the real story.

Since marketplace focuses on the stock market, I have come to anticipate a bias towards 401(k). However, that does excuse the fact that the 401(k) based retirement system is not viable. In today's world, where many employers contribute zero to 401(k) plans and the stock market returns are minimal, the only winners in this system are the 401(k) plan administrators and wall street who are profiting from the exchange fees. In the end, most of the 401(k) plan participants will be lucky to have slightly more than their contributions when they retire. Whoever, that will be the "average" at that time and everybodyelse will be expected to live at that level. Yep, "race to the bottom" for the middle and working classess, that's been the key to our economic success for the past several decades.

I feel this story was totally one sided and only feeds the misperception of public workers out there! I work for the state of California, and we PAY a great deal into our pensions. Also, you failed to mention that government salaries are often way less than what you can get in the private sector. The promise of a secure pension allows governments to attract qualified employees that provide valuable public services. Also, you seem to imply that no one should be paid or promised more than the 'average employee' - sort of a race to the bottom, lowest common denominator approach. What if the 'average' is causing people to foreclose on their homes and have no savings for retirement? Is this the vision you want for America? I echo Nathan's comments above - how about interviewing a labor expert who understands the complexity of this issue?! The reason for budget shortfalls are way more complex than you portrayed. Governments are going for the 'low hanging' fruit by cutting benefits for workers; yet are unwilling to look at the wider systematic failure of the revenue systems. Just look at California's example- a budget is way overdue, yet lawmakers seem to prioritize going on vacation rather than making hard revenue increasing choices.

Shame on you for this biased and misleading reporting. Why did you not interview A SINGLE LABOR LEADER for this story? Talk about bias! In Chicago our teachers pension fund was better than solvent until the state raided it to pay for it's regressive tax system. Now the school board has reneged on it's responsibilities (after we let them avoid contributions for TEN YEARS) and blames teachers for layoffs!!! The problem isn't that public employees still have a reliable retirement system. The problem is that the rest of the workforce was conned into 401(k) lotto tickets that have left so many in the lurch. We need to EXPAND reliable retirement systems. Not end them.

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