November 17, 2008 6:31PM
Why Isn’t Anyone Talking Later Retirement for Government Workers?
By Brian Sullivan
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The New York Times cover story today is about how some states are facing big budget deficits and are looking at a variety of ways to cut costs and fill gaps in spending. Those include reducing social services, freezing hiring and, of course, raising taxes. Michigan is even discussing salting roads less in the winter, a potentially dangerous misstep.
As states try to figure out how to cut costs and services to current taxpayers, it seems no one is talking about is rolling back the retirement age for government workers to help ease at least one part of the budget problem: massive pension burdens.
California, for example, has the nation’s biggest state economy and also the biggest problems. The Golden State is facing a nearly $15 billion dollar budget gap and is desperately trying to figure out how to close that, likely through a combination of cost cuts and increased taxes and borrowing. CalPERS, America’s biggest pension fund, has nearly 500,000 retiree members and 1.1 million more active and inactive members. CalSTRS, the teachers fund, had 812,784 total members and benefit recipients as of June 30, 2007. That’s about 2 million active and inactive members between the two organizations in a state who’s 2006 population was just over 36 million.
Pensions aren’t the only problem, but they are a big part of them. The Sacramento Bee, citing a state analysts’ office, reported back in 2004 that California’s pension obligation will nearly triple in 2009-2010 to $3.3 billion, up from $1.2 billion in fiscal 2002-2003. At the same time, The Heartland Institute, the average retirement age of a California state worker was 59 years old in 2004. That’s the average, meaning many workers are retiring at an even earlier age.
The problem also exists on the national level. According to Federal Computer Week, the average retirement age of a federal government worker was 58.7. Again, many workers therefore are leaving their jobs and collecting benefits in the early and mid-50s.
Americans are living longer than ever. The average lifespan in this country is around 80 for women, 77 for men. Assuming government workers live as long as the general population, retirement in the mid 50’s could end up meaning their retirement is funded for 30 or more years. It’s entirely possible many government workers will be living off pensions more years than they were employed and contributed to those pensions.
There are other issues as well. In that 2004 Sacramento Bee report, the paper also highlights the problem of “pension spiking.” As most pensions are based on the highest level of pay achieved, many workers take a promotion, increase their salary and then promptly retire. That increases the level of their pension, even if they simply took the new job for a few months. Compounding the problem is that the more workers retire, the more training is needed to fill those slots. As state employees move from job to job to help push their pensions higher, more spending is needed to hire and train the new workers. The Bee reports this “pension spiking” and subsequent spending costs the state an extra $100 million per year.
The irony is that much of the news around GM, Ford and Chrysler involves their huge defined benefit obligations. Much of the debate around whether to put more government money into these companies tends to come back to the issue of pension and health care payments to those companies millions of retirees. Private workers may end up working longer to balance out the good news that they are living longer. Yet there is virtually no discussion of this with regard to government and public sector workers. I imagine that is because government workers tend to be the ones who vote on their own retirement ages.
Living longer is a good thing. I hope to be piloting a Sopwith Camel at 90. But living longer is an even better thing when it’s fully funded and the huge financial burden doesn’t drop on the current crop of taxpayers. Government needs to learn this before it lectures private sector companies on their own mismanagement.
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Government retirement programs aren’t some sort of welfare program that the government can change based on a policy decision. My pension entitlement was part of the deal the government made when they hired me 25+ years ago. They paid me less money (as a lawyer) than I might have earned in the private sector all these years. One (of many) compensations for that was a solid, fairly generous retirement system. Is the government going to change the rules now? If so, expect an “uncompensated taking” or breach of contract suit to follow quickly.
I am a MA state employee. I would be willing to retire later in exchange for a modest increase in salary. MA state employees generally don’t earn much
outside of law enforcement, nurses, and people working for authorities- MBTA, Massport etc. The cost of living is too high here. I mean, months of recession and house prices in the North Shore have dropped only from 370K or so to around 300K. That’s still not remotely affordable. The US economy is stuck in a poisonous spiral of high prices and low wages. Even in good times, they advertise a job for really short money, like $12 an hour, and you have hundreds of people applyig for each job.
