In politics and policymaking, the facts aren’t always convenient. Such is the case with public employee defined-benefit retirement plans and the policymakers who want to dismantle them.
A panel of state leaders and national experts gathered Jan. 19 at the National Press Club in Washington, D.C., to talk about the facts. Public employee defined-benefit plans keep an estimated 5 million senior Americans out of poverty and off government assistance, contribute more than $358 billion in economic output nationwide and create more than 2.5 million jobs. They also are cost-effective—risk is pooled and administrative costs are low, thanks to the economies of scale.
The forum, sponsored by the National Public Pension Coalition, featured Thomas P. DiNapoli, New York state comptroller; Janet Cowell, North Carolina state treasurer; Dean Baker, co-director of the Center for Economic and Policy Research; Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems; and Dolores Bresette, a retired Rhode Island state employee.
“We have a crisis here that has been invented,” said Baker, an economist, noting that $800 billion of the estimated $1 trillion cumulative shortfall in public defined-benefit plans is attributable to the market crash in 2008-09. The shortfall is manageable, he said, pointing out that the size of the economy is the relevant denominator; realistically, the plans have 30 years to make up the lost ground from the market losses.
DiNapoli and Cowell, who oversee their respective state plans, dispelled the myth that public employees are retiring with $100,000-plus defined-benefit pensions.
In New York, 83 cents of every $1 in benefits is derived from investment returns; the average pension, excluding police and fire, is $19,151; 76 percent of the pensioners receive less than $30,000 a year; and less than one-half of 1 percent of the state’s retirees have a pension that exceeds $100,000, said DiNapoli.
The average pension in North Carolina is $22,000, said Cowell, noting that fewer than 300 retirees receive $100,000-plus pensions, “and some of those are basketball coaches.”
While DiNapoli and Cowell talked big picture numbers and statistics, the real expert on defined-benefit plans in the room was Rhode Island retiree Bresette. “I worked for the state of Rhode Island for 37 years and contributed 9 percent of my salary to my pension fund. Now, after years of saving and preparing for my retirement, so much of what I and thousands of other public workers were promised is being taken away in the name of good ‘math,'” Bresette said. She was referring to the November enactment of the Rhode Island Retirement Security Act of 2011 (see related story), which, among other things, indefinitely suspends cost-of-living adjustments for current retirees.
Loss of the COLA cuts about $70 a month from Bresette’s budget—the equivalent of a week of groceries for herself and her husband. Bresette choked up when she told the audience that she might not be able to continue to afford dance lessons for her granddaughter—lessons that are more like a weekly ritual to get together.
“There are real, human implications of the current efforts to dismantle public workers’ pension funds, and people here in Washington and across the country need to see that,” Bresette said.
In addition to the human implications, there are serious social and economic consequences that will develop over the long term if the shift away from defined-benefit pensions continues. In fact, panel members said that instead of dismantling public employee retirement systems, policymakers should be working to improve retirement security for the private sector workforce.
There is an $8.5 trillion retirement savings deficiency in the private sector, said NCPERS’ Kim. If not addressed, there’s going to be a jobs crisis, he said, explaining that if the 75 million baby boomers can’t afford to retire, then they are going to be competing with 80 million millennials for jobs over the next 10 to 15 years. “Retirement security is about managing the nation’s workforce.”
It’s also about self-sufficiency. If people can’t provide for themselves in retirement, it “ultimately becomes a government cost,” said DiNapoli.