Public Employee Pensions are Not the Problem

Right-wing critics of public employee pensions will use any angle to convince folks that these plans are bankrupting states, cities and towns. In the Wall Street Journal this week, Steve Malanga blames pension plans for today's economic difficulties and in the same piece urges governments to sell off their assets.

Malanga fails to mention that most public pension plans are in good financial condition and does not note that states built up rainy-day funds and cut taxes during this time. It's a fact that most of us are required to contribute to our plans regularly, and our contributions, along with our employer's, are invested to earn additional income. While the economic downturn has caused some dips in funds, estimates of the ratio of pension assets-to-liabilities for state pension plans indicate that they are in good shape. Most plans have diversified their investments so the impact of today's market losses is softened. Over the last twenty years, most pension funds have had a good rate of return, even during downturns, because they keep fees low and use professionals to routinely beat market benchmarks.

Pension funds, with assets from employers and employees, are an essential part of this nation's capital market, particularly at a time of economic crisis such as the one we are currently facing. Public employees have sacrificed pay increases and made contributions in order to ensure that their pension plans are adequately funded. And governments have also been prudent about building up their reserves - as of July 2007, state rainy day funds stood at 10% of total budgets, which would have been sufficient to deal with a moderate cyclical recession. Of course, what we're seeing is far worse.

The truth is that in these times of real budget challenges, pensions make good economic sense. Pensions put money into the economy, offer real retirement security to workers, and allow government employers to recruit and retain a quality workforce to make the vital public services that America relies on happen. The investments made by pension funds have helped make America work and can help turn our economy around in the days and months ahead.

Most Americans recognize that today's government challenges are the result of an economic downturn rivaling that of the Great Depression and a Bush Administration that willfully ignored the economic problems. Malanga himself acknowledges several times in the piece that "rapidly declining tax collections" are the cause of the states' budget problems. Yet this fact is ignored in the diagnosis and prescription of the fiscal crisis we are in.

Malanga also argues for privatization of roads and other public goods. The solution is not privatization, which all too often means that the public pays more and gets lower quality services while public workers are laid off and corruption scandals make the news. Americans need quality public services and efficient governments that help achieve real progress for communities. While some view selling public assets like toll roads to private firms as a panacea for infrastructure investment, the public is fiercely - and rightly - opposed to selling our roads for the pursuit of private profit.

Public pensions are providing benefits for the economy, retirement security and taxpayers. As states find their budgets under pressure, it is important that states put in place procedures and practices that will mitigate against rosy projections regarding investment income and provide a means to pay for the benefits their employees have earned.

While improvements can always be made, pensions are not the problem. The economy is the problem, and the President and Congress need to take real steps to revitalize the economy and help the American people.

Comments

[Gainsbourg69]

I'm happy that the Republicans blame the unions for everything wrong with manufacturing in this country. The rust belt tstates they so dearly coveted during this election will stay blue for a very, very long time.

[Liberal2]

Please keep "liberal" (or progressive) as a concept seperate from "democrat". Rust belt states are rusting into nothing because they concentrate on "taxes" but not "income after taxes." Of course, when you use the term "blue state" you may have meant blue dog democrat state...now that would be correct: The DINO vote.

[AxelDC]

Right-wing nuts look at public pensions as some sort of give-away to state employees, including teachers, firefighters, police, librarians and hospital workers.

The fact is that those professionals are underpaid for their level of expertise. They work in those professions out of love, but that only goes so far.

To keep employees at a cheap cost, the state government dangles the promise of a pension and healthcare. This keeps teachers in their jobs for 20-30 years instead of quitting after only 5-10 years.

Take away the pensions and you will see a mass exodus of professionals out of the schools, libraries, hospitals, fire stations and police stations. The first ones to go will the most hireable and valuable.

In order to keep these, the state would have to dramatically raise salaries to compensate for this lost benefit. In short, cutting pensions would cost the state a lot more money than it would save, and even then would damage the public services the state provides.

[GeeBee]

Not all public employee pensions are a drain on the public purse. I work for the University of California. Our pension fund is huge, as it includes the employees at the national labs the UC system manages (Los Alamos, Lawrence Livermore etc) as well as the UC campuses. Due to good financial management, the fund is self-sustaining to the extent that neither the taxpayer nor the employees have had to put in any contributions since just after I joined the system 19 years ago. The recent stock market slump is about to change that, so we will have to cough up something soon.

[DavidK08]

How do you get good people to work in the public sector at the wages that are offered?

These pensions are a benifit. On average people who work in the public sector make less money. If you got rid of the pensions, you would also get rid of the people that you want working for our cities and towns.

[gwhizz]

This.
I am a state employee. People don't realize just how low our pay is--for a comperable job in the private sector, I'd make 3 figs easily. But I chose to work in public service, specifically education. I've workd at all levels. What KEEPS me here is my pension. I'm fully vested in it, and as an investment, it has outperformed anything I've tried to save on my own in various retirement savings plans, IRA's etc. I hardly make enough to live on now, but I'm making that sacrifice because I know there will be *something* for me when it's time to leave the workforce.

The people who think we're a drain on the system should try living on our state paychecks.

[brodon]

The UAW has done to the auto industry what the Steel Workers Union did to the greatest steel companies in the world. . . . . it ruined them.

From the 13 weeks paid vacations for steelworkers to getting paid not to work (the JOBS) program.

And now, we're to use taxpayer money to fund retirement accounts.

They've gotten exactly what they asked for.

But not to worry, the unions will get their money from congress and the Obama administration. After all, it's payback time for their votes.

