Getting A Bigger Table

Making due with less, that is the new reality. Governmental agencies, from the little municipalities and townships all the way up to Washington, have adopted the mantra of austerity, for the simple fact that there are not enough dollars coming in to pay for obligations going out. And one of the biggest drags on maintaining fiscal solvency is paying and perking its public employees.

There is a movement afoot in Atlanta to move new hire es from a defined benefit plan to a defined contribution plan, that caterwauling you hear is from the employees who are not thrilled about being separated from the tit

Atlanta’s City Council is expected to vote as early as Thursday on one of the most sweeping overhauls of public-employee retirement benefits attempted by a large U.S. city in recent years, as cities and states across the country race to close big budget gaps.

The legislation, if passed, would set the stage for eventually eliminating the city’s current pension system entirely. That would shore up its budget and potentially bolster similar efforts by other municipal governments. Many pension changes undertaken by other cities have focused largely on asking public employees to kick in greater contributions to their retirement funds or reconfiguring benefits.

Faced with a $1.5 billion shortfall in benefit payments owed to current and retired employees, Atlanta Mayor Kasim Reed is backing legislation to phase out pensions, which offer defined benefits, and replace them with a 401(k)-type plan, in which the city instead pays defined contributions. The new plan would also have city employees join Social Security for the first time.

For the purposes of full disclosure it should be noted that I receive a pension from the state of California, it is not what you would consider obscene, I left way before it entered that realm because I valued my time over that of a bigger payoff.

Some background is in order. It use to be that working for the government, being a civil service employee was an attractive position, not for the pay which was always meager but for the benefits. And probably the biggest benefit was the ability to secure a pension after a prescribed amount of years of service. It first originated in the military but later spread to other civil service positions. If it is not already obvious, the beauty of getting a pension is that you never had to worry about it’s vitality and health, when you retired it would be there for you.

But in the last 20 years or so, unions have upped the ante. They manipulated the formulas through their collective bargaining powers and put and even bigger drag on the municipality for pension maintenance. This can be done in a number of ways. Specific contributions can be massaged, how much if anything the employee contributes. The formulas can also be jiggered. When Arnold was running for governor here in California, the incumbent, Gray Davis, was in a pickle and was willing to bargain with union bosses for their support in the upcoming election. He gave my agency a new pension formula, 3% at 50 (meaning that for every year of service the employee would get 3% of his highest one year salary, so he did 30 years then he would be guaranteed 90% of his salary for life). This was absolutely unheard of at the time (we were the only one in the nation that had this, over the years other agencies in other states have duplicated this coupe) but desperate times called for desperate measures and he gave up the farm for a little security, which ultimately did not help him anyway.

Atlanta is trying to move all new employees over to a 401K plan, meaning that the employee can deduct a certain amount out of his paycheck each month tax free into a retirement account, that account which would be managed by the employee, he would have to decide asset allocation, stocks, bonds, treasuries, or money market funds. The employee would also be placed into the social security system, paying FICA taxes each month as well. With a 401K plan (unknown at this time whether Atlanta would provide matching funds, doubtful) the ultimate payoff depends on how well the money was invested, nothing would be guaranteed.

The unions are spitting mad over this:

The highest-profile fight came in Wisconsin, where Republican Gov. Scott Walker signed a law forcing public employees to contribute 5.8% of their salaries to their pensions and pay at least 12.6% of their health care premiums. They will have reduced ability to bargain for wages.

On Monday in Florida, the state’s 140,000-member teachers union filed suit against Gov. Rick Scott, also a Republican, to block a law requiring public employees to contribute 3% of their salaries to their retirement plans.

This is what I mean when I described past manipulations. Through collective bargaining the percentages the employee had to pay into both his pension and medical insurance has become smaller and smaller to the point where many don’t pay anything, totally ridiculous. So now, when asked to pay something, they scream like stuck pigs.

Realizing the folly and insolvency of the program years ago, I planned my finances so that if the state went bankrupt tomorrow and I was told that my pension was no longer viable, I would still be fine. I knew it would not be around forever, it couldn’t, that is the reality. Another reality is that the whole idea of pensions has to be rethought. I would expect those in the military to be left alone, they deserve every penny they get, but for everyone else? Pensions are a thing of the past, unless formulas can be worked out so that employee contributions alone (no state obligations) can make them work. If the unions don’t want their precious pensions taken away then they better stop their yammering about the unfairness of them having to pay pennies on the dollar for their future welfare.

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  1. Hal_10000

    When i worked for the state in Texas, we had a similar deal. I opted out of the pension plan and into a defined contribution plan because I don’t trust the money to be there in 30 years (also, I was not going to be there for very long).

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