Remember Mr. Simons, the old social studies teacher at Banneker Junior High? He is 57 now and retired on a pension after 35 years of work. Every month the city sends $1,533 to Mr. Simons, a gaunt man with a stiff walk and trails of gray in his hair. That is $18,396 per yeear.
The money is pretty good. But Bill Simons, still active as president of the Washington Teachers' Union, admits he is worried that on the first of the month the mailman may pass him by -- along with the city's other 6,000 retired teachers, judges, police and firefighters -- because the city's pension fund will have run dry. In that year -- some year in the next 25 -- some mayor may have to choose between paying pensioners or paying the working teachers, judges, police and firefighters. In such a future, the old people will be the losers.
How can retirees be sure that pension checks will keep coming? First, the city could fund fully its pension system now and depend on smart investments to keep the fund apace with inflation. Or it could cut retirement benefits now to ensure that the pension fund's obligation never gets beyond the city's ability tp pay for pensions from tax revenues.
But while there are two options, there is only one reality. If Simons and other city workers want pension checks, they should joinin supporting reductions in pension benefits for future workers, because it is not likely that Congress will approve another pension bill providing billions of dollars for the District's system. And even if Congress were to fund the pension system fully, what would be the point? As long as pension benefits are indexed to the Consumer Price Index, there is the chance that the pension fund's obligations will rise faster than the return from investments. As it stands, by the year 2005, city officials estimate, pension payments will rise from the current 8 percent of city revenues to 50 percent.
If the adjustments in pension benefits were limited to once a year and to less than the full CPI increase, the pension fund's chances of remaining solvent would increase dramatically. The best idea, however, may be for the city to index pensions to increases in total city revenues in the previous year. That would guarantee that pension obligations never outdistance the city's ability to pay.
Ignoring the need to cut pension benefits will inevitably mean trouble. The city's pension board says Mayor Barry has put $18 million too little in the fund for this year. He admits that is true, but says the extra money can come from the money the pension fund has in reserve to pay future debts. No way, says the pension board, which wants the mayor to put up his share now.
The chance of pensioners not getting checks this summer -- at the end of this fiscal year -- are negligible. If the retirement board and the mayor fail to decide who should put the money in the pension fund, the courts would probably act to have the board and the city pay pensioners and work out their problems later.
But the city's retirees should worry about next year. Frank Higgins of the D.C. Retirement Board testified before the city council earlier this month that Mayor Barry had under-funded the city's pensions for next year by $14 million. Higgins said Barry has put all hope for paying the fund on the whim that the federal government would somehow add money for pension payments to the city budget.
"That is a bunch of ifs, buts and whens," says Higgins. "The city contribution to the pension fund is being intentionally shortchanged to help with other financial problems."
Most big-city pension systems are in trouble. Most are undrefunded. The District pension plan -- especially the indexing of benefits to the CPI -- is modeled on the federal pension plan, which is short of money, too. But while the federal government plan is attached to a bottomless bank account at the U.S. Treasury, the District pension plan is tied to a treasury of limited resources. The District cannot afford all the benefits that are offered to federal workers. In fact, the District, is lucky that about 29,000 of its 35,000 workers have never been taken out of a federal civil service plan that requires only a 7 percent contribution from the employees and a matching contribution to the U.S. plan. If the federal government were ever to tell the city to take over this responsibility as well, the current pension problems would seem minor.
The mayor says the city's pension plan has enough money for the immediate future, and he plans to go to Congress to get ewnough money for the years ahead. That plea will be based on the notion that it was Congress, after all, that created the pension problem by handing District officials, along with home rule, a penson system with a masive deficit. On the basis of that arrangement, Congress agreed in 1979 to pay part of the pension liability by contributing $52 million a year to the fund for 25 years. City officials say that contribution still leaves them with an eventual deficit of almost $3 billion.
But instead of concentrating on asking Congress for additional money, the mayor should be telling city workers that the city is no longer part of the federal government and cannot afford what the federal government may have once offered them.
Under current benefits, a policeman hired before February 1980 can retire after 20 years of service (as early as age 39) with 50 percent of his highest average salary for 12 months. He also would receive an increase in his pension whenever active policemen win a salary increase and every March 1 and Sept. 1 for the amount of increase in the CPI.
That generous arrangement has been pared. A policeman hired after February 1980 must have 25 years of service and reach age 50 in order to retire. But there is room for even more reduction.
Controlling benefits to teachers, judges, police and firefighters will not ease the concerns of retirees like William Simons. A retiree who has worked 35 years does not consider $18,000 a year exorbitant or cost-of-living increases as unnecessary. But it is a choice between cold comfort -- fewer increases in retirement benefits -- or a defaulted pension plan. The best pensioners can hope for is that the mailman will stop with some sort of check instead of walking on by.