States come to grips with pricey pension promises ...

Monday, June 14, 2010

One of the most troubling social trends in recent years has been the pension gap between state and local employees (who can retire early — often very early — with instant, guaranteed, taxpayer-paid benefits) and the private sector workers whose taxes pay for those pensions. Their retirement benefits are largely self-financed and subject to market upheavals.
EDITORIAL: ... after feds show the way
CHECK YOUR STATE: Pew report on state pension plans
Now, through a combination of fiscal necessity, changed accounting rules and realization that millions of public workers have become a kind of privileged new class, the politics of public pensions appear to be changing.
Last month, Michigan enacted a teacher pension reform that Gov. Jennifer Granholm says will save about $3 billion over 10 years by, among other things, increasing the amount workers must contribute. Illinois has raised its retirement age for newly hired public workers from as low as 55 all the way to 67.
In California, Gov. Arnold Schwarzenegger, who has tried for years to enact pension reform in his financially troubled state, believes that the ground has shifted and that he can succeed in his final months in office. And several other governors, most notably Chris Christie of New Jersey, have decided that bruising clashes with public worker unions can be both economically necessary and politically advantageous.
These developments could not come soon enough. States, without the federal government's ability to print money and with limited ability to borrow, are facing disturbing questions about how they are going to pay for worker pay and benefits, along with their share of Medicaid.
According to the Pew Center on the States, state pensions and other retiree benefit programs are underfunded by $1 trillion. And that estimate was madebefore the stock market swoon of 2008.
That number is an aggregate of all states, some of which are in relatively decent shape, and some of which are courting disaster. Too many states and localities created pension plans that are way too generous, allowing some workers, particularly those in law enforcement and other emergency response areas, to retire as early as their 40s, to "double dip" by collecting a salary and pension at the same time, or to manipulate pay in a way that inflates their pensions. In New Jersey, for example, a local lawyer and Democratic Party official cobbled together some part-time work for local government to claim a pension of more than $100,000.
The shortfall is made worse when cash-strapped governments make unrealistic projections about investment returns or underfund their plans by failing to make adequate annual contributions.
The obvious long-term solution is for states to shift to 401(k)-type programs, which the federal government has partially accomplished. For Americans to maintain their faith in government, they can't have civil servants easing into comfortable and early retirement while private sector workers toil away. And even if that problem didn't exist, what sense does it make to encourage able-bodied people to retire early?
The vast majority of private companies long ago recognized the problem and addressed it. For governments, pensions invite abuse. Candidates find that they can mollify demanding public-employee unions by making future promises that won't come due until long after they leave office.
In the short run, it is at least encouraging to see some states grapple with their existing pensions. Many more need to follow suit before America becomes a nation of pension haves and have-nots.