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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.