Across the country, government workers’ pensions are protected by guarantees even stouter than those on pensions in the private sector. The legal promises, often backed up by union contracts, cover more than 15 million people.
Years of supporting court interpretations have enshrined the view that once a public employee has earned a pension, no one can take it away. Even during New York City’s fiscal crisis 30 years ago, no existing pension promises were reduced.
But now a number of state and local governments are quietly challenging those guarantees. Financially troubled San Diego is the highest-profile example, but a handful of states, cities and smaller government bodies have also found ways to scale back existing promises and even shrink some current payments.
While still only scattered cases, these examples may be an early warning sign of what could be coming elsewhere. As local officials take stock of unexpectedly large obligations to retired public workers, some are starting to question whether service cuts, sales of government property and politically acceptable tax increases can ever go far enough to bring things into balance.
And it's not just retirement income benefits:
Governments are also studying the guarantees on retiree health benefits because of a new accounting rule that is now requiring them to calculate, for the first time, the total value of the health benefits they have promised to retirees.
The numbers now being disclosed are daunting. Mercer Human Resource Consulting estimates that when all the calculations are done, the nation’s states and cities will find they have promised a total of about $1.4 trillion, said Derek Guyton, a senior consultant.
Little, if any, money has been set aside to fulfill these obligations.
We'll be hearing more about this issue in the coming years, as the bills come due in more places and other localities join San Diego in its financial woes. (For example, see Walsh's earlier article from August.)
If there were anything with which to take issue in the article, it would be the title, "Once Safe, Public Pensions Are Now Facing Cuts." Safety comes from direct ownership or a binding guarantee. Public sector employees are in a situation where they thought they had more of a guarantee than they do. If you were open to attack but weren't attacked, were you really "safe?"
As a matter of policy, when focused on replacing income in retirement beyond Social Security, I'd much prefer the transparency and ownership of a defined contribution or 401(k) plan to the vague promises of a defined benefit plan, acknowledging that running such a plan effectively requires thoughtfulness applied to plan design and participant education.