Pension costs are on the minds of CFOs of those relatively few organizations that still have defined benefit plans, so much so that companies with long histories of providing a pension are chipping away at the benefit all in the name of the next earnings report. While the traditional pension is fast disappearing for the private sector (a very bad strategy in my view but do not get me started on that one), it is still strong among public employees, strong but a growing problem. CalPers is a good example.
Pension funds are in a bad way these days, and some are worse than others because they were underfunded and because they provide overly generous benefits that are very costly. Again, public plans are a good example where in some cases the pension is based on the last years pay and where overtime is manipulated to provide a pension greater than the salary for active employment. Early retirement is also generous when compared to the private sector. How does this happen? Well there are strong public unions and weak public politicians and a disconnect with the people paying for it all. While the citizens of the various states bear the burden of these costs and in some cases mismanagement of the plans and the funds, the majority of citizens have no such benefits. School taxes, property taxes, sales and income taxes are all reflective in part of the tremendous pension liabilities and expenses that our politicians promised to state workers . The public pays little attention, politicians have a short span of attention and no long term view and unions get politicians elected, it works quite well don’t you think?
There is nothing new about all this, but what is new is that the pension funds are caught with their pants down so to speak, as the markets revealed how precarious these promises can be.
The pension debacle faced by many states is just one example of a public plan in action and nobody is minding the store.