Scheming to steal workers’ pensions

April 12, 2010

Amy Muldoon looks behind the hype about how public-sector workers get "exorbitant" pensions--and finds a cabal of right-wing politicians and CEOs out to bash unions.

ACCORDING TO the business press and crusading politicians, the unfettered greed of some in our society is threatening to bankrupt city and state governments, and cause public services to be hollowed out.

Who are these selfish criminals? Wall Street bankers? Defense contractors? Tax-dodging corporate executives?

No, the culprits, according to the latest media hype, are public employees.

The problem, we're told, is that public-sector workers have the nerve to collect "fixed" or "defined benefit" pensions--meaning that their pensions are negotiated according to pay and years of service, as opposed to "fixed contribution" pensions such as 401(k)s that are based on the values of stocks and investments (and which therefore can be worthless if you have bad luck).

A recent cover story in the investors' magazine Barron's by Jonathan Laing--headlined "The $2 Trillion Hole"--touts a recent Pew study which found that the shortfall between what's owed to public-sector workers for their pensions and the funds that have been set aside to pay them is now valued at up to $2 trillion. (The exact dollar amount of the gap is greatly disputed but lies somewhere between $1 and $3 billion).

Public-sector retirees protest an attack on their pension benefits
Public-sector retirees protest an attack on their pension benefits (Christine Stuart |

Laing finds it outrageous that public employees usually retire with a guaranteed pension. His article, and similar one in Forbes and the Wall Street Journal, consciously whip up anti-union and anti-public sector vitriol.

Of course, it's not surprising that the wealthy would bemoan decent compensation for working people. But their intention with the current hype is to generate a backlash from private-sector workers against their brothers and sisters in the public sector. This, they hope, will provide the political space for further attacking public-sector unions.

Thus, in what must be a first for Barron's, Laing attempts to sympathize with working people stuck in 401(k) plans, in an attempt to turn them against those with fixed pensions:

Some 80 percent of these public employees are beneficiaries of defined-benefit plans, under which monthly pension payments are guaranteed...In contrast, most of the taxpayers footing the bill for these public-employee benefits (participants' contributions to these plans are typically modest) have been pushed by their employers into far less munificent defined-contribution plans, and suffered the additional indignity of seeing their 401(k) accounts shrivel in the recent bear market in stocks.

WHILE THIS rhetoric is almost laughable coming from the kind of corporate mouthpiece who sings the praises of the free market and 401(k)s in the next breath, the reality is that in state legislatures across the country, this very logic is shaping attacks against public-sector workers and retirees.

For example, the new New Jersey Gov. Chris Christie described the state as having two classes: "those who enjoy rich public benefits and those who pay for them.'' Christie gleefully signed a bill March 23 that cuts future pensions 9 percent across the board, forces a 1.5 percent contribution from all workers for their medical costs, and caps sick-time payouts at $15,000 for retirees. Further, part-time employees for the state of New Jersey will never receive a pension.

In addition to the cap on sick time, retirees' pensions will be calculated based on the top five years of salary instead of the final three. This measure is intended to stop what is known as "spiking," where workers take extra hours, including attempting to maintain perfect attendance, in order to increase their pensions, which usually top out at 80 percent of salary.

Sickeningly, there was not a single "no" vote protesting the bill, despite plenty of Democrats making noise in the run-up to the final vote.

The attack on public-sector unions goes far beyond New Jersey. It's fueled by distortions and stereotypes of overpaid, scheming workers who don't deserve a fair retirement.

These tales of teachers and sanitation workers gaming the system to pull down six-figure pensions simply doesn't hold up to actual scrutiny. In California, ground zero of the budget crisis, the California Public Employees Retirement System published a high-profile study of the "100K club" of retirees they feel are overpaid. As it turns out, the 6,133 retirees found to making over $100,000 a year are just 1 percent of the total. The average California retired public employee receives the less-than-princely sum of $36,000 a year.

Even Marcia Fritz, president of the conservative California Foundation for Fiscal Responsibility, had to admit as much: "Half of these people are public safety: firefighters, cops, prison guards--like the captains, chiefs, lieutenants. And then the other half are city managers and finance officers that had high wages and lots of years."

In other words, the recipients of big pensions are highly paid officials, not school cafeteria workers who somehow beat the system and now live high on the hog.

In many states, public-sector pensions are mandated by local legislatures, and therefore are vulnerable to political attack as the centerpiece of a larger attack on unionization in the public sector.

According to the Bureau of Labor Statistics, union density in the public sector is 37.4 percent, compared to a remarkably low 7.2 percent in private industry. Local government workers like teachers and firefighters have an even higher rate of unionization, averaging 43.3 percent. Average compensation is, not surprisingly, much better for state and city employees: $26.11 an hour versus $19.41 in the private sector. Add in benefits like health care, pensions and paid time off, and the gap grows to $36.60 an hour versus $27.42.

Thus, for U.S. employers and politicians, the public sector is the final frontier in the drive to tame the power of organized labor. If unions can't be gotten rid of, then they will be hollowed out.

As one anonymous New York state government official told the New York Chief-Leader Civil Service newspaper, "A very real problem that civil servants have these days is pension envy. To give the moneyed class credit, they have succeeded in getting many people angry that civil servants have these pensions, rather than that they don't."

THOUGH PUBLIC workers certainly aren't to blame, there's a real pensions crisis looming. Public-sector pension funds are underfunded by at least 20 percent in two-thirds of states as of the end of 2009.

These shortfalls have been a chronic problem for the simple reason that funding something that won't come due for years is more easily put off than cutting spending on programs that people need now. This allows politicians to pass the buck forward to future generations (and future office-holders).

Now, however, years of rolling the problem forward has caused a present-day crisis. This isn't because workers are overcompensated, but rather two interrelated reasons: First, the stocks, bonds and other investments that pensions rest on lost value during the financial crisis, so there's less money for the fixed benefits that are supposed to guarantee retirement security. Second, states have lost revenue, as their tax bases, already stripped down by tax cuts that went disproportionately to business and the rich, have been hit by economic crisis.

As Petrino DiLeo, a contributor on economics, put it recently:

A generation of tax cuts and tax breaks for the wealthy and corporations have blown a hole in government receipts. Total government receipts amounted to 24.8 percent of GDP in 2009--the lowest percentage in 50 years. Receipts dropped $500 billion--an astounding 12 percent from 2008 to 2009.

On the state and local level, 2009 marked the first year in the government's records (going back to 1948), where state and local tax receipts fell year-over-year on an absolute basis. The post-Second World War average had been 26.6 percent. And in 2000, in contrast, government receipts amounted to 30.6 percent of GDP.

Looking at the political attack on the public sector, DiLeo continued:

What we're seeing is a combination of a weak economy, along with a longer term "starve the beast" strategy. To be sure, the calamitous drop in the economy last year cut deeply into government tax receipts.

But there's more at work. Social programs like welfare, unemployment benefits, Social Security, Medicare, Medicaid, etc. have been under the gun for 40 years. They have been challenged politically. They have also been threatened by raising spending in other areas--defense, bailouts, etc. But another way of forcing the issue is by underfunding the state.

Employers and politicians want to stir up what Canadian socialist Greg Albo calls "the envy backlash"--a fight among working people over how to distribute the small portion of the wealth we're allowed. Instead, we have to demand an equitable redistribution of wealth from the top to the rest of us--for decent wages, good social services and a retirement with dignity.

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