It's an inevitable fact: in our crumbling retirement system, millions of older Americans have no way to retire in dignity. Individual workers want a full pension and are ready to assume their responsibilities. Unnecessary expenses are not why most Americans do not have a decent retirement; it is the voluntary, self-made commercial system that failed Americans planning for their retirement
In the United States, pensions for public sector employees are maintained as encompassing everything that affects state budgets. Listening to panic and misinformation, one might think that the pensions were exaggerated, excessive, and destroyed. To avoid a fiscal meltdown, these lawmakers insist that drastic measures are essential because pension systems cause a "crisis."
But this is not the case. There is no doubt that public pension funds are viable and have sufficient resources to pay for current and future benefits.
Almost all 14 million full-time people working for local and regional governments are eligible for traditional pensions, guaranteeing a fixed income for life for those who have worked for these governments for many years. To be able to pay these old-age benefits, governments have to pay their pension funds each year, enough to cover employee benefits in that year. But governments have funded these pensions at least $1.28 billion and probably much more. Employees and retirees from state and local governments are confident that they will receive a pension. Public pensions enjoy strong legal guarantees and must be paid even if governments have not saved enough money.
But local and regional governments face a huge problem: they contribute more and more to pensions every year, both to pay for the most generous benefits and to compensate for accumulated shortfalls. How does this affect local governments? That's what you need to know.
Even in the early years of my study, cities, and municipalities each year contributed to very different funds. It's not just because big cities like Dallas and San Francisco have a lot more employees than smaller cities like Ulysses, Kan. Even if local contributions to pensions per active employee or a percentage of total income are taken into account, there is a considerable variation. A small portion of local governments has much higher pension costs than the rest of the package. In 2007, for example, the mid-sized local governments we surveyed paid $ 4,901 in pensions to full-time equivalent employees and accounted for 3.1% of their total income. About 15% of governments spent nearly twice as much.
The largest and wealthiest cities spend more per employee on pensions. The same is true for states with stronger public sector unions and collective bargaining for public sector employees. None of this is surprising. After all, government wages tend to be higher in collective bargaining places and promised retirement benefits are based on employee wages. Even before the "great recession," counties and cities spent very different amounts on pensions.
Over the past decade, local government pension contributions have increased almost everywhere: red states, blue states, states with strong and weak unions. Nearly 90% of the cities and counties surveyed experienced an increase in their pension contributions between 2005 and 2016, adjusting to inflation. In three quarters of cities and municipalities, pension costs increased in total revenues.
But again, this growth varies considerably among local governments. Recall that the average local government spent $ 4,901 per employee and 3.1% of total retirement income in 2007. Between 2007 and 2016, average contributions to local government pensions increased by $ 1,216 per employee and consumed 0, 7% extra income. However, in 15% of cities and counties, this number reached $ 5,314 per employee and consumed about 3% more than total revenue. In cities like San Jose and Joliet, Illinois, pension costs exceeded 10% of total revenue.
Takeaway: The costs of local pensions have increased almost everywhere. In some places, growth has been modest; in others, significant.
Most local governments do not react by increasing their revenues, for example, by raising taxes. Instead, they usually try to survive by reducing the local government workforce.
On average, a city where pension costs doubled during this decade responded by reducing the total number of jobs per capita by 6.4%. In a city of 100,000 people, it is usually a loss of about 65 employees. These workforce reductions are more pronounced in places where unions and collective bargaining are strong. And governments have suppressed various municipal and municipal employees, including police officers, firefighters, and health workers.
Why would they do this? The main activity of local government is the provision of services. Staff costs are an essential part of the typical provincial budget. Increasing taxes is politically difficult. For local authorities who face higher pension costs, staff costs are a natural occurrence.
Outside of public opinion, public sector pension costs consume discrete and persistent budgets of local governments. As a result, the provincial government workforce is in decline in many places. This does not just mean fewer public works for everyone. This means that all people who depend on local government services risk losing their support. Many Americans assume that their local governments will provide public services, such as police protection, fire protection, street cleaning, and garbage collection. But it may be more difficult for local governments to assume these essential functions because of rising pension costs.
Elliot Kravitz, ATP