Ending the Blame Game: The Other Side of the Pension Story

Based on everything I’ve read or watched in the local news, I’ve gathered our state pension problems, specifically the problems with the Public Safety Personnel Retirement System (PSPRS) are the result of cushy retirements… greedy fat cat cops and firefighters milking the system while the rest of the workforce deals with unemployment and dwindling 401Ks.

I’ve been led to believe this is a new problem, one that only recently came to light, uncovered by the media and laid bare in unsuspecting politicians laps. It’s been propagated that union leaders and pension boards are determined to ignore it and stand firm in refusing to fix it.

But those stories and those assumptions are false.

The problems with the state pension system are neither new nor unexpected, and union leaders and pension boards have made a concerted effort to work with politicians to reform the program.

To understand the complexities of the current situation, one must look back at the history of the fund, specifically the 2 to 3 years at the turn of this century. In those couple of years, PSPRS, CORP (Corrections Officer Retirement Plan) and EORP (Elected Officials’ Retirement Plan) lost 1.6 billion dollars. Yes, that’s billion with a capital B.

The fund invested huge sums of money into the telecommunications and technology stocks that became the dot-com bubble crash of the early 2000’s. The fund also stuck another sizable investment into a company called Enron. The pension system, like many other big investors at the time, did not and could not predict such a major crash and suffered huge losses.

Compound that fact with the declines in the stock market after September 11th and the Great Recession, and one starts to get the picture of how a pension can go from 127% funding to less than 70%. Many union leaders point to the dot-com crash and subsequent 1.6 billion dollar loss as the single biggest contributor to the pension problems of today.

But there were other unanticipated problems that fund managers and others didn’t see coming. The first and most significant was that until the late 1990’s, employers paid virtually nothing into the system. The monies came almost exclusively from employees. The fund board recognized the problem and fixed it, but by then it was late in the game. The hiring freezes and high number of retirees over the course of the last couple years have caused an additional strain on the system, and we now have a situation where employers are paying more than 20% per employee into the system.

Obviously, changes need to be made. No one, not the pension board or union leaders, is saying otherwise. But taking a look back at how we ended up in this mess in the first place is a necessary step in figuring out how to move forward.

Unfortunately, the pension problem has become a convenient political tool used by some to vilify public safety workers and condemn their so-called “extravagant” benefits. Across the nation, the flavor of the day is to hold up public safety pension programs as unaffordable, unnecessary and outlandish. Never mind that these pensions were promised to employees upon hire or that employees have faithfully paid into the system or that for most employees, this is their only form of retirement.

Instead of trying to understand the program’s underlying problems, our legislative leaders have put together a reform bill that dismantles the system. The pension reform bill on the table, SB1609, would effectively end cost of living adjustments (COLA’s) for the next several decades. How many people are able to get by on the same wage for 20 plus years?

COLA’s have been mistakenly characterized as a way to “get rich” during retirement, but this is far from reality. For workers who’ve had to medically retire, some because of gunshot wounds or catastrophic burns, an end to COLA’s would mean a sure way to medical bankruptcy. Many of these retirees depend on the COLA’s as a way to keep pace with skyrocketing medical costs. Is this the way we says thanks to those who’ve sacrificed so much?

SB1609 has some major flaws that cannot be ignored. While some legislative leaders have put up roadblocks to working in collaboration with fund managers and labor leaders, others such as Governor Jan Brewer have offered to work toward a solution rather than knee-jerk legislation.

Recently, Governor Brewer met with interested parties in an effort to find common ground and workable fixes to the current legislation. The Governor’s office put forth reform options that will dramatically change the pension system without destroying it. The reforms include increasing employee contributions by 4% over the next three years as well as requiring employees to continue paying into the system while in DROP (Deferred Retirement Option Program) versus ending DROP altogether. The reforms also set up better guidelines for COLA’s, tying increases to funding levels rather than simply ending them.

These reforms are reasonable and necessary and will provide a better model for pension systems across the country. The hope is that our legislators will work with Governor Brewer as they craft this legislation instead of forcing a veto.

How we reform our state pension system speaks volumes about how we view those individuals who collect the pensions. Let’s hope our state legislators view both sides of the story, recognizing and respecting the job these individuals perform every day, rather than demonizing them for having a plan in place to support their retirements.

 

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4 Responses to Ending the Blame Game: The Other Side of the Pension Story

  1. Jack Prom says:

    Pension plans are one of the incentives to attract and retain good employees in all sectors of our economy. I do not hear about the fantastic stock options or golden parachutes that public employees get because there are none. If governors and legislators want to balance budgets on the backs of teachers and public employees they will get what they pay for. Who would want to be a teacher, police officer, fireman, or work for the goverment if what you were promised could or would be taken away with a swoosh of a pen!

  2. eclecticdog says:

    Great summary on this. Pensions should also be calculated on base pay, not overtime or other pay schemes that inflate the last 3 to 5 years of service.

    • jsimm says:

      eclectic dog. What you don’t understand is that the more overtime you work, the more money is contributed into the system. To completely eliminate overtime from the pension benefit would also decrease the amount of contributions into it.

  3. Danoh says:

    This hits the nail square on the head. In California, many cities for years recevied refunds of their portion of the retirement contibution. Investment returns were very high, and Cal PERS projected that the Fund was over-funded. Politicians saw this as “extra free floating cash” that should be returned to the cities for general fund usage. However, when the market took a turn for the worst, and losses were bigger than Cal PERs could project; cities were then asked to kick in as much as 34% of an employees salary to make up for the losses. At the same time employees continued to contribute their regular percentages (7-10 % based on the contract their city had with Cal PERs) In the city I work for, they received 100% refunds for 13 consecutive years! Now does that make good buisness sense? The other problem Cal PERs has is that it’s accounting practices are not the industry standard, politicians and labor unions have representitives on the Cal PERs Board of Directors, and they find it easy to refund their buddys money every chance they get. Solution: have professionals run the investments, use standardized accounting practices (not phoney actuarials that float losses or spread a fiscal year loss over a 20 year period while assuming potential grow to cover the loss), required minimum contibutions with no refunds! A lock box!

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