Amid backlash and budget deficits, government workers' pensions are targets

Sept. 15 (Bloomberg) -- U.S. state pensions such as Illinois, Kansas and New Jersey are in a "death spiral," with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains. Bloomberg's Monica Bertran reports. (Source: Bloomberg)
By Michael A. Fletcher
Washington Post Staff Writer
Wednesday, October 6, 2010; 2:45 AM

PHILADELPHIA - Faced with deep budget deficits and overextended pension plans, state and local leaders are increasingly looking to trim the lucrative retirement benefits that have long been associated with government employment.

Public employees are facing a backlash that has intensified with the nation's economic woes, union leaders say, because of their good job security, generous health-care and pension benefits, and right to retire long before most private-sector workers.

In California, where an estimated 80 cents out of every government dollar goes to employee pay and benefits, Gov. Arnold Schwarzenegger (R) has proposed a two-tier system of pensions that offers new state workers reduced benefits with tighter retirement formulas. He also wants state workers to kick in higher pension contributions to help deal with California's staggering deficit.

New Jersey Gov. Chris Christie (R) calls reform of public employee pensions essential to fixing the state's enormous fiscal problems. Michigan Gov. Jennifer M. Gran-holm (D) recently signed a change to her state's teacher pensions that increases employee contributions. Illinois has pushed back the retirement age for new employees. Detailing his agenda for New York, Democratic gubernatorial nominee Andrew M. Cuomo has said, "We simply can't afford to pay benefits and pensions that are out of line with economic reality."

Locally, a special commission is scheduled to meet Thursday in Annapolis to examine options for Maryland's $34 billion pension fund, which is just 65 percent funded and has been called a "credit challenge" by Moody's. The state has not yet gone after public employees; neither has Virginia, where the state pension fund is projected to be underfunded in the near future.

Here in Philadelphia, Mayor Michael Nutter has proposed ending a popular pension enhancement called the Deferred Retirement Option Plan, which has allowed many city workers to walk away from their jobs with six-figure payments in addition to their pensions.

"Government workers are the new privileged class," said James E. MacDougald, a retired business executive who formed a research and activist group, Free Enterprise Nation, to call attention to the financial burden posed by government workers.

Benefits to envy

The move to curtail retirement benefits for public-sector workers is fueled both by stark budget realities and by the resentment felt by private-sector workers who have seen their pay diminish in recent years.

Public employment was once viewed as less rewarding than work in the private sector, but that has changed. State and local government employees earn an average of $39.74 an hour in wages and benefits, about 45 percent more than private-sector workers, whose total compensation averages $27.64 an hour, according to the Labor Department.

The difference reflects the higher proportion of professional jobs in the public sector, the Labor Department says. Government workers tend to be better educated than private-sector workers, unions add. And public employees typically receive better retirement benefits than their private-sector counterparts.

The vast majority of private workers rely on defined-contribution retirement plans such as 401(k)s, while 84 percent of public-sector workers have access to guaranteed pensions, which are more expensive to employers.

Mayors, governors and other political leaders have long avoided cutting the benefits of government workers, whom they often rely on for political support. But now the benefits are often seen as overly generous in a time of scarce resources.

CONTINUED     1        >

© 2010 The Washington Post Company