[onlinesavant]

I hear your rhetoric, but as usual with you right wing hacks, you have no proof. The FACT of the matter is that the UAW has given a great deal back to the majors in the last rounds of negotiations. Actually, maybe, too much. The UAW now is controlling it's own health-care (At least through GM, don't know about the other two.) through a lump-sum settlement agreement with the company. Regardless of what you say, the FACTS indicate that the main problem of the big three has been poor-management. Lack of forward-looking vision. And the burden of high health-care cost, which they could have avoided if they had back the Clinton plan in 93'. Go read something.

[timberdoodle]

It is senseless to listen to right wing idiots since their idea is to bring everyone's wages down to 3rd world levels except of course their own wages. They have never seen the benefit of people earning a decent wage to take a comfortable place in what is termed middle class.

These ideology challenged people think there should only be two classes a rich and a poor.

[AxelDC]

Did the UAW tell Detroit to make bigassed ugly SUVs that no one wants.

Are UAW members flying to Washington on private jets to beg for money from Congress?

How typical to blame the workers instead of the poor strategy that auto execs making $25million/year have set out for their companies.

[oldleftcoastdude]

truer words were never spoken, Axel.

[Vere15]

Absolutely Mr. McEntee!

Mr Malanga seems guilty of fauxconimics or handicapped by sheer ignorance of the market.

Is this what we have to look forward from Rupert Murdoch's Aussification (ossification) of the Wall Street Journal. Maybe some pension fund could buy him out and re-Americanize this publication.

[bayside]

Can you hear the whining from 1 per cent that think they alone are entitled to screw 99 per cent of the world whatever it takes..

[DavidBlackburn]

Public and private employees should be on the same retirement and health care plans. This includes members of congress and the president!

[elizaconnors]

In Massachusetts, right-wingers are blaming the pension plans for public employees for practically everything these days. They don't seem to understand that retirement plans for anyone, including public servants, are deferred compensation plans. If the pensions are eliminated, current salaries would have to increase to compensate. For the most part, governments are better off paying these benefits in the future rather than now.

Furthermore, pensions have an incentive component that is essential. Vesting periods tend to be long which keeps turnover lower than it would be without the plans.

[anniegirl9]

The same argument has been waged over and over again about school employees. The teachers in one district in Michigan voted to forgo a raise in exchange for keeping their heath coverage in tact. Shortly after they voluntarily gave up the raise, public sentiment against the health coverage became so great that they ended up having their premiums raised anyway. They never did go back and give them the raise.

[oldleftcoastdude]

That very thing happened here in San Diego, which has driven the city to the brink of bankruptcy

[onlinesavant]

They understand, they just hope YOU don't.

[jz56]

I have no problem with public employee pension funds - as long as they are funded. The real time bomb are unfunded commitments made by government officials for future retirement benefits (which will come due after the elected officials have left office ...).

[Jp2]

Public pension are o.k. but no help for the autoworkers pension and healthcare.I think Polosi and Reid should be impeached.Who in the HELL do you think helps pay for these public employes pension and benifits,the U.S. AUTOWORKERS.If the taxbase for cities and local communites drys up who will pay for these benifits to public employes.For all you who bitch about union workers,WAKE UP YOU FOOLS!!!

[LeftRight]

You cannot impeach a representative or a senator. Each house of the Congress sets its own rules for punishment of a member, but it takes a 2/3 vote in their respective houses to expel.

Article I of the US Constitution states:

"Each House may determine the rules of its proceedings, punish its members for disorderly behavior, and, with the concurrence of two thirds, expel a member."

[vim876]

I know this is annoying and technical, but if they can set their own rules, couldn't they hold hearings on the way to an expulsion and call it "impeachment" if they were so inclined?

[Digeeedad]

I worked as a Youth Correctional Counselor, in a state juvenile prison, for nearly 30 years. I definitely feel that I earned every dollar of my retired benefits. My experience... withing my own family is that many of the most vocal against public pension programs have at least some degree of jealousy, at having nothing comparable themselves.

It's all about choices.... I always tell my dissenting relatives that they also could have chosen to do what I did.

[schatsie]

Public Pensions are used to alleviate corruption... to establish long term financial stability for the employees of the state... It is also evident that state employees incomes are discounted from regular wages and that the pensions are the reason for that discount...

No problem with state pensions, I would rather have them less liable to bribery...Think about bribe taking at the Royalty Department of the Federal Government. That probably resulted in substantial favorable treatment of the Oil Companies, in other words they did not pay the royalties that they should have (which has been going on with regard to the indigenous indians in america since the oil companies started).

[Biffmeister]

Mr. McEntee is correct. And if I may cut to the chase even more directly, it is an economy ruined by corporate avarice that is the problem. This country worked well (read that economically) when we had many union jobs (providing pensions among other benefits) and a large middle class earning a living wage. The shoveling of the money to the top one percent of the population has placed the middle class in a deficit economy. How ironic that those who complain about pensions are the same people who have contributed to the demise of same. Ironic, but hardly surprising.
Another benefit of pensions is that it keeps retirees spending, or in a position to do so throughout their lives. This benefits the cash flow required for a strong economy. There is also the issue (perhaps the most important issue) of human dignity that says people who have worked hard all their lives shouldn't have to struggle in their later years when they are least able to do so.
Pensions are regenerating in a strong economy that is middle class oriented. It is when corporate greed steps in cutting wages to increase profits for the top few, and sending jobs overseas that we encounter problems.

[anniegirl9]

Here, here!

[jhNY]

The problem is media ownership by the plutocracy guarantees these evil gadflies a bully pulpit from which to spew their vicousness about retirees on pension, the cost of union employees, etc. Obama may be our new president, but the media remains in the same old hands as before.

[JScott]

And this is a myth that they are generous, the plan that most folks have with my employer (local gov't) is a pension that's it it does NOT include a healthcare plan, and one can't retire on it early.