Taxpayers contribute $7.70 for every
$1 contributed by bureaucrats
Governor Mead’s recent budget
announcement is potential gold for government workers. In addition to a salary
increase, the governor proposes to roll back modest pension reforms that
provided some relief to taxpayers.
Instead of forcing taxpayers, many of
whom do not even have a pension plan, to pay more towards the pensions of
government workers, government workers must themselves contribute more to their
own pension plans.
Legislation passed in 1979 required
the State of Wyoming (read – taxpayers) to fund a portion of its employee’s
pension plan contributions. By 1991, the Wyoming Legislature authorized state
agencies to pay all of the employee’s contribution. In 2010, however, the
employee-contribution myth came to an end when state employees began
contributing what amounts to a smidgen – 1.43 percent of their salary – to
their own pension plans. Taxpayers pick up the remaining 12.69 percent.
In 2012, the legislature further
reformed this contribution inequity by increasing bureaucrat’s contributions by
0.25 percent, to 1.68 percent. Taxpayers, too, took a hit and now contribute
12.94 percent into these pension plans. This means that for every $7.70
contributed by taxpayers, bureaucrats contribute $1. This remains
burdensome to taxpayers, but represents a big improvement from the time when
bureaucrats contributed nothing to their own retirement.
And yet the governor wants to claw
back this taxpayer relief.
The Wyoming Retirement System manages
eight pension plans for government workers. As of February 2013, the Public
Employee Plan (the largest of the eight plans) was 72.8 percent funded. This
means that if the plan closed down today, pensioners would receive 72.8 cents
for every dollar promised or taxpayers would be on the hook to bail out the
plan. To reach a 100 percent funding level by 2043, the Wyoming Retirement
System says contributions must go up to 17.9 percent, instead of the currently
legislated 15.12 percent.
But who will pay for this
contribution increase? If the governor has his way, taxpayers will bear the
burden of higher contributions.
The legislature is looking at
increasing employee contributions to 1.93 percent and raising taxpayer
contributions to 13.19 percent. This would reduce the inequity to 6.83:1, which
is a move in the right direction.
But in an election year things rarely
move in the right direction for long. The governor wants taxpayers to pick up
not only the bureaucrat’s current increase, but their previous increase as
well.
Government workers already benefit
from a type of plan rarely enjoyed by the people forced to fund them. Most
government workers enjoy defined benefit plans, a type of plan that has mostly
disappeared from the private sector because businesses cannot afford the massive
future liability they create.
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 and so are, in
effect, Ponzi schemes creating big financial risks for organizations, retirees
and taxpayers.
Today, defined benefit pension plans
exist mainly in the government sector.
According to the Bureau of Labor
Statistics, in the Mountain geographical area to which Wyoming belongs, only
about 63 percent of private sector workers have access to any type of pension
plan at all, while about 88 percent of government workers do.
While 83 percent of government
workers have access to a defined benefit plan, only 12 percent of private
sector workers do. If a company in the private sector has a plan, it is most
likely a defined contribution plan.
It will take years to fully fund the
state pension plan as it is currently structured. Pension contributions must
increase, but treating taxpayers like cash cows is shameful. If Wyoming
continues to offer government workers defined benefit plans, the governor must
not turn back the clock but instead require government workers to contribute
equally to their pension plans.
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