Public employee pensions

http://www.sfgate.com/columnists/matierandross/

This article talks about all the City of San Francisco retirees making more than $100,000 per year. A problem that is widespread throughout our country.

Pensions and social security promises at the city, county, state and federal governments are the silent killer of our future economy. Just like a family living the good life on their credit cards and home equity loans until the debt catches up with them.

Pensions and our Social Security system are a way that politicians avoid confronting costs today and push the problem onto future generations. Pensions are also a great way for the public sector to pay themselves substantially over market and hide it from the public for a decade or two.

The private sector (other than our foolish auto industry) has moved aggressively to replace defined-benefit pension programs with 401K and equivalent programs. By doing so the companies know today what their costs actually are and the responsibility for managing the investment going forward lies with the employee.

These public pension programs typically pay the retiree based on their last few years income. So given the formulas, the employees predictably “game” the system as you and I would do. They work extra overtime and they work hard to get promotions their last couple of years because they know that every dollar they earn in the last couple years pays back multiple times.

Is it any surprise that the average private employee in California today earns about $45,000 per year (including benefits) compared to the average public employee earning about $85,000?

Not only could this problem easily bankrupt many local governments, the US government (though the Pension Benefit Guaranty Corporation) guarantees nearly 44 million Americans and 29,400 pension plans. What are the chances that our government is charging and setting aside enough to cover all the future problems? Somewhere between slim and none. Another unfunded liability for our Federal government.

Pension programs in the private sector used to be the rule. But they installed new 401k programs, froze the benefits and changed for the better. Do you hear any discussion of government at any level making this fundamental change?