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American Federation of State, County and Municipal Employees,
AFL-CIO1625 L Street, N.W., Washington, D.C. 20036-5687
www.afscme.orgTEL (202) 429-1145 FAX (202) 429-1120
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The Truth About Public Service Workers Pensions
Te continued horrible economy, claims by some that public
service workers rich pensions are drainingbudget coers and other
challenges have led many politicians to try radically changing
public employee pensionsystems. Lawmakers proposals would gut the
retirement security o tens o thousands o workers, most o whomwill
put that money right back into the economy by spending in our state
afer they retire. Te gap betweenwhat Americans have saved and what
they will need in retirement, rather than the modest cost o public
serviceworkers pensions, is the real crisis. Its time the nation
gets serious about ensuring Americas retirement security.
Public employee pensions are a modest, but irreplaceable source
o security or public employees to
which they generally contribute substantially.
Employeecontributionsandinvestmentreturnsfundtheoverwhelmingmajorityofthecostofpensions.axpayers
shouldered only 14.3 percent o all pension unding in the 11-year
period ending in 2007.
TeaverageAFSCMEmemberearnslessthan$45,000peryearandreceivesapensionofapproximately$19,000peryearaeracareerofpublicservice.
PublicserviceworkersoenarenotcoveredbySocialSecurity,sotheiremployer(stateorlocalgovernment)doesnotpayintoSocialSecurityasotheremployersdo.SincetheworkerdoesnotqualifyforSocialSecuritybenets,his/herpensionistheonlysourceofretirementsecurity.
Whilepoliticianswhorunstateandlocalgovernmentshaveoenfailedtofaithfullycontributetotheir
employees plans, public workers have contributed year in and
year out.
Pension benefts are not the cause o ununded pension liabilities
which are making the headlines.
Tedeepnancialdownturnof2008and2009,spurredbyrecklessnessonWallStreet,causedsignicantproblems
in many pension unds. Until the recent market crash, public
pensions were well unded
andnotaproblemtheyhadonaverage86percentoftheassetstheyneededtopayforaccruedbenets(anythingover80percentisconsideredhealthy).
Pensionfundsarenotatimminentriskofdefault,andtheyhaveyearstorecoverinvestmentloses.Tehistory
o public pension und management demonstrates that pensions have not
been a long-termburden to governments.
Wheretheproblemswithpensionfundsaresubstantial,thecauseisthefailureofemployerstoconsistently
und pension plans and recent investment losses. In the past, too
many politicians ignoredpension contributions in avor o wasteul
programs or special-interest tax breaks.
Inanycase,unfundedliabilitiesdonotdisappearifpensionbenetsarecutorthepensionfundisclosed.
Te pension liability debt remains.
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State and local government pensions are, or the most part,
well-managed and are not the
source o budget problems or most states and local
governments.
In2008,stateandlocalgovernmentpensionexpensesamountedtojust3.8percentofall(non-capital)
spending.
Terehasbeenconsiderabledistortionofthesizeoftheunfundedliabilitiesofpublicpensionunds.
Te aggregate number is not very relevant because all pension unding
is local or state-based, not national. Nevertheless, the aggregate
number, which most impartial observers set at
$500billionto$1trillion,whileseeminglarge,isnotparticularlyonerouswhenthefollowingacts
are considered:
Teunfundedpensionliabilitiesmaybepaidduringaperiodof30yearsundergenerallyaccepted
accounting.
Duringthis30-yearperiod,stateandlocalgovernmentrevenueswillbeapproximately$40to$50trillion,sotheunfundedliabilitiesareapproximately2percentofgovernmentalrevenuesduring
the payback period.
Becauseoftherecession,asubstantialmajorityofstateandlocalgovernmentshavelostbetween
10 percent and 20 percent o their revenues during the past two to
three years. Asrevenues recover, governments will be able to set
aside appropriate money to cover theirpension obligations.
To the extent loopholes in plan beneft ormulas allow or unjust
enrichment such as
spiking o fnal salary to gain a higher annuity, those loopholes
should be closed.
AFSCMEhasworkedtoendspiking,double-dippingandotherunjustgainsfromthepensionsystem
wherever the problems have emerged.
Whilestoriesofabusemakeheadlines,theyareextremelyrare,andclosingloopholeswillnotresolve
the pension unding challenges.
Defned beneft pension plans make sense in the public sector
where jobs in public saety,
education, social services and public management are unique to
that sector.
Pensionplansareactuallylessexpensiveforthetaxpayer,forlong-termemployees,than401(k)-styleplans.Pensionplanscandeliverthesameretirementbenetasa401(k)-styleplanfor46percentlesscostahugesavingsfortaxpayers.
Tereasoncostsareincreasingforpublicpensionplansisbecauseemployersarenowpayingor
past service that the employer did not properly und.
Pensionsareakeytoolforrecruitingandretainingqualitypublic
service workers.
The economic crisis has wiped out the retirement security o
millions o Americans in all
walks o lie.
Pensionfunds,unlike401(k)plans,mayberebuiltoveraperiodofdecadesbecausetheycovera
wide range o employees in terms o age and years o service.
Dependingontheageofaworkerina401(k)plan,theymayhaveonlyafewyearsinwhichtoaddresstheirretirementsavingsdecit.
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Pensions are engines o economic growth and help maintain
economic stability and curtail
poverty.
Anationaleconomicimpactstudyndsthatthebenetsprovidedbystateandlocalgovernmentpensionplanshaveasignicanteconomicimpact:2.5millionAmericanjobsand$358billionineconomic
activity each year.
Our nation aces enormous fscal challenges. But these challenges
are manageable i
our political leaders and the public understand both the source
o the problem and theimplications o proposed solutions. Its time to
start having a serious conversation about
retirement security or all Americans.
