The further to the left or the right you move, the more your lens on life distorts.

Tuesday, October 27, 2009

Public Pensions

There’s a festering public policy problem that is becoming more serious with each passing year. Public pension plans are underfunded, and future pension payments are in jeopardy.

The reasons?

  • Retirees are living past the projected age that actuaries predicted when the plans were funded.
  • Fund managers have invested retirement assets in ways that have provided poor returns. Over the past 18 months, some retirement funds have seen a significant drop in net assets.
  • An increasingly smaller number of taxpayers will be asked to subsidize a growing public pension burden.
  • The number of government employees as a percentage of the private sector has grown dramatically over the past 50 years.

It’s the last point that represents the challenge going forward. Fred Zimmerman notes that:
In 1950, about two-and-a-half times as many Americans were employed in manufacturing as in government -- 15 million in manufacturing, 6 million in government. Today, governments have 22.5 million employees, while manufacturing has 13.4 million.

No state has added either construction or manufacturing employees in the past recessionary year. But 32 states have added government employees.

Maybe that’s why many of us in the Center as very concerned about the growth of government at all levels—local, state, and federal. Yet government seems to be the only place where “jobs” have been created over the past few years.

Might be time to jettison the public defined benefit pension plans for new hires and replace them with 401Ks? Nah, that wouldn’t fly. The unions would scream and our leaders from Barack Obama to the local councilman would duck for cover.

When the first public pension checks are reduced because there isn’t enough money to pay them, politicians will look appropriately aggrieved and ask: “How did it come to this?”

Taxpayer bailout, anyone?