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Government Pensions Face the Music

A Commentary By Froma Harrop

Friday, June 25, 2010

Very few of my friends in their 40s talk about their impending retirements, but every last one of them works for government, be it local, state or federal. That's because they can collect plush pensions at tender ages that other workers can only dream about. Health coverage is often part of the bargain.

When it comes to retirement benefits in the United States, workers in the private sector live in America. Workers in government live in Europe.

But even in Europe, these lavish retirement deals are being reconsidered, as their costs threaten the solvency of governments. Famous for its young pensioners, France is raising its general retirement age from 60 to 62. But even before that move, France had nothing on New York state in its generosity toward public employees.

After he retired as a police officer at the age of 50, Rochester Mayor Robert Duffy started receiving a lifetime pension of $70,000 a year.  That's on top of the $128,000 he now makes as mayor. Should he live to 85, Duffy will have received nearly $2.5 million in pension payouts from his police job alone.

This situation is rather awkward for New York Attorney General Andrew Cuomo, who is running for governor and has Duffy as his running mate. A Democrat, Cuomo has made such "double-dipping" -- collecting government salaries and government pensions at the same time -- one of his signature issues.

Cuomo's spokesman says that Duffy "has handled his pension benefit honorably and consistent with the law." 

No doubt true, but Duffy doesn't need this kind of defense. While the right likes to blame unions and government workers for these sweet pension deals, it's not their fault. They got from the political system what they could. The fault lies with the politicians who gave in to them.

Rather than hike taxes to cover pay raises, elected officials instead promised fabulous retirements. This moves the costs into the future, when the elected officials will long be gone. 

The left, meanwhile, does itself no good when it slams efforts to reform outlandish pensions. "The New Class War on Public Workers" is how The Nation magazine melodramatically puts the matter.

It's no longer the case that government workers make significantly

lower salaries than their colleagues in the private sector. And crying about broken promises moves few hearts, given the savage cuts in pay, benefits and job security recently pushed on corporate employees. (How about the workers at GM?)

The threat level posed by public-pension obligations depends on several factors: the generosity of benefits, employee contributions, how well the pension funds were filled and the performance of the funds' investments.

Illinois is in the worst shape, according to Joshua Rauh, a public-pension-fund expert at Northwestern University. Its account is expected to run dry in 2018, if not sooner. Rauh says pension-fund bailouts in New Jersey, Indiana and Connecticut may not be far behind.

Only four states had fully funded pensions in 2008, the Pew Center on the States reported in a recent study, "The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform." They were Washington, Wisconsin, New York and Florida. (Interestingly, some states offering very good pensions also have well-funded pension systems.)

The natural instinct for public-employee unions is to struggle over every inch of benefits. But these are times for reflection. Four bargaining units in close-to-bankrupt California wisely agreed on some pension retrenchments.

With taxpayers smoking mad and state and local budgets facing cataclysm, it's better that these things be done in a non-confrontational way. Even pro-labor, pro-union voters resent being forced to keep schoolteachers in comfort for perhaps four decades of retirement.

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V iews expressed in this column are those of the author, not those of Rasmussen Reports.  

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