Busting The Myths About Public Employee Pension Costs

Matthew Cunningham over at the Red County blog wrote Monday about the possibility that obligations to public employees related to their pension benefits may not be as set in stone as is currently believed. This is the same tired old mantra that is being used to try to justify taking away negotiated pension benefits from public employees. What caught my eye however was a quote from an article referenced in the blog of Manteca City Manager Steve Pinkerton that Cunningham cited:

The boom days of the millennium decade’s early years are over, but the now unsustainable benefits packages negotiated by California state and local governments and their employees remain – some representing as much as 40 percent of overall budget costs. Our discussions with local government managers and their advisors suggest a tremendous amount of confusion and misinformation about their ability to align employee benefits costs with their fiscal realities.

I do not disagree that pension contributions are becoming greater in magnitude due to the increased contribution rates necessary to compensate for the Great Recession, but these costs hardly approach 40 percent of overall budgets.  Using the County of Orange as an example, the highest pension contribution rate is for law enforcement employees at 47.39 percent of eligible compensation. While significant, that figure is 32 percent of overall payroll costs for that classification of employee.  This classification of employee is only a portion of the total county workforce. In Orange County overall payroll costs are around $1.6 billion and pension costs are around 22 percent of that total. The total county budget is $5.5 billion.

When you factor in other classifications and other non payroll costs, pension contributions for the County workforce the actual percentage of the overall Orange County budget is 6.2 percent. That is a heck of a lot lower than 40 percent by any measure. For California’s budget, salaries represent 7.5 percent of the total state budget. The costs for healthcare and pension benefits are another 3.7 percent. Again, nowhere near the 40 percent figure represented in the article cited by Cunningham.

Enough already. It is time to have rational discussions about how to address our current budget shortfalls. It is time to stop blaming public employees for the budget shortfalls and stop representing their pensions as excessive and budget busting. Just because you keep repeating a lie over and over, does not make it any less of a lie.

  8 comments for “Busting The Myths About Public Employee Pension Costs

  1. January 25, 2011 at 8:43 am

    Chris:

    Pinkerton didn’t say the County of Orange’s pension/benefits costs consumed 40% of the county budget. He stated that in “some” local governments they represent “as much as” 40%. So your rebuttal is a bit of a red herring.

    Still, since is 30% of a budget being consumed by payroll/pensions/benefits considered “only”? That’s a huge chunk, considering governments weren’t created in order to provide jobs and operate a generous pension system.

    • January 25, 2011 at 9:04 am

      Show me one budget where 40% of total costs is ties to retirement contributions. The red herring is the claim that reducing retirement costs will solve the problem or that they are to blame.

      • Tyrrell77
        January 29, 2011 at 5:33 pm

        I think it’s obvious that many, many pundits and reporters have played fast and loose with combined employee and employer contributions being 40% of SALARY versus 40% of the entire BUDGET!
        Well Cunningham, if this is not the case, you should be able to easily pick any three cities in OC and show that pension costs even approach 40%. More likely the ENTIRE salaries are about 40-50% of their respective city budgets.
        Cunningham be real, perpetuate accuracy…you are unecessarily tipping your hand to your true agenda.

  2. Josh
    January 25, 2011 at 9:26 pm

    Please enough of the pension reform. What you should be asking yourself why you have a crummy 401k that will never pay enough for you to live on. Most industrialized counties workers retire at 50 or 55, it is very common. These systems are just annuities, if you are willing to pay the percentage, why not. OCERS is one of the top retirement systems in the U.S. and just won an award for its approach to investing. OCERS one year return for 2010 is 9.45 and stocks really have completely rebounded yet. OCERS is so well funded that if zero County employees made no contribution and the County made zero contributions it could still pay full payouts with COLA’S for the next 20 years for current retirees and future retirees. Again the pension are not the problem the working middle class is getting attacked by the rich whether you work in government or private industry! Wake up People you are being fooled by multinational corporations that pay for high priced PR firms. They want you to work for free and you agree with it-idiots!!!

  3. Robin
    January 25, 2011 at 9:46 pm

    I don’t buy the public vs private argument. It is always an apples vs oranges discussion. The bottom line is the fact that, the private sector has been raked over the coals by the large companies and CEO’s, and the public sector has received more fair treatment. It is up to the private sector to bring their workers back up into the middle class again, and stop trying to bring the public workers back down to pauper-status. There national group working to bring DB pensions to all workers in America. The director of that organization was a presenter at the CalPERS-sponsored CA Dialogue in LA last Feb. The haters should aim their attention at the efforts of that group, and leave the public sector alone.

  4. Rampant Corruption
    January 26, 2011 at 11:10 am

    Thanks for the article. Robin and Josh are on the right track. Government work is one of the few places that still provides a middle class salary for the majority of its employees. The real problem is that corporations and their leaders – who are also the people who have sufficient income to be substantial investors – are sucking up the bulk of the country’s resources. With the exception of places like the City of Bell, government workers have fairly good pay parity from top to bottom.

    This article is also absolutely true regarding retirement. Check out this article for a great expose on 401k and other defined contribution plans:

    http://blogs.forbes.com/edwardsiedle/2010/10/07/401ks-americas-biggest-investment-fraud-was-foreseen-and-preventable/

  5. January 28, 2011 at 5:51 am

    When we factor in the fact that Orange County pays the entire contribution for each of it’s mid-level and executive managers, and elected (those who don’t opt out) officials, how much would be saved by having these individuals pay even their fair share according to the actuarial tables? Factor in the car allowance, personal optional benefit and other perks offered only to management, how much would be saved? $21 million was the last number I heard. Yet, when talking to Tommy Boy, that is inconsequential. If the savings were from the rank and file, however, then Mauck considers it “considerable”. By starting with evening the playing field for all participants in the retirement system, the County would significantly reduce it’s so-called unfunded liability quite possibly to nothing.

Comments are closed.