The Next Contentious Issue


Posted on : 8/07/2010 03:08:00 PM | By : Dann | In : ,

There once was a day....

....when you made real money in the private sector.

....when public jobs didn't pay well, but had some pretty decent benefits.

But now that relationship has been reversed.  Public sector jobs not only pay well, they generally have great working conditions, and they continue to have great benefits including pensions and frequently lifetime healthcare.  The private sector....not so much.  We have defined contribution retirement plans and our healthcare coverage ends when we retire.

It turns out that we have overextended ourselves with respect to public employee pensions.

There’s a class war coming to the world of government pensions.

The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.

The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.

At stake is at least $1 trillion. That’s trillion, with a "t," as in titanic and terrifying.

I have relatives that are retired public employees.  And friends.  And my brother and his wife plan on being teachers in the future.  So I've got some sympathy for that side of table.

The state’s case turns, in part, on whether it is an "actuarial necessity" for the Legislature to make a change. To Meredith Williams, executive director of the Public Employees’ Retirement Association, the state’s pension fund, the answer is pretty simple. "If something didn’t change, we would have run out of money in the foreseeable future," he said. "So no one would have been paid anything."

Meanwhile, Gary R. Justus, a former teacher who is one of the lead plaintiffs in the case against the state, asks taxpayers in Colorado and elsewhere to consider an ethical question: Why is the state so quick to break its promises?

After all, he and others like him served their neighbors dutifully for decades. And along the way, state employees made big decisions (and built lifelong financial plans) based on retiring with a full pension that was promised to them in a contract that they say has the force of the state and federal constitutions standing behind it. To them it is deferred compensation, and taking it away is akin to not paying a contractor for paving state highways.

And actuarial necessity or not, Mr. Justus said he didn’t believe he should be responsible for past pension underfunding and the foolish risks that pension managers made with his money long after he retired in 2003.

This problem has been exacerbated by government managers who have failed negotiate aggressively with public sector unions.  As a result, wages and benefits have continued to increase at a pace well beyond what private sector employees can earn.  It is a problem that is similar to that faced by GM, Ford, and Chrysler as a result of their continuing to cave in to demands by the UAW.

Locally, we have had our city, county, and state government employees agree to accept unpaid days off and other compensation package reductions in order to balance those respective budgets.  Not everyone thinks the same way that Mr. Justus does.

Long term we are all going to need take a long hard look at public employee compensation packages.  We should never be in the position of promising more than we can ultimately deliver.  That may very well mean reducing wages, benefits, and pension plans for current employees.  At the very least, we can minimize the pain for everyone by reducing the rate of increase until the problem is resolved.

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