Four Things You Need to Know About the Pension “Crisis”
Across the United States, public employee pensions are being held up as the embodiment of all that ails state budgets. Listening to the panic and misinformation, you’d think pensions were overblown, excessive, and headed for ruin. To avoid a fiscal meltdown, these lawmakers insist drastic measures are essential because retirement systems are causing a “crisis.”
Except that it’s not the case. The fact is public pension funds are sustainable and have sufficient assets to pay benefits now and into the future
Blaming pensions for state deficits is obviously misplaced. As Dean Baker, co-director of the Center for Economic and Policy Research, reminded Congress last week: “This crisis was not due to an epidemic of fiscal irresponsibility infecting elected officials across the country. Rather, it was attributable to an economic collapse of a magnitude that the United States had not seen since the Great Depression.”
This hasn’t stopped state legislatures in numerous states from pushing proposals that would severely undermine the pension system. The stakes are high. The campaign against pensions not only jeopardizes the secure retirement earned by public employees, it could also weaken the economic recovery.
(The points below were excerpted and adapted from a statement submitted by the National Education Association to the House Oversight and Reform Committee on March 15 for a hearing on state and municipal debt.)
There is No Pension Crisis
Like all investors, public employee pension plans were hit by the downturn in the stock market, but they are durable and efficient and, over time, they can recover their losses.
Pensions are pre-funded. Currently, $2.7 trillion is already set aside in pension trusts for current and future retirees. Boston College researchers project that if the assets in state and local pension plans were frozen tomorrow and growth in investment returns came to a halt, public plans would still be able to pay benefits for years to come.
Public employees should not be blamed because some states did not make adequate pension contributions in the past or because Wall Street abuses triggered a recession that led to massive unemployment and the loss billions of dollars in investments. Nevertheless, in the past few years, many states have made changes to benefit levels, contribution rates, and plan design structures and local governments have made similar fixes to their plans. Most importantly, only a year after suffering record investment losses, many of the nation’s largest public pension plans are reporting double-digit percentage gains for the budget year that ended in June 2010.
Pension Benefits for School Employees Are Modest
The pension of a full career education employee replaces only a portion of the salary earned while working, and educators’ salaries are so low that their pension provides only a modest living in retirement.
The average retirement benefit for public employees is $22,600 and for many of them, including nearly half of all teachers and over two-thirds of firefighters and public safety officers, it is in lieu of Social Security. State and local salaries on which these pensions are based are lower than those for private sector employees with comparable education and work experience, even when benefits are included.
Pension Dollars Boost the Economy
Public employee pension checks represent a vital, continuous source of spending across America. Some 7.3 million retired Americans receive a monthly pension check, which translates into enormous economic benefits.
More than 90 percent of public employees retire in the same jurisdiction where they worked. The over $175 billion in annual benefit distributions from pension trusts are a critical source of economic stimulus to these communities. Recent studies reveal that pension distributions generate almost billion in federal tax revenue and more than $21 billion in annual state and local government tax revenue, create 2.5 million jobs, and have and a total economic impact of more than $358 billion.
Retirement Security Helps Schools
Education professionals enter and stay in the profession, not for the money, but because they are dedicated to helping their students learn and prepare for the future. In order to retain the most accomplished individuals in our classrooms, the country should take care of them now and in the future.
Defined benefit plans are a proven tool for retaining accomplished public sector professionals. They provide public sector workers with a more secure and predictable pension than other types of retirement plans. These workers don’t expect to be wealthy, but they do expect and deserve to be able to retire with dignity and security after a lifetime of hard work.