Paul Weber: Public employee pension ‘reforms’ recipe for disaster
LA Daily News
Aug 29, 2010
RECENTLY many opportunistic politicians around the state have been on rant against public employee pensions and calling for draconian “reform.” A more accurate description of would be: “It’s about time public employees joined the race to the bottom.”
While many of the people, including the Daily News, calling for reform are acknowledging that private-sector workers have lost tremendous value on their retirement plans, incredibly they present that as a model for public-sector employees! Very rarely do those calling for change take the time to honestly discuss how a 401(k)-style plan would provide for a secure and dignified retirement for employees. That is not a surprise; the 401(k) approach to retirement savings is, and will continue to be, an absolute disaster for this country – leaving the workers who retire under its auspices with the choice of being penniless in retirement or working until they die.
Some politicians have been lining up to support the elimination of defined pension plans for new employees and force them into 401(k) plans. Strikingly, the reason is never given that the plan is better for the participant. Instead, the argument is that pension plans are unaffordable, and eliminating them will save the employer money.
The 401(k) program piecemealed into existence over the past 25 years has failed to provide retirement security for American workers. The past years have shown the fragility of the 401(k) scheme for funding retirements.
While public pension plans have also taken severe hits, they have a long-term investment outlook, and their obligations aren’t due in full in the next five, 10 or even 20 years. By contrast, people who are within five to 10 years of retirement will have great difficulty recovering the value of their accounts without greatly stretching their working lifetimes. Many who have recently retired under a 401(k) account will be forced back to work. Is this really the example that we want the public sector to follow?
The real crisis in this country is not largely self-supporting pensions, but reliance on the 401(k) plans for retirement that most private sector companies have set up for their employees. Tried-and-true pension plans for LAPD officers have been around since June 7, 1899. The Los Angeles Fire and Police Pension system, even after the economic downturn, is currently 96.2 percent funded. Members contribute up to 9 percent of their pay biweekly, which adds $120,287,911 for the 2010-2011 fiscal years. Even with this sizable amount, the majority of the money needed to fund the pension systems comes from their investments, not contributions by the city or police officers.
Politicians opposed to pension plans are fond of citing figures that show a tremendous rise in contribution rates to plans such as CalPERS. The most commonly cited and deliberately misleading trick is to claim that the state’s contribution has risen 2,000 percent since 2001. This claim uses as its starting point the year that required the lowest amount of contributions to CalPERS in decades – the end of a four-year period where the employers took a contribution “holiday,” adding little or nothing to the pension system. (In 1996, the state contribution was $1.2 billion; by 2001, it dropped to $156 million.) During those years, the pension reformers of today remained silent as the government shirked its pension obligation, helping to create the situation we see today.
The call for future employees to rely on Social Security in lieu of pensions in retirement income is strange, considering that the Social Security system faces a $5.7 trillion shortfall over the next decades. Given the logic of the latest calls for change, can we expect future pundits to proclaim the fix to Social Security funding is to not let any future workers enroll in the system?
It is vitally important to look at our city’s long-term viability, which is dependent upon a stable, well-trained and fairly compensated public work force. In good economic times, public employment offers lower salaries, no bonuses, no stock options and no similar perks common in the private sector. The trade-off for being a police officer, firefighter or teacher has always been the security of a retirement after a lifetime of public service.
If that trade-off is taken away, who is going to devote their working career to public service and guarantee themselves inadequate resources for retirement? Anyone with common sense should wonder why the solution to issues facing public pensions would be to switch employees to a retirement system that is a demonstrated failure.
After devoting their careers to protecting the public, with all the accompanying physical and emotional turmoil, our future police officers and firefighters shouldn’t retire penniless. In fact, no one should.
Responsible leaders in our state shouldn’t be advocating for a system for public employees – or anyone – that has already failed millions of hardworking Americans.