January 17, 2006

If USA Today Says Public Pension Programs are a Financial Time Bomb...

When USA Today, the McPaper of newspaper journalism, carries a lead article on page 1 entitled Public workers' pensions swelling, you know the looming financial implosion of public sector pensions is slowly - but firmly - seeping into public consciousness:

Public employee pensions have become increasingly generous since 2000, promising a more comfortable retirement for civil servants but a serious financial challenge for future taxpayers...

Many corporations have replaced traditional pension plans, which pay monthly benefits for life, with plans that cost employers less and pay workers a lump sum when they retire...

Governments have been moving in the opposite direction: increasing monthly benefits, making it easier to retire at 55 and spending more on retiree health benefits. State and local governments, which cover 21 million workers and retirees, have been adding benefits the fastest:

•A December study of 85 big public pensions in all 50 states — covering three-fourths of public employees nationwide — found that governments continued to enhance benefit formulas, ease early retirement and improve other benefits from 2000 through 2004 despite states' financial problems. The increases were enacted on top of even larger benefit changes approved from 1996 to 2000. The study, conducted by the Wisconsin Legislature, is one of the most comprehensive on the issue...

•Average annual benefits for retired state and local workers grew 37% to $19,875 from 2000 to 2004, the most recent data available, according to the Census Bureau. The rising payments reflect the early retirement of baby boomers, who started to qualify for full benefits in 2001, at age 55, under most government pensions.

"These pensions are unaffordable," says Alaska state Rep. Bert Stedman, a Republican. "If we don't act now, we're going to have social conflict in the future between the haves and the have-nots — those with government pensions and those without."

Reg Weaver, president of the National Education Association, which represents teachers, says legislators shouldn't respond to pension problems in the private sector by attacking government pensions. "Pensions are a national problem, but it's not in the interest of workers to diminish either type," he says.

The portion of the private workforce enrolled in plans that pay monthly benefits for life has fallen from 39% in 1980 to 18% in 2004, according to the Employee Benefit Research Institute. By comparison, more than 90% of government workers are covered by such plans, the Bureau of Labor Statistics says...

Federal, state and local governments have promised pension and retiree medical benefits that would require more than $5 trillion to be invested today to cover costs over the next 75 years, according to the financial statements of the retirement plans.

In another USA Today story entitled Pension funds fall short of guarantees:

...The public servants have been guaranteed retirement benefits that are far richer than private pensions, yet elected officials have failed to set aside enough money to cover the promised benefits...

The belief that government offers good benefits to make up for lower wages appears to be a myth. Government workers earn higher average wages and get better benefits than people in the private sector, according to bureau statistics. Even white-collar workers — managers and professionals — earn more on average than their counterparts in private industry.

Keith Brainard, research director of the National Association of State Retirement Administrators, says those numbers don't recognize the special nature of government jobs. "Two-thirds of government employees work in education, public safety, corrections or are judges," he says. "You don't want high turnover in those professions, so you need benefits that encourage long-term retention."

The Bureau of Labor Statistics details how superior government benefits are to those in the private sector. Private companies contributed an average of 90 cents to a worker's pension plans for every hour worked in 2005. By comparison, state and local governments contributed $2.48 for every hour an employee worked.

Those numbers don't include retiree health benefits, which make it possible for civil servants to retire before federal Medicare health coverage begins at age 65.

Starting this year, governments must report the cost of promised retiree medical benefits...

...The national total is likely to be hundreds of billions of dollars.

Most public pensions also have automatic cost-of-living increases. Private pensions usually do not. That means the difference between public and private pensions grows every year, even after retirement.

...Government employees don't have to worry about losing benefits. State constitutions and court precedents forbid cutting pension benefits to civil servants...

"These unfunded liabilities are not a big problem," says Frederick Nesbitt, executive director of the National Conference on Public Employee Retirement Systems, which lobbies for public employee pension rights. "We have 40 or 50 years to recoup the money through investments..."

Once again, reread the irresponsible comments by union officials in both of these articles. Spineless politicians and bureaucrats, outrageous demands by union officials, and no market mechanisms to correct a growing problem. It is a formula for disaster.

None of this is news at Anchor Rising, which has previously covered this issue in great depth.

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

It's going to be ugly -

the public sector unions,


the welfare lobby,


the taxpayers.

All fighting to get / keep the same dollar. Two losers, one winner.

Posted by: Tom W at January 18, 2006 5:14 PM