THE BLOG
02/07/2011 10:42 am ET | Updated May 25, 2011

States Should Follow Federal Example on Pensions and Health Care Costs

With skyrocketing pension costs the primary economic threat to many states, it is obvious that there needs to be reform. State workers can still retire with full pensions that are often padded near the end of their careers. The costs are exceeding the contributions and the income made from the pension funds as many more workers retire. Due to these huge costs States are being forced to make huge cuts to many important programs from education, to health care to aid for the needy and in some cases are threatened with bankruptcy. Many State workers also have health care benefits that require no contribution from them. Both of these programs are unrealistic and small modifications could save them and the finances of many States and Cities.

A primary example I give you is the benefits for Federal Employees. Now the noise you hear from Washington is what a drain Federal Employees are on the budget and how highly paid we are. People also assume that we also have a fully funded pension and health care costs. However, upon closer inspection, federal employees are a bargain for the taxpayer. The days of the fully funded pension have been gone since 1986. Any employee who began with the Federal Government since that time as an Individual Retirement Account similar to that in the private sector as their primary source of retirement funding. These are contributions the employee makes to his/her account. Like many private sector employees we do get a partial match from our employer, but this is only a small fraction of what would have been paid under the old pension system. Employees get their choice of mix of retirement funds with different risk levels, but it is a private investment. This along with our Social Security constitutes our retirement savings.

Federal Employees also are a bargain when it comes to health care costs. While we do have a good variety of health care options available to us, we must contribute towards the premium on each. This is something that those who work for States and Cities also should to share the burden.

Now if State and City employees are going to be asked to contribute to their retirement and health care, the trade-off might be a slight increase in pay to help them do it. One can also say that since contracts will not allow these changes for current employees you can only start with new ones, which means savings are only in the future. But hey, you have to start somewhere. So I urge States and Cities to look at the Federal system and for unions to realize that while it will be different it is still generous. Amongst my fellow employees, I believe most of us feel we have fair retirement and health care benefits. And to protect the solvency of our State and Local governments, it is one that their employees could live with.

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