In a perfect world, we would work for a company for a career, retire and receive a monthly pension for life. That world never existed for most people and for those who came close it is rapidly disappearing. Employers began eliminating the defined benefit pension shortly after ERISA came to be and the ongoing decline has continued. Most employers probably wish they did not have a pension plan at all given current interest rates and gyrations of the stock market. That is not good news for workers who as we know, are increasingly on the hook for their own retirement income.
There is one exception and that is government workers who typically enjoy not only a traditional pension, but also a quite generous one, frequently with guaranteed cost of living adjustments, something unheard of in the private sector. However, there is trouble in paradise as governments are now (finally) coming to realize they cannot pay for all the promises made by politicians over the years to government workers and their unions.
This is not the fault of the workers who like all of us seek the best deal they can get, but that does not change the reality or the facts. Somebody has to pay for this generosity, today the taxpayers are not inclined to do so, and the states are not likely to go deeper in debt.
Here is a broader perspective of the problem from the New York Times.
Here is an extract from Bloomberg News about San Diego’s struggle with the problem.
San Diego May Use Bankruptcy to Roll Back Benefits: Joe Mysak
June 16 (Bloomberg) — The city of San Diego should consider Chapter 9 municipal bankruptcy to help it reduce fringe benefits, pension and health obligations.
That’s one of the suggestions made by the San Diego County Grand Jury, which does the normal duties of recommending indictments as well as reporting on local governments and special districts. San Diego is the fifth major city in the U.S. this year, and the second in California, where people are talking about bankruptcy as a means to “restructure and reorganize their assets and debts while providing relief from current and future obligations,” in the words of the grand jury’s 22-page report, published on June 8. San Diego has unfunded liabilities of $2.2 billion in its pension plan and $1.3 billion for health care, which the report calls “unsustainable.” More than two years of cutting budgets and the mounting public pension crisis have made the unthinkable an option, maybe even an attractive one. “Municipalities are not required to raise taxes or cut costs to the bone before filing for reorganization under Chapter 9,” the grand jury report says, quoting from a presentation at an October 2009, San Diego County Taxpayers Association seminar.
San Diego has been wrestling with pension and benefits costs for years. In 2006, the city settled fraud allegations by the Securities and Exchange Commission for failing to disclose to investors that its pension system was underfunded.
There is a lesson here. Never forget that the promises made by politicians are not free and ever expanding entitlements will be paid for one way or the other (and there are many “others” to consider). This is not unique to state and local governments, the best example is the federal government. We all slop at the trough of entitlements, we better hope there are sufficient farmers left to keep it filled.