Public Workers Join the New Reality

Too bad the showdown with public employee unions has come to this, however long in the making. One can be pro-union and still feel a growing resentment at these workers' ability to set their own dream retirement benefits as the private sector's were being amputated. Not that they are to blame. They got what they could -- it's the American way -- though they overplayed their hand by resisting honest efforts to reform government, schools above all.  

The public workers respond that rather than race to the bottom, others should rise to their level. But the difference between them and others is that they got to fire their employers at the ballot box. Their payoff came in the form of future goodies that wouldn't hit the taxpayers until the politicians were long gone. Hence, retirements at age 50 and gold-plated health coverage for life.  

"Do you know how much of our retirement plan we are funding ourselves?" an aggrieved teachers union official asked. To which I replied, "No, I don't know, but I happen to be funding 100 percent of mine."  

Public employees are fighting to keep their old-fashioned defined-benefit plans, which have all but disappeared in the private sector. Such plans promise to pay a set amount to each qualified retiree. If the investments can't keep up with the promises, the employer must make up the difference -- in the case of government workers, the taxpayer.  

Private-sector workers are now in defined-contribution plans, such as 401(k)s. These are self-funded through pre-tax deductions from the employees' paychecks. The workers usually decide how much money goes in and choose an investment strategy. If they don't contribute enough, or their investments go south, then tough luck.  

The employer may help by putting in some matching contributions, though many have stopped doing that. Federal workers, by the way, have 401(k)-like options, for which the government still offers a generous match.  

Most states have laws forbidding changes in pension plans of their current workers -- something private employers do all the time. But Alaska and Michigan have moved to 401(k)-type plans for their new hires, and several others have created hybrid retirement systems.  

It stuns to hear policy analysts still regarding public workers as a special class deserving special protections. For example, Teresa Ghilarducci at the New School for Social Research argues that 401(k)s are a "bad deal" for taxpayers. "Dollar for dollar," she writes, "a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher."  

First off, whose dollar is she talking about? If public workers depended on 401(k)s for their retirement, taxpayers would be spending far fewer of theirs. Really, had traditional plans provided employers a better deal, the private sector wouldn't have frozen them years ago.  

There are good arguments against the 401(k). The fees can be high, as Ghilarducci notes, though they can be minimized by putting the money in a low-fee index fund.  

Alicia Munnell, formerly on the Council of Economic Advisers, points out that private-sector workers tend to put too little money in their 401(k)s, and many will face a threadbare retirement. Thus, she concludes, they are useful but not an alternative to defined-benefit plans for the public sector.  

To this I ask, what makes public workers a species apart from everyone else? If 401(k)s are flawed and need fixing -- or another way to provide for retirement is superior -- shouldn't the remedy be available to all American workers?  

There's no need to demonize government workers. But it's time they joined the rest of us in the new reality. If they don't like it, well, neither do we.  

COPYRIGHT 2011 THE PROVIDENCE JOURNAL CO.

DISTRIBUTED BY CREATORS.COM

See Other Political Commentary.

See Other Commentaries by Froma Harrop.

Views expressed in this column are those of the author, not those of Rasmussen Reports. Comments about this content should be directed to the author or syndicate .