Another view on public pensions

This past week, Governor Brown offered a proposal for pension reform.  In addition, a number of different interest groups have proposed initiatives that would dramatically alter the pension benefits that public sector employees receive.  In the interests of fostering a conversation about the issue and search for a solution, I offer the following proposal regarding the public pension “crisis.”  It’s a work in progress and is meant to begin the discussion and not to offer a comprehensive end product that solves everything. 

As a little background, yes, I’m a government employee, so it’s impossible to deny that I have some self-interest in the subject.  I started working for the state when I was 34.  My plans are to retire at the age of 55.  I believe I am typical of most State employees; those who begin working for the government at 20 and can retire at 60 with a 90-100 percent pension benefit are the exception, not the rule.

To me, “retire” doesn’t mean that I stop working.  It means that I no longer have to work for the man.  I will no longer have to work Monday through Friday for somebody else.  Instead, with approximately 42 percent of my ending salary as a pension, I’ll have enough that I’ll be able to provide for very basic needs while finding a way to generate additional revenue for whatever else I may want.  My kids will be at the end of their college years, my student loans will finally be paid off and I’ll have the freedom to do a little more of what I want to do. 

In coming up with this proposal, I’m making certain assumptions. First, that the current legal state regarding pension rights remains the same—meaning that vested pension rights cannot be taken away without violating both the Federal and State Constitutions.  Second, that just like with virtually every issue out there, extremes exist, but policies shouldn’t be driven by the extremes.  

The vast majority of public sector employees are not pulling down six-figure pensions. In fact, the average pension of a public employee is far, far below six figures.  In addition, the reality is that many public employees forego significant compensation to work in the public sector.  I could easily make two or three times what I make in my state job, but I choose not to.  Given the financial sacrifice I’ve made to work for the State, I don’t think a reasonable pension is too much to expect.  And 42 percent of my ending salary doesn't seem unreasonable.

Here's my proposal:

1. Pension benefits for government employees at the state, local and special district level should be set at a uniform level by State government, taking into consideration the varied cost of living in different parts of the state.  This way, government entities are no longer competing against each other.  There will no longer be contracts that include provisions that require a government employer to match the highest, or average of the five highest, benefit packages offered to others.  Being a firefighter or a police officer is serving in a capacity that, generally speaking, doesn’t exist in the private sector.  Why are government employers competing against each other?
2. Every employee, whether public or private, public safety or otherwise, must be expected to contribute to the cost of his or her pension.  I believe the employee covering 50 percent of the annual contribution makes sense.
3. A public employee’s pension should be based on an average of the last five years of his or her employment.
4. A public employee cannot access his or her pension as long as he or she is receiving compensation from a government entity—whether as a retired annuitant, contractor/consultant, or employee for a government entity other than that paying the pension.  This could hurt me, as one of the possibilities for me after I reach 55 years of age is the retired annuitant route.
5. The pension of a public employee (a) cannot exceed 75 percent of the five year average salary mentioned above; or (b) must be based on a maximum amount—say, $150,000, even if the employee averaged $200,000 in salary.
6. It should be obvious by now, but I believe a defined benefit plan should stay in place.
7. Members of STRS should be allowed to participate in the Social Security system.
8. More must be done to provide for the retirement security of private sector employees.  Private sector employers should be incentivized to once against assist their employees to meet their retirement needs.

That’s where I’m at with this now.  I surprised myself with a couple of things I came up with while putting this together.  I’m sure many of my fellow public sector employees wouldn’t like a lot of this.  I look forward to the comments.  If this goes well, I’ll turn to another issue in the next week or two.