May 4, 2009

Government as Pension Program

Justin Katz

Here's an eye-popper: Cranston spends more than a fifth of its total budget on pensions (not including teachers). Nine municipalities spend over 10%.

While Rhode Island's political leaders wrestle with state pension reform, there's another big pension headache out there — the soaring cost of municipal pensions.

A new study by the business-backed Rhode Island Public Expenditure Council reports that the amount of money that communities spend on pension costs has increased nearly 50 percent in the past five years, from $101 million in 2004 to $149 million in the current fiscal year ending June 30.

But the raw amount, the exclusion of teachers, and the addition of state employees is not all:

The study found that locally administered pension plans were able to fund only an average of 45 percent of their obligations as of June 30, 2006, with an unfunded liability of $1.6 billion. That encompasses quite a wide range, from a Coventry police pension plan that is only 7.9-percent funded, to the Jamestown police pension plan, which is over-funded, at 123.9 percent.

In other words, as much as they're spending, many cities and towns ought to be devoting more resources to pensions.

That's if you look at it as a funding matter. If you look at it as a practical and moral matter, they ought to be devoting less to pensions. It's time to bring public workers back to the real world.

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" they ought to be devoting less to pensions."

I guess that, if we are going to make public policy decisions, we should know how much they should be spending on pensions?

Any guesses? I'd like to know.

Posted by: Thomas Schmeling at May 4, 2009 7:52 PM

And they're a MORAL matter, too (well, anything's a moral matter if it makes you angry).

Posted by: rhody at May 4, 2009 8:29 PM

On pensions, Thomas? Zero.

Over the last couple of decades, Rhode Island elected officials have run up the second highest unfunded pension liability. All pensions need to be frozen and rolled over to a 401k (or the public employment equivalent).

Posted by: Monique at May 4, 2009 9:01 PM

1) Yep, freeze the pensions. A fair compromise. People will get the pension benefit they've earned to date, but no additional accruals.

2) There is no moral matter.

First, the pensions and their formulas were / are strictly a political matter. The Democrats in the General Assembly offered unjustified (and unsustainable) benefits in return for union political support and campaign cash.

Second, the Democrats didn't adequately fund the benefits they promised, and the union bosses who were supposed to be looking out for their members' best interests didn't police that (note that many union officials are simultaneously Democrat General Assembly members).

They made the mess, they and their members should bear the consequences, not the taxpayers.

Posted by: Tom W at May 4, 2009 9:18 PM

I say that we take the same approach to the union pensions that are bankrupting our cities and towns that Obama is foisting on the secured lenders in the Chrysler deal - take what we say or go to hell.

Posted by: Mike Cappelli at May 4, 2009 9:42 PM

"On pensions, Thomas? Zero."

"Yep, freeze the pensions."

"take what we say or go to hell."

Well, that's pretty clear. Thanks!

Posted by: Thomas Schmeling at May 5, 2009 6:11 PM

Mr. Schmeling, in case there's some confusion, in the private sector a "pension freeze" means that going forward people will still collect whatever pension benefit they've earned to date, but their benefit will not increase any further.

So a state / municipal employee with say 15 years in would still collect their accrued / vested benefit, but if they work for the state another 15 years won't accrue any further increases (similar to if they were vested in a benefit but quit in their 15th year to go work in the private sector).

So nobody forfeits what they've accrued / vested as of the freeze date, it's just that their benefit won't increase after that date.

I believe that most on this board support a 401K / 403B type plan for state / municipal employees after the freeze date, through which they can continue to accrue assets toward retirement - essentially leveling the playing field between those of us in the private sector and those in the public sector (and it is us in the private sector who ultimately pay for the public sector).

Posted by: Tom W at May 5, 2009 6:29 PM

Mr. Schmeling,
Perhaps you could enlighten us with your thoughts on Obama's treatment of secured creditors in the Chrysler banruptcy.

Posted by: Mike Cappelli at May 5, 2009 8:16 PM
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