The
Wyoming Taxpayer is Tapped Out
(First published by Maureen Bader on December 17, 2012)
Wyoming’s state pension plan does not have
enough money in it to pay bureaucrats their promised pensions. To fix that,
legislators may increase contributions to the plan. The question is where will
the money come from? State employees, taxpayers or both? Government is looking
for ways to strengthen the plan but like so much of government policy these
days, it is avoiding a long-term solution, leaving both taxpayers and
pensioners at risk.
Pension plans come in two basic types: defined benefit and defined
contribution. Defined benefit plans promise a defined payment when a person
retires. This type of plan was developed at a time when relatively few retirees
took money out of and many workers paid in to the plan. Wyoming state employees
have defined benefit pension plans. Defined contribution plans, on the other
hand, make a payment to retirees that depends on how much is contributed into
the plan and how well the money is invested.
Today, most of the private sector has
switched over to defined contribution plans to ensure they are able meet their pension
obligation to retirees. According to the Bureau of Labor Statistics, in the
Mountain geographical area to which Wyoming belongs, about 84 per cent of
government workers have access to defined benefit plans, while only about 20
per cent of private sector workers do. In fact, only 48 per cent of private
sector employees have a company pension plan at all. If a company in the
private sector has a plan, it is most likely a defined contribution plan.
Pensioners who still have defined benefit pension plans face huge financial
risks. For example, one day the City of Central Falls in Rhode Island simply stopped
sending pension checks to pensioners because its pension fund ran out of money.
In fact, Wyoming’s state employee pension
plan is only about 82 percent funded. That means, should the plan close down
today, the government would only have enough money to pay 82 percent of what it
promised retirees.
Wyoming’s legislature made a few pension reforms
in 2012 that will save Wyoming taxpayers $1.2 billion over 30 years and reduce
the anticipated unfunded liability by $2.9 billion. Now, still with an unfunded
liability of $1.275 billion, it is looking to increase the amount contributed
to the plan each year. Currently, the taxpayer contributes 7.12 percent, or $128.5
million per year to the employee plan, while employees contribute 7 percent, or
about $126 million. If contributions increase beyond this by between 2 percent
and 4 percent, the plan could be fully funded in 30 years. This means, however,
that the taxpayer could be on the hook for an additional $74 million per year to
fund the pensions of government employees -- employees whose compensation
packages are already more generous than many in the private sector.
Wyoming legislators are developing a bill
to increase contributions. At the moment, the plan is for state employees to
pick up the tab for the increase. However, government workers are a savvy group
with easy access to legislators, so expect amendments to any bills presented to
the legislature in January that have employees picking up the bill.
If government forces taxpayers to put at
additional $74 million per year into state employees’ pension accounts, that
means it has $74 million less for priorities such as road maintenance -- or to
leave in the pockets of taxpayers to fund their own pension plans. Everyone
must save for his or her retirement, but the government’s solution is based on
a reality that no longer exists. To provide security to current and future
government retirees, and to ensure that taxpayers are also able to save for
their retirements, the state must move to a defined contribution plan in parity
with private sector pension benefits.
