Wyomings pension plans -- reform, ruin or bail-out

[Published by Maureen Bader, August 26, 2014]

Pension contributions to rise.

          ▪   Taxpayers now contribute $6.71 for every $1 contributed by bureaucrats.

          ▪   Taxpayers soon to be gouged at $7.08:1 before improvement to $6.21:1. 

Wyoming’s last legislative session saw movement in the direction of more government sector pension reform, and not a moment too soon. With only 77.62 cents per dollar promised available to pay retired state workers should financial disaster strike, Wyoming’s legislators recognize that the state’s pension plan contributions must rise. Fortunately, legislators also recognize that government workers themselves must contribute more to their own retirement. Problems inherent to the government sector pension plans are augmented when employees contribute little or nothing to their own retirement. Taxpayer contribution equity is the first step towards a pension system fair to both retirees and taxpayers. 

In 1979, Wyoming legislators 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, fiscal realities forced a change and employees began contributing what amounted to a smidgen – 1.43 percent of their salary – to their own pension plans. Of the 14.12 percent total contribution, taxpayers pick up the remaining 12.69 percent, or about 90 percent of the contribution.

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.

According to the Wyoming Retirement System’s (WRS) July 2014 report to Wyoming’s Joint Appropriations Committee, the Public Employee Plan (the largest of eight plans WRS manages), as of January 1, 2014 was 77.62 percent funded, up from 72.8 percent in February 2013. Although an improvement, it still means that if the plan closed down today, pensioners would receive 77.62 cents for every dollar promised during retirement, or taxpayers would be on the hook to bail out the plan.

To ensure the plan is around to actually pay retirees once they retire and minimize the risk of a taxpayer-funded bailout in the future, pension contributions will continue to rise.

At the moment, total pension contributions will rise from 15.87 percent of a government worker’s salary, to 16.62 percent in July 2015. The employer’s (read – taxpayers) contribution share at the moment is 13.82 percent, while the bureaucrat picks up the remaining 2.055 percent. This means taxpayers $6.71 for every $1 contributed by bureaucrats.

Nothing is ever simple in governmentlandia, however. To help bureaucrats pay for their own contribution to their own retirement, the legislature gave them a 2.5 percent pay increase. This represented a $37.5 million dollar hit to the general fund over two years, not including the $2 million in bureaucrat bonus payments. Assuming all bureaucrats got the same pay increase (an unlikely assumption, but work with me here), the net result of the increased pension contribution is a pay increase of 2.07 percent. That’s money not going to roads, to schools or staying in your pocket for you to pay for the things you want.

It gets worse. In July 2015, the employer’s contribution increases to 14.6 percent, meaning that for every dollar paid by bureaucrats, taxpayers pay $7.08. This doesn’t improve until July 2017, when bureaucrats’ contributions increase to 2.3 percent of their own salary to their own pension, and taxpayer’s contributions actually fall a bit, to 14.32 percent.

The current government pension plan is a legacy from a bygone era, holding a gold-plated promise of retirement security that Bernie Madoff would have been proud of. These Ponzi Schemes create big financial risks for organizations, retirees and taxpayers. Pension contributions must increase, but treating taxpayers like cash cows is shameful. It is time for pension contribution fairness – bureaucrats must contribute more to their own retirement.