Stressed States Are Forcing Workers to Retire Later

Monday, August 02, 2010

States are deciding it's time their workers retire later.

Lawmakers in at least 10 states have voted this year to require many new government employees to work longer before retiring with a full pension, or have increased penalties for early retirement. A similar proposal is pending in California. Mississippi, already among the states requiring more years of service for a pension, is weighing the additional step of increasing its retirement age.

The change comes as foreign governments from France to Morocco have either decided to increase or are contemplating a rise in the age at which private and public workers can receive government pensions.

A federal commission studying long-term U.S. fiscal issues is also entertaining the idea of changing the retirement age as one way to shore up Social Security, said a person familiar with the matter. A report is due to President Obama in December.

Individual states, meanwhile, are moving ahead as they respond to the widening gaps between the obligations made to workers and the money expected to be available to pay them, thanks to investment losses and recessionary budget pressures.

"It's a very positive change that the age for receiving full benefits is increasing," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "Increasing the retirement age is the single most important thing [states] can do" to tame future pension costs, because it reduces the number of years the state is paying a benefit, she said.

Though lengthening lifespans have been expected to pressure pension systems, the looming fiscal predicament has emboldened lawmakers to demand more years from employees. Also, as many American states cut services, scrutiny has fallen on the compensation of public workers.

In Illinois, where state lawmakers voted in March to increase the retirement age for most new hires to 67 from 60, "it had everything to do with the financial straits the state is in," said Tim Blair, the executive secretary of the State Employees' Retirement System of Illinois. "The scales have tipped."

The states are taking aim at long-held and sometimes controversial pension plans. In Utah, new fire and public safety employees as of July 1, 2011, must work 25 years, up from 20, before getting a full pension. Most other state employees must now work 35 years instead of 30 before receiving their pension.

In Illinois, teachers can retire as early as age 55 with 35 years of service. But starting Jan. 1, 2011, new hires must reach age 67 with 10 years of service.

In June, California Gov. Arnold Schwarzenegger reached a tentative contract agreement with six public-employee unions to bump up the retirement age by five years for new hires. The governor's office and six other unions remain in negotiations, with one of the sticking points a proposed increase in the retirement age.

The changes could add momentum to raise the age at which Americans receive payments from Social Security, say industry experts.

Recently, calls to boost the retirement age, now 67 for people born in 1960 or later, have come from both parties.

In speeches this year, Rep. Steny Hoyer, a Maryland Democrat and the House Majority leader, said Congress might consider raising the age to reflect Americans' longer lifespans as one option to bolster the program's long-term solvency. Rep. John Boehner, an Ohio Republican and the House Minority leader, said in June that he would consider raising the retirement age for Social Security to 70 for younger workers.

Changes to the retirement age won't solve the most immediate financial problems that now face some public-pension systems, mostly because adjustments generally affect new workers. They aren't expected to pay off for decades.

But the increases are part of a broader set of changes reshaping government jobs. These positions long have been considered attractive partly because of the benefits, including a guaranteed pension. Now, cutbacks mean that increasing numbers of public sector employees will work longer with fewer benefits.

Detractors say that will affect the quality of government services. "We are hurting ourselves in terms of retaining good employees," said John Burnett, a Missouri lawmaker who opposed raising the retirement age in his state. Proponents say an upside, in addition to saving money, is that healthy, capable older workers will continue to bring skills and experience to bear.

In the U.S., the changes represent a step toward bringing the retirement age for government workers, on average 60 years old, more in line with the private sector, around 63, said Ms. Munnell. While the retirement age of government workers has remained fairly steady since the mid-1980s, private sector workers have been retiring later, as employers have shifted from guaranteed pensions to more-variable 401(k) plans, among other factors, she added.

The changes have faced pushback. In Colorado, the teachers' union helped prevent an increase in the retirement age proposed for 2017. In Utah, fire and public safety workers lobbied successfully against a proposed 15-year increase in required years of service. Instead, the change adopted was an added five years.

"There's some point at which an old cop like me shouldn't be out chasing young criminals," said Michael Galieti, a 61-year-old police officer who is on the board of the 3,000-member Utah Peace Officers Association.

But generally, proposals have moved past resistance, partly because they apply to new hires. "People care most about things that affect them immediately," said Mr. Burnett of Missouri.

Experts say major changes are less likely with firefighters and police because there is often a public policy view that older workers shouldn't be in these positions and that people who do hold these often-dangerous jobs deserve long pensions. For example, in some municipalities in New York State, some police and firefighters can retire after 20 years of service.

In Europe, proposed changes to the retirement age are part of a broad effort to rein in the costs of a social safety net that has long been one of the world's most generous. Changes would affect workers broadly, not just public workers.

In 2007, Germany raised the retirement age to 67 from 65, to be phased in by 2029. France's parliament is due to vote on a similar measure this fall, while Spain, Portugal and Ireland are considering such changes. Morocco is contemplating an increase in the retirement age for public and private sector workers to 62 from 60.