Getting Serious About Reducing Pension Obligations

Public pensions are now on the table for reductions across the nation as states grapple with budget deficits and unfunded pension obligations.  For years, public pensions have been an accepted part of public sector employee benefit packages.  The argument went something like this: by accepting a lower salary during working years, workers would receive a pension for life during retirement.  The pension would be funded with employer/employee contributions and investment returns.  It worked fine so long as the economy was strong and tax revenue kept rolling in.    Employees could also retire relatively young, take their pension, retirement accounts, perhaps even a retirement bonus, and then work in the private sector.

Like the issues we face with Social Security, the numbers work in your favor until either the number of workers change or the investment values drop.  Over the years, both the Federal and most state governments have been adding employees and with them additional healthcare, life insurance and retirement benefits.  Investment values across the board have plummeted reducing the pool of money to pay future and current retirees.  In California, about 80 cents of every government dollar goes to employee pay and benefits.  That is an absurdly high amount for compensation for any government employee.  At that rate, it would probably be less expensive to just forget about the government and cut people a check.  Contrary to popular belief, a recent article in the Washington Post disputes the myth that public employees are underpaid.  Public sector workers earn an average of $39.75 an hour in wages and benefits while private-sector employees average only $27.64, a huge 45% difference.  The difference reflects that fact that there are more professional  jobs in government.  Public employees generally enjoy better retirement benefits than non-public sector workers.

Employment costs are typically the largest expense an employer has when retaining top talent.  Governments have taken the same approach but have put future taxpayers on the hook for a growing public sector work force that has become an albatross around the neck of taxpayers.  All workers should take care of their own retirement.  That means saving, investing and learning a little on how to do so.  This should be about personal responsibility and not be a public expense.