Bureaucrat pension plans create false security and violate taxpayers’ rights

This is the first article I posted, back in 2012, on the problem with the public sector pension plan in Wyoming. I will publish more in the days, weeks and months ahead.

(First published by Maureen Bader on February 17, 2012)

The Wyoming legislature failed to consider HB0091, a pension reform bill, and is bad news for Wyoming taxpayers. In many states, the plans that are supposed to pay government workers their promised pension do not have enough money. But taxpayers, many of whom do not even have a pension plan, are taxed to put more money into the bureaucrat retirement kitty. HB0091 attempted to lessen that risk. It would have closed the current pension system to new employees and provided them with the type of pension plan now common in the private sector.

Pension plans come in two basic types: defined benefit and defined contribution. Defined benefit plans promise a defined payment when a person retires. Defined contribution plans, on the other hand, pay out depending on how much is contributed into the plan and how well the money is invested.

Defined benefit pension plans were the norm in days gone by. They were developed at a time when relatively few retirees took money out of the plan and many workers paid in. These plans held a gold-plated promise of retirement security that Bernie Madoff would have been proud of. In fact, they are nothing more than Ponzi Schemes creating big financial risks for organizations, retirees and taxpayers.

Today, the private sector is moving away from defined benefit plans. 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 gold-plated 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. Organizations that still have defined benefit pension plans face huge financial risks.

General Motors is a case in point. In the past, General Motors gave mostly unionized workers gold-plated defined benefit pension plans as a perk to maintain labor peace. In 2009, General Motors’ pension plan was short about $17 billion dollars. When the U.S. government bailed out General Motors, it saved the pensions of more than 120,000 retired salaried employees and 400,000 retired hourly workers with taxpayer’s money. If the government hadn’t bailed out General Motors the pension cupboard would have been left empty those pensioners could have been left without a pension.

Defined benefit pension plans now mostly exist in the government sector and these create financial risks for taxpayers and both current and future pensioners. For example, when the pension fund in the town of Pritchard, Alabama ran out of money in 2010, the town stopped sending pension checks to pensioners. Not even government workers are safe when government runs out of money because there will be no bailout.

In Wyoming, the shine is off the state’s gold-plated pension plan and people running the retirement system know it. The state’s Retirement System Director Thom Williams, in a presentation to the Joint Appropriations Interim Committee, told legislators the existing defined benefit pension plan was short more than $1 billion and it would take decades before the fund was back in the black. To close this gap and make sure the pension plan has enough money to pay the pensions of retirees, Mr. Williams proposed creating a new tier of benefits within the existing defined benefit plan for new employees. However, this means new government employees will be forced to fund gold-plated benefits for current retirees and get less of a benefit in the future. It also does nothing to remove the financial risk to taxpayers and ultimately, the retirees themselves.

                                                                                                

HB0091 was set aside this time, but it will be back. Not only are government sector defined benefit pension plans leaving a legacy of debt and higher taxes to current and future generations, they may not even fulfill the promise of paying retirees.  To ensure the financial sustainability of these plans, new government employees must be placed in a defined contribution plan, as called for in HB0091, just like employees in the private sector. Many taxpayers face an uncertain retirement future. Taxing them to fund bureaucrat retirement bliss, however illusory, is nothing more than taxpayer abuse.