The New Fat Cats
The indefensible pensions of public-sector employees.
May 3, 2010, Vol. 15, No. 31 • By FRED BARNES
• In California, a state worker in Sacramento switched to a higher-paying state job in San Francisco the year before retirement. Pensions are based only on the final year, so the practice of “spiking” pay to increase one’s pension, while supposedly illegal, is hardly unknown, nor are dubious claims of disability. Police, highway patrolmen, prison guards, and firefighters are eligible to retire at 50 with pensions of 3 percent of the last year’s salary times the years of work. Trust me, that formula leads to very generous pensions.
The lofty pay scales and benefits for government workers—as compared with those in the private sector—suggest the idea of “public service” isn’t what it used to be. Once, taking a government job meant a sacrifice in pay and benefits. No more. Most bureaucrats have secure, recession-proof jobs with automatic salary increases, paid leave, and lavish benefits, notably in retirement. And they get to retire earlier than private sector workers.
Christie has asked, Is this fair? The answer is no. But if you happen to think it is fair, I’d advise you to click on the website pensiontsunami.com. It’s operated by one person in California who daily posts fresh examples of pension abuse across the country.
But lack of fairness isn’t the biggest problem with exorbitant pensions. The pension explosion has created a fiscal crisis in many states, cities, and towns across the country, California being the worst off. Not only are pensions for government workers a perilously unfunded liability for many states, their soaring cost is causing sharp cuts in other programs.
“Paying for those pension promises is already crowding out funding for higher education, for parks, and for other areas like health care . . . and that crowding out is only going to get worse,” California governor Arnold Schwarzenegger said last week in touting a pension reform plan. “In California, we had the Internet bubble, we had the housing bubble, and I see in the very near future a public pension bubble.”
He’s not exaggerating. State pension funds have gone up 2,000 percent in the past decade. The unfunded pension debt in California is $500 billion, according to a new study by Stanford University’s public policy program. It’s seven times greater than the state’s general obligation bonds, says Schwarzenegger adviser David Crane.
A staggering pension shortfall “is not just [in] California,” Crane told me. “It’s every state.” Nationwide, unfunded retirement benefits are $3.2 trillion, according to Chris Edwards of the Cato Institute. On top of that, he estimates the unfunded debt for the health coverage of state and local government retirees is $1.4 trillion.
At least 17 states have either enacted or looked into cost-cutting pension reforms in the past two years, says Ed Mendel, a pension expert in California. In Illinois and New York, both with large unfunded liabilities, the rules governing pensions have been tweaked, though solely for new government employees.
Only Alaska, Michigan, and the District of Columbia have adopted the obvious long-term solution to the pension mess: putting new workers in 401(k) defined-contribution plans rather than defined-benefit plans. The switch would save billions. Even Virginia’s new, conservative governor, Bob McDonnell, declined to do this for new state workers, instead requiring them to pony up 5 percent for a traditional pension. (Current Virginia workers pay nothing.) But hope lies in the state with the worst pension situation. Meg Whitman, the likely Republican nominee for governor of California, says she would make the switch for new state hires.
Fred Barnes is executive editor of The Weekly Standard.
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