Tuesday, March 8, 2011

Relax, Public Pensions Are Fine!

Why all the sturm und drang around public sector pensions? Like most crises that get conservatives’ panties in a bunch, the crisis around public sector employee pensions is not a crisis at all. It is yet another attempt to squeeze workers so that the rich don’t have to pay any more taxes.
Teacher Robbing State of Pension Benefits (image by smithco)

Average state public employee pensions can continue paying benefits at their current levels for another 13 years, even with the assets currently on hand and even with no increase in contributions. In California, the pensions are good for 15 years. The contributions to these plans amount to just 2.9% of state spending (according to the National Association of state Retirement Administrators) or 3.8% (according to the Center for Retirement Research at Boston College). This is more or less in line with the private sector, where employer contributions to employee pensions come to approximately 3.5% of employee compensation. The difference, of course, is that the state contributions come from taxes, whereas in the private sector, these costs are passed on to consumers in the form of higher prices. Also, many of the public sector pensions are guaranteed, while private sector pensions sometimes get raided by their bosses and then go belly up.

There are, of course, problems with the public sector pensions, but being broke is not one of them. It is true that they are underfunded, but not because workers are holding out on them. They are underfunded because the value of their holdings has declined along with the rest of the stock market. This would only be a problem if every single worker retired at once, which is not likely to happen. Furthermore, this problem will correct itself over time, assuming the economy recovers. It is also a problem that could be rectified with a bailout or by fining the crooked bankers and speculators who caused the meltdown. However, these are absurdities that are silly to even mention. The system is run by and for the rich. They are the ones who get bailouts, subsidies and tax breaks, while we are the ones who pay for them.

Another lie that has been perpetuated about public sector pensions is that while the private sector has lost jobs during the recession, the public sector has somehow miraculously grown, along with its pensions. In reality, state and local governments have lost 703,000 jobs since December 2007, when the recession started, while pension benefits have remained flat.

There is also a misperception that public workers don't contribute to their own retirement funds the way private sector workers do. There are four states in which this is the case: Florida, Utah, Oregon and Connecticut. Missouri and Michigan used to have non-contribution policies, while Arkansas and Tennessee have non-contribution policies for a small segment of their public employees. The vast majority of states do require employee contributions that range from 5-8% of their pay. Private sector employees do pay a little more, but only slightly (8.2% on average for plans administered by Fidelity, the largest administrator of private-sector plans). However, what is really notable is that most private-sector employers match up to 50% of employee contributions.

So relax, billionaires and millionaires and ranting pundits. Teachers are not ripping you off.

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