With every sort of federal program in question these days, Social Security is said to be immune from any possible slash-and-burn. I guess many Americans didn’t get that memo, as the Social Security Administration reports a recent surge in inquiries, as well as more early retirees claiming benefits early … to get while the gettin’s good?
How are pensions closer to home faring? More of a mixed bag.
The State Teachers Pension, which my mom receives, seems rock solid, which makes sense, as it has very solid funding. That’s great for retirees, but it has come at the expense of suppressed cash wages in their working years.
A retiree from Shelter Insurance shared with me their recent pension plan annual report: the actuaries figure the pension has been about 124 percent funded for the last few years! Those retirees should indeed feel really secure that promises made to them in the past will be promises kept in the future. The employer should feel really good, too, as there’s a low risk of having to pony up extra cash to cover program shortfalls.
One would think that 100 percent funded is ideal, but in the pension world, at least 80 percent is considered okay.
On the other end of the spectrum is the city of Columbia’s Police and Fire Pension Plans. Turns out they’re only 50-some percent funded – and have been on the state watch list for a while.
I recall former Mayor Bob McDavid brought this up soon after he first got elected over a decade ago. After a brainstorm of possibilities were gathered, labor and management had a powwow and mutually settled on the low-hanging fruit to get it back on track. The city would throw in an extra $1 million/year from the general revenue fund to start making up the difference, and future new hires would get a lesser offering.
Fast forward to today and the annual shortfall contribution is several times that. A wise solution was floated to get retirees taken care of by turning the pensions over to the state system, which is doing just fine. But to patch it up, mega bucks over several years are called for.
With municipal budget season gathering steam this fall, patching up public employee pensions must rise up the ranks of priorities. While public funds have been perpetually spent on “wants” like buying historic buildings, aggressive parks expansion, and social programs, “needs” like maintaining sagging infrastructure and shoring up historic commitments to our public safety first responders have been swept under the rug for too long.
There are multiple reasons for the desire of a traditional pension, or defined benefit plan. People live longer, but benefit payouts weren’t adjusted enough. Investment return assumptions from one era got projected forward forever, but that didn’t pan out. People change jobs, employers and careers more, so workers don’t value (or are even aware of) pension benefits as much.
Most employers, especially in the private sector, shifted to 401(k)-style defined contribution plans, where the employee and employer contribute, but once the employer pays their cash in up front, they don’t guarantee what the employee’s investments will be for them to live off the rest of their life.
Employers in education, financial services, manufacturing, medicine, or security should not also have to be in the investment guarantee and former employee longevity business.
Responsible employers can, and should, offer a fair deal to their long-term employees, while also managing the business’s long-term obligations. When public pensions have a shortfall, we NEED to fix them and get back on track for the future, while not eternally burdening taxpayers with unknown obligations.