I do like being a government employee. I would return to the private sector if I could get: (1) A pension- no not a 401K, rather the employer being on the hook for a fixed percentage of your high 3 years salary (2) A union- most people miss the most important thing about unions- layoff are by seniority only, (3) More than the skimpy private sector vacation package- you get 2 weeks vacation and 10 holidays and they act like they are offering you the earth
The Democrats refuse to discuss the problems related to public employee pension funding, for fear of antagonizing Big Labor and the Republicans are too focused on Family Values (abortion and gay marriage in particular). So your local library may have to cut service to make sure the police can still collect their generous pensions at age 50 (90% of their final year compensation if they have 30 years of service in California). Not all public employees collect big monthly pensions, but all too many of them do and they get much better post-retirement health benefits than the average private sector employee. Then there is the outright fraud and abuse of the system, recently highlighted in the Long Island railroad scandals in Newsday.
Evidently, neither the Sacramento Bee nor Brian Smith has much depth to their understanding of public pensions in California. To begin with, public employees pay directly into their retirement system (5 to 8% of wages based on collective bargaining). As a part of employee compensation, the State contributes additional money to the retirement fund some years (if there is a shortfall and only to keep the fund fiscally balanced). This makes it sound like the State gets really stuck if there’s an economic downturn. Not so. Calpers uses smoothing techniques across a number of years to prevent such spikes and the State may never have to come up with additional money (assuming market recovery).
The retirement system makes sufficent earnings (but not in all years) to fund employee retirement. Even if the State wants to cut public employee retirement (and they can), this doesn’t save the State any immediate money or maybe any money at all. The retirement fund is not a pay as you go system. The State also has no right to the money in the fund because the money in the retirement system belongs to public employees.
As to pension spiking by employees, this can happen but not in the way the article supposes. Generally, a State promotion does not involve a large amount of money. Not only does the State not hand out many promotions, most often a promotion will only earn an employee additional 5% or less. This raise doesn’t result in an immediate 5% raise in his/her pension as this is phased in month by month across a year. The increase is about 0.004 of salary (wow! $16/mo would be eligible on a 50k a year salary). The average State pension in California is only $24k a year.
Figure the math folks and you probably wouldn’t be in such a hurry to leave your high paying job. The State is currently lagging private industry wages by 20 to 30% for comparable jobs (this is a basic reason why the age of public employees is increasing –the State can’t attract new people).
okay okay
started working at 37
too much academia !
Obviously many of the people responding to this know nothing about government workers, and I put Brian Sullivan in the same category. Mr. Sullivan’s entire article is predicated on the California situation. I can’t speak on how it is in every state, and unlike Mr. Sullivan, I will not assume that my knowledge of one state means I know about all of them. I can tell you for sure that in Colorado, the government workers work hard, are underpaid compared to the private industry. Full retirement is typically age 65.
All you angry people who seem so bitter towards government workers, especially older ones, might think twice about how you would like being served by doddering octogenarians, oh, and make that in offices only open 3 days a week to cut down on salaries, too.
While you are young and fit, working till you are 70 or 75 doesn’t sound too rough. But most older people suffer from a host of ailments, and working is rough when you are arthritic and need a nap just to make it through the day.
As a government worker who plans to retire at age 66, I will have worked for over 50 years, and I think I have done my share. If I had been able to invest in my own retirement fund, instead of contributing to social security, I wouldn’t need to “burden” you young folk with paying back pennies on the dollar to what I contributed.
It doesn’t matter who we vote into office the machine has gotten so LARGE it’s just going to get BIGGER AND BIGGER. And when you have unions voting into office the same people who decide what they get paid this is what we’re going to get!
One State, One Vote, One Congress Person, One Senator, all the rest go home to their own State. Set Term limits to 8 years. No one should be allowed with a DWI, Criminal Record, and all should have to pass the Federal employment test and security screening. This would eliminate 85% of those in office.
In responce to a few negatives about Gov Workers. I work for the Navy as a civilian. Do not know where Mr gman worked but I do belive if that is what he did, he deserves a 30% cut in his retirement. The crew I work with work for their pay and earn every penny. We pay into our retirement, we pay into MEIDICARE but most do not live long enough to collect are will not be eligible. You see, many of us are vets, who as a whole have a shorter life span due to a harder life. Also, gov workers in shipyards and military post work with all types of hazards that effect our health. I have seen too many die in service and shortly after retirement.