Mulling public pensions in a deep recession
Friday, November 21, 2008Written by: Ben DeGrow
A lovely Friday topic to chew on: With the markets and the economy in a deep recession tank, what are we going to do about reforming Colorado’s public employee pension system? The answers aren’t easy, so are we going to wait for the bottom to fall out before rolling up our sleeves and getting to work?
What prompted my attention was this Atlanta Journal-Constitution story from the other side of the country:
A move to eliminate automatic cost-of-living increases for retired educators was quickly shot down Wednesday by the Teacher Retirement System Board.
The unanimous defeat of Gov. Sonny Perdue’s plan to end the automatic raises provided fresh evidence that taking on teachers and retired educators is usually a losing bet for Georgia politicians.
Six years ago, the state’s 100,000 teachers helped oust Gov. Roy Barnes after educators said he showed disrespect for their profession. This time they accused the man who beat Barnes, Perdue, of betraying their support by eliminating the automatic pension COLAs.
Jeff Hubbard, president of the Georgia Association of Educators, said teachers and retired educators from across the state banded together to defeat the COLA plan.
“Through collective action, we can move mountains, whether it’s in a gubernatorial race or whether it’s protecting the pensions we’ve paid for,” Hubbard said after the vote. [emphasis added]
As Jay Greene put it, “No dice, said outraged teachers. We paid in and are entitled to that money.” I don’t resemble in any way an expert on Georgia’s pension system. But if it’s anything like most defined benefit plans (including those in Colorado) then that’s misleading.
I’m talking about deferred retirement compensation. Rather than bore you with the details I don’t understand, here it is in a nutshell: During the course of a career, employers and employees contribute into a retirement “account”. You can’t touch the complete “account” until you work a certain number of years. You can’t reap the promised benefits until you are vested with even more years of service. The deferred retirement compensation is the difference between the benefits and the value of the account having grown from decent rates of return.
So Gov. Perdue in Georgia considered suspending the automatic COLA increase on pension benefits. How much of those pension benefits were “paid for” by the employees, and how much are being underwritten by the taxpayers (not to mention other employees who don’t spend their entire career in the public workforce and aren’t yet vested)? I don’t have the answer, but it’s worth considering.
The career employees who have retired on the promises made are not the ones we should be blaming, whether in Georgia or Colorado. But can’t we take a serious look at even some modest pension reforms, like creating and expanding defined contribution options for new employees? Or raising the retirement age as a cost savings? To name a few.
