Opposing view on public pensions: Blame Wall Street
2011-01-23 - 08:33:33 - Current News
By Gerald W. McEntee With revenues plummeting during the economic crisis, states and cities across the country face real budget challenges. It is simply wrong, however, to suggest that modest retirement benefits paid to public service retirees are a cause, or even a part, of the budget problems facing governments. OUR VIEW: Lavish public worker benefits add to state financial woes Pension payments account for less than 4% of the average state's spending, while the annual pension for AFSCME retirees averages $19,000. Critics of the pension system conveniently ignore the fact that our members contribute to their pensions with every paycheck, and that more than 85% of their pension benefit is a result of those contributions and investment income. Current challenges are not a result of excessive benefits. For every story about someone who gamed the system to obtain an unfair payout, there are tens of thousands of workers whose annual pensions are $10,000 or less. Let's be clear: Underfunded pension systems resulted from unprecedented losses of asset values caused by reckless behavior on Wall Street and the refusal of some politicians to make their required payments. As recently as 2007, pension funds had, collectively, 96% of the assets required to meet future expenditures. But Wall Street drove America's economy and retirement security into a ditch. And now both pension and 401(k) accounts alike must be rebuilt. Pension funds can be replenished over time at a modest cost. It is projected that states must increase pension spending from about 4% of their budgets to just 5% in the future. Surely, this is manageable. The "401(k) solution" promises cost-savings that just don't materialize. A recent study in Nevada concluded that conversion to a 401(k)-style system would cost $1.2 billion more over the next two fiscal years. 401(k) plans are not less expensive, just less efficient and less secure than traditional pensions. Most public pension systems have been in existence for 60 years or more. They have persevered during market downturns and enjoyed surpluses when the good times rolled. They predated public employee bargaining rights, and few plans are subject to the bargaining process today. They have traditionally enjoyed broad support as a cost-effective compensation and retirement security policy. That support deserves to continue. Gerald W. McEntee is president of the American Federation of State, County and Municipal Employees.