The pension problem
As if we didn’t have enough to think about, The Wall Street Journal pointed out yet another looming national crisis: pension funding.
Michael Corkery writes in the Sep. 21 edition of the paper about the nearly $1 trillion funding gap for state pension plans. He reports:
Since 2009, 45 states have rolled back pension benefits for teachers, police, firefighters and other public workers, including cuts by Michigan and California this month. Next week, Republican Ohio Gov. John Kasich is expected to sign legislation requiring, for example, that certain teachers work longer and pay more toward their pensions.
The state measures show how economic forces are reshaping traditional rivalries, convincing lawmakers and labor leaders that past public pension plans are unsustainable. In Ohio and elsewhere, politically potent unions have locked arms with state officials over the pension cuts.
But the new laws have trimmed just $100 billion out of the $900 billion gap between what the states and their workers put into their retirement plans and what the states owe in retirement benefits, according to estimates prepared for The Wall Street Journal by researchers at Boston College.
Unfunded liabilities in many states grew to troubling levels after investment losses in the 2008 financial crisis depleted pension assets. While most states have approved some form of pension cuts, many have opted to apply those changes only to workers who have yet to be hired.
That means, as Corkery points out, that savings won’t be recognized for years and that yet again, the next generation of workers is going to have a more difficult time retiring. With questions about Social Security funding floating around, it’s enough to make anyone under 50 worry about the future.
It also raises questions about how to attract people to lower-paid, public service jobs like teaching, firefighting or policing. One of the biggest perks of those jobs is the security that after serving the public for 30 years, those same taxpayers will take care of you.
Seems like a small price to pay for an educated public, safe streets and someone to quell the flames. But pushing the problems off 25 years into the future not only hurts those relying on the pensions for retirement, but also the taxpayers who are going to have to pay down that debt.
And it’s no secret that today’s college graduates are having a hard time making it as it is. With all the stories written about the rising cost of college debt, including here, the financial future gets just a bit bleaker.
If today’s teachers, firefighters and other are struggling to pay back student loans, struggling with underwater mortgages and other debt issues, the loss of wealth makes saving for retirement even harder. Now their pension benefits are being cut, meaning we could have another crisis on our hands in about 30 years – aging workers with little to no savings.
With the rising cost of health care and other issues that lawmakers are pushing off until later, the looming crisis takes on all new proportions. As Corkery writes:
In Ohio, lawmakers this month passed a series of changes that touch current and retired workers, along with new hires.
Many of the state’s public-employee unions supported the pension cuts less than a year after they fought a bruising battle with Republican lawmakers to retain their current rights to collective bargaining. But on the pension issue, many state labor leaders agreed that their members’ retirement benefits needed to be trimmed.
“It is a tough pill to swallow,” said Kevin Griffin, who is president of the local teachers union and an English teacher in Dublin, Ohio.
An educator since 1994, Mr. Griffin will now have to retire later and pay more of his salary to receive a smaller pension.
It’s moves like these that will deplete the ranks of our public servants, making it harder to convince that 25 year-old that becoming a police officer is a stable career that will take care of you for life.