A Climate of Uncertainty

The environment in which workers retire will look very different in the next 20 years than it did in the last 20 years.

Serious threats to Social Security and private Defined Benefit pension plans have emerged.

Almost unnoticed, however, are the threats to public Defined Benefit pensions enjoyed by employees of state and local governments across this country.

Governor Arnold Schwarzenegger's plan to alter the benefit structure of CalPERS made national news. Few are aware that similar efforts are underway in many other states. Unlike the California case, in many states, the effort to convert Defined Benefit plans to 401(k)-style Defined Contribution plans rolls on.

As an example, a New Jersey newspaper has published a ten-point plan to "put public employee benefits programs back on a firm footing, and to give taxpayers much-needed relief."

- Eliminate all pension and health benefits for elected officials, part-time public employees and professionals who contract with government. There is no justification for providing benefits to any part timer.

The arguments against doing so for elected officials are the most compelling of all. Since they personally benefit from any negotiated or statutory obligations, they have no incentive to play hardball. The allure of the benefits also gives them a strong incentive to maintain their grip on office for the wrong reason — self-interest, rather than the desire to serve the public.

Eliminating benefits for part timers also would end pension tacking, the practice of taking multiple part-time government jobs to create an exorbitantly high salary and a commensurately high pension. The "Pension Peril" series found that the state in 2002 paid out at least $238 million in salaries to 9,500 individuals holding 24,700 government jobs.

- End pension boosting, which allows officials to move from a lower-paying job into a higher-paying patronage job shortly before retirement to pad their pensions. Retiree payouts in most cases are based on the three highest annual salaries. Pension rules should cap spikes in pension payouts due to dramatic late-career salary hikes at 15 percent.

- Eliminate defined-benefit plans for government employees and offer 401(k)-type accounts instead (emphasis added), as is done in Michigan and is being considered in several other states. Only 20 percent of private-sector employees have defined-benefit plans, down from 40 percent in 1977. The public sector needs to change with the times.

- Eliminate cost-of-living adjustments for pensions. Most private-sector employees fortunate enough to have defined-benefit pensions do not get cost-of-living adjustments. Neither should public-sector workers.

- Tweak the pension formula to reduce the payouts. In July 2001, soon after the stock market began its precipitous slide, acting Gov. Donald DiFrancesco increased pension payouts by 9 percent. At minimum, the formula should be changed to restore the pre-2001 criteria.

- Convene a panel of benefits experts to make recommendations to bring New Jersey more closely into line with the private sector and to establish a fair framework to calculate pension benefits of all government employees. It's been more than 10 weeks since Codey announced he planned to set up a committee to study the benefits issue. He's still recruiting members. He needs to pick up the pace.

- Cap the number of sick, vacation, holiday and other benefits local and county governments and school boards can provide employees in contract negotiations. State government already provides caps on sick day and vacation day accruals.

- Mandate that all government employees pay at least 25 percent of their health coverage premiums. Eliminate health care coverage for newly retired employees and require that previously retired teachers — the only public employee group not required to contribute anything toward the premiums of traditional health care plans — contribute at least 25 percent of the cost.

- Revoke pension and health benefits for any public official found guilty of corruption. Two bills pending in the Legislature would do that.

- Require that "retired" superintendents who serve on an interim basis be ineligible to collect pension benefits while serving in that capacity. This is one of the most egregious abuses of the pension system.

From the article, it is not hard to discern that most of the outrage comes from abuses by a select few, rather than the majority of New Jersey public pension system members. But, when taxpayers' dollars are at stake, many commentators find it more effective to paint the picture with the broadest brush.