What a mess: Pension funds
States now face serious budget problems, so they are making cuts that they would not have dreamed of before. And, naturally enough, they try to aim those cuts so that they mostly affect people who do not have much power or influence—it’s so much easier that way. Ron Lieber writes in the NY Times:
There’s a class war coming to the world of government pensions.
The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.
The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.
At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.
The figure comes from a study by the Pew Center on the States that came out in February. Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.
So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap?
Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.
Earlier this year, in an act of rare political courage, …
Continue reading. The fault obviously lies with the states who failed to fund their pension obligations—it was undoubtedly the familiar pattern we see frequently: cowardly politicians kicking the can down the road for the next generation to deal with, much like the way the Bush/Cheney Administration fought expensive discretionary wars without paying for them, and in fact cutting government revenue (taxes) at the same time they were spending money like water.
John Cole makes a good point:
I’m sympathetic to the budgetary issues, and I agree that there need to be changes to the pension guarantees for new and current employees, but I simply do not understand how you go back and change the contract you made with someone decades ago. Mr. Justus and those like him did what they were supposed to do—they agreed to work for a certain amount of money yearly with the understanding that they would have a decent pension upon retirement. They have no access to Social Security [as explained in the NY Times story, Colorado state employees cannot contribute to Social Security – LG], they probably did not save in 401K’s or other programs because they knew they had a defined pension as well as the fact that they probably accepted less annual salary in exchange for the benefits they were promised and as such could not really build an independent nest egg.
And now, when the times are lean, lawmakers think they can just go and screw all the people who kept their side of the bargain. It’s just wrong.
And let there be no doubt that there will be a class war over this. Matt Welch and the glibertarian wingnut welfare recipients at Reason have been beating this drum for a while now.