Government Pensions and other Benefits

Municipal workers in major cities (e.g. New York, Boston, etc), whether they be police, fire, sanitation, or transit workers have pension programs that are unmatched in private industry. Those of us who work in private industry actually pay for those pensions. Workers, including management workers at every level, after 20 years, can retire with full pension benefits, usually at 50% pay for the rest of their lives. Those pensions, unlike private industry which normally starts full pensions at age 65, are paid immediately no matter what the age of a retiree. A person, starting their job at age 18, can retire at age 38 and collect their pension. Some double dip and take another city job for 20 years and collect a second pension. Their pensions, unlike private industry, are indexed to inflation and therefore go up each year by the rate of inflation. The pension is based on the last year’s pay including overtime. Both management and non-management get paid for overtime. Private industry commonly uses a five year average which lowers the annual income on which a pension is based. It is common practice for municipal workers to be given unlimited overtime work the last year, often doubling their normal annual income. Therefore, their 50% pension benefit actually becomes their normal annual salary. This is unheard of in private industry (because any company who tries that will soon become bankrupt). Management workers including the ‘top guy’ also get paid overtime (again unheard of in private industry) and also often pad their retirements through working as much overtime as they can the final year. Apparently, there are no controls on overtime worked and paid in big city municipals (I do not know if state workers have similar benefits) as there would be in private industry as this would be a serious budget matter for a corporation. Also, workers can accumulate unused sick days throughout their working life (again, nearly unheard of as a private industry practice). Some accumulate more that a year’s worth of sick days to collect a huge check at retirement ($50,000 to $100,000 is not that unusual and some checks have exceeded $200,000).

How are benefits like this possible? Municipal unions negotiate with city governments. In other words, the politicians who run city government and therefore need the votes of the city union members and their families negotiate these contracts. Talk about a conflict of interest! It should be illegal. Not only do you get these outrageous pensions, but often wages far exceed the going market price (e.g. compare a municipal sanitation worker’s wages and benefits to private industry). City unions have the right to strike or if they don’t (e.g. fire and police) use tactics as massive sick ins to achieve the impact of a strike). They have extensive and unacceptable impacts on citizens by the nature of their work by using the strike weapon or call in sick tactic. In other words, bargaining power is not evenly matched between municipal workers and its citizens.

Now, before going forward, I don’t want any of the above to lead anyone to ‘demonize’ municipal workers. The vast majority are very good people trying to support themselves and their families as best they can. You cannot blame them for trying to get as good a deal as possible for themselves and their families. Cost of living is higher in metropolitan areas and their normal wages are not going to make them rich. Much of the blame needs to go to ourselves and our politicians for not having the backbone to match municipal benefits to normal private industry standards.

The current system of pensions and benefits are unfunded. The future liabilities to pay these benefits far exceeds the anticipated tax revenues needed to pay them out. This brings up a dual concern for both workers and citizens. Citizens (only 20% of whom work for companies that pay pensions) will have to ante up such huge increases in taxes that their standard of living will significantly diminish (e.g. give up your house and move to an apartment; or give up that apartment and move out of state or to a smaller house or apartment; spend less on other necessities or ‘wants). There’s also a possibility that cities may have to mimic the airlines who have gone bankrupt and defaulted on their pensions with court approval). Nobody wins in this scenario. Not the citizen; not the municipal worker.

Solutions are daunting. Hiring through a bid process private industry companies for transportation and sanitation is one place to start. If possible, expand this to other city jobs, especially administrative. Also, it is obvious that municipal pensions and benefits need to reflect the policies of private industry. However, what city union will voluntarily give up the benefits its members enjoy. I would venture to predict none. I think the bankruptcy option eventually will become the solution. I think we need to hasten that day by imposing federal laws forcing all levels of government to pay for future pensions now through cash investments into independently monitored funds at sufficient levels to pay for future benefits. Currently, these pensions are way under funded by trillions of dollars combined. they amount to a ticking finacial time bomb that will not only result in the default of these pensions someday, but the total financial demise of America. By enacting laws forcing public pensions to be funded just as we do for corporate private pensions, the true costs of these public pensions will be known today along with our ability to afford or not afford them. We cannot depend on the inherent conflicts of interest between politicians and union members (who are also city voters) at the bargaining table to fix this problem.