By KATHY SOUZA
A funny thing, even as foes continue to slam the cost of public pensions, the pensions themselves and the plans that provide them continue to become more stable and affordable. A just released report from the National Conference on Public Employee Retirement Systems finds that public pension funds are experiencing a robust recovery from the historic market downturn of 2008-2009 – reporting strong investment returns, growing assets and funding levels on track to meet obligations.
The funds are also making substantial changes to ensure long-term sustainability, and workers and state and local government have and are continuing to make changes to ensure pensions stay fair and affordable. For instance, state workers are contributing a far larger share of pension costs, now 8 to 11 percent of pay, up from 5 to 8 percent of pay of previous contract. Formulas for calculating pensions have tightened and stringent new rules have virtually eliminated abuses like spiking. In all, such changes – made through collective bargaining – have reduced state pension costs by $570 million just in the past two years.
The changes at the local level are equally dramatic. According to data kept by CalPERS, nearly 180 California cities, counties and local districts firefighters, police, teachers and other public employees have made changes that increased employee pension contributions, tightened formulas and lowered public costs.
So, with public pension funds healthier and costs moderating, the pension foes’ argument seems to be switching from comparative costs to comparative misery. They say it is unfair for public workers to continue to have livable pensions when workers in the private sector have seen their pension savings and opportunities shrink alarmingly.
The shrinking part is true, private sector retirement schemes are in a death spiral. Things have gotten so bad for them that, according to a Transamerica Center for Retirement Studies report, “most [private sector] workers, regardless of age or household income, said they could work until age 65 and still not have enough money saved to meet their retirement needs.” In fact, only one private sector worker in five has any kind of secure pension these days. Do public pension foes really want to make this a race to the bottom with no winners?
The truth is that public pensions seem large only by comparison to the shell of what is left in the private sector. You’ve seen the numbers, CalPERS pensions average $25,000 a year; half receive pensions of $18,000 or less. Teacher pensions are not much better and actually far worse if you factor in that they don’t receive social security. So, to make public pensions seem outlandish, the pension foes crop the picture so that all you see are the 2% of public retirees with pensions over $100,000. It’s the number they brandish most often.
But even those $100,000 public pensions pale in comparison to the obscene size of some private sector retirement savings for highly paid executives. For instance, 200 of the highest paid CEOs in the US have pension savings averaging $9.5 million each. Those CEOs also have stock worth an average of half a billion dollars each.
Now public pension foes want to trade fair public pensions in for dubious, Enron-style retirement packages that can be frozen or effectively dismantled at the whim of public administrators, with teachers, police, fire fighters, and other public workers having no say in the destruction of their hard-earned benefits.
They should be careful what they wish for. A number of studies, including one by the Foundation for Fiscal Responsibility, which is the very group pushing for radical cuts to public pensions, have shown that public sector wages, particularly for more skilled workers, are as small or smaller than those for comparable private sector jobs. For many public workers, decent retirement benefits were the equalizer, balancing otherwise middling salaries with the promise of a livable retirement at the end of their working years. If the pension foes’ recommendations are adopted that equalizer will vanish.
The real answer is to make retirement secure for all workers, public sector or private.