The Terrible Public Pension Threat

The following commentary by Natasha Chart appeared on the SEIU blog at www.seiu.org on April 12, 2010 It is republished here with permission from the Service Employee’s International Union.

It’s time for a class war over public union pensions. So says Ron Lieber, writing in the New York Times. Okay, let’s rumble. What’s the score, so far?

Despite defined benefit (DB) pensions, like the ones public employees get, being more economically efficient [pdf] and offering better returns, private employers have mostly switched to 401(k) plans, or defined contribution (DC) plans [pdf], because they’re cheaper. Between 1979 and 2001, the portion of the workforce covered by defined benefit pensions dropped by half. By 2008, only 20 percent of private workers had such a pension.

Businesses saved a lot of money by either switching to low cost 401(k) plans or dumping their pension obligations on the government [pdf]. Did they use their savings to create jobs? Not lately. These days, businesses are firing more people than they need to and sitting on the cash.

If recent history is any guide, those business savings still won’t go to average employee wages, which have been stagnant since the 1970s when union membership started declining to its current 12.3 percent of the labor force. Since 1979, extra savings have gone to the richest 1% of Americans who’ve seen their income go up 281 percent, with CEO pay going up 298 percent as the value of the minimum wage dropped 9.3 percent in value, and the pay of manufacturing and maintenance workers had gone up by only 4.3 percent, as of 2005.

Clearly, the investor class won that round.

The rich were positioned to get richer, even during this recession. It isn’t that there’s no money, it’s that money has been steadily taken out of circulation to be uselessly hoarded by the top one percent of income earners. And now, with government revenues starved by tax cuts for the rich and wage declines for most everyone else, the proposed solution is to break pension obligations to the few people who still have them.

Funny how big a threat pensions are supposed to be, now that they’re so rare. Ha ha.

“Who took our pensions and what do we have to do to get them back?” – Rep. Alan Grayson at Netroots Nation, July 24, 2010

You can see how it would have been harder 50 years ago to attack pensions, as Lieber does, as an unjustified, “terrifying” and “titanic” waste of resources. More people would have agreed with Rep. Grayson’s statement last month that, “everyone who works in America for 30 years should have a pension,” because more of them had decent pensions of their own.

Now, pensions are almost surprising. And about that, Jonathan Cohn had the best next question, emphasis mine:

But ask yourself the same question you should have been asking [during the debate about auto worker pensions]: To what extent is the problem that the retirement benefits for unionized public sector workers have become too generous? And to what extent is the problem that retirement benefits for everybody else have become too stingy?

For their age and education level, public employees receiving pensions make less than comparable private sector workers. They may even be excluded from Social Security benefits, as Dean Baker points out, adding that they tend to make no more than $40,000 to $50,000 per year and that the shortfall in their pension funds comes to less than two percent of government spending over the next 30 years.

One thing that about half of all public employees do for their not-very-princely salaries is educate children. On that score, it’s hard to argue with Paul Krugman’s statement that, “Everything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial.” Not crucial enough to get them 281 percent pay raises, but crucial.

At present, 62 percent of US jobs now require some sort of special training beyond high school and in a decade, that might go up to 75 percent of jobs. Maybe some of these requirements are excessive, but it’s weird to hear anyone say we need less education.

Cut teachers’ lifetime compensation and, one way or another, less education is exactly what we’ll get.

And as for complaining about the pensions of all the other people who make less than their experience and education might be worth, our public police, fire department, emergency, maintenance, construction and engineering workers, you might as well come out in opposition to law and order and in favor of all the trains being late.

The pension alarmists would have us believe that the debate is about whether the public can afford to honor promises to retirees, which is bad enough. Though what it’s actually about is whether ordinary taxpayers should have to either pay for private schools, private bodyguards and private groundskeepers in private real estate developments, or accept that their cities and towns are going to keep falling apart around them because it isn’t anyone’s job to hold them together anymore.

Which is nothing less than a threat to price the average taxpayer out of all the benefits of civilization so that the top one percent of income earners won’t have to suffer the return of Clinton-era tax rates.

  1 comment for “The Terrible Public Pension Threat

  1. August 29, 2010 at 4:26 pm

    Yes, let’s have class warfare.
    Let’s have a war between the Wall Street – Banking Cartels and the American System of Economics.
    In 2008 CalPERS investment board lost $70 billion which was over ¼ of its investment fund.
    (The California Public Employees’ Retirement System (CalPERS) provides retirement and health benefit services to more than 1.6 million public employees, retirees, and their families and more than 3,000 public employers).
    Below is from a CalPERS press release.
    “CalPERS Retirement Benefit Payments Not Affected by State Budget Impasse
    SACRAMENTO, CA – The State of California began a new fiscal year on July 1, 2010, without a state budget. However, the lack of a state budget does not negatively impact CalPERS retirees and beneficiaries. Retirees and beneficiaries will continue receiving their CalPERS benefit payments as they normally do because these payments are continuously appropriated and not subject to the State Budget Act. Benefit payments are made from the CalPERS pension trust fund not from the State’s general fund”.
    CalPERS Pension benefits are made from CalPERS trust fund. When the trust fund loses money “Dues” (Contributions) are raised, which results in cities, counties, and other public employee entities making cuts in police, fire, and social services budgets. Yes, of course, cities and counties have to make cuts due to decline revenue resulting from a collapsing economy.
    Therefore everyone should be on a DC (Defined Contribution) retirement system.
    Retirees need to feel the pain of a reduced retirement check when their pension trust fund loses money in our “Casino” economy.
    If the is enough pain the people will demand that:
    1. Obama be removed from office for preventing the introduction of the Cantwell/McCain (Glass-Steagall) amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. H.R. 4173.
    2. Congress reinstates Glass-Steagall 1933-1999 and shut down derivatives. http://www.larouchepac.com/credit.

    The class warfare needs to be between Wall Street/Obama and Glass-Steagall.

Comments are closed.