Pension Tension

As the 112th congress began its session this week, several historic events occurred:

Right of the bat, history was made when Nancy Pelosi, America's first Old Navy mannequin to serve as Speaker of the House became the first such house minority leader when she handed over the gavel to John Beohner.  Boehner made history as well, being the first Oompa Loompa to serve as Speaker of the House.  But congress was just getting started.

In an historic display, congress proved to the american people once and for all that (1) it can come to a bi-partisan resolution and (2) congressmen really can read, when it resolved to read the constitution out loud in its entirety.  Let's not forget that many congressmen present had to remove the warning labels off their copies of the constitution in order to read them.

The house got to business when a young house member from Utah, Rep Jason Chaffetz, presented a resolution that congress will not bail out states' unfunded pension liabilities.  Chaffetz believes that states should be responsible for their own employees' pension plans and should not come looking for a handout when the tap runs dry.  A congressman calling for fiscal responsibility, another first.

Anyway, the pension crisis really is a problem.  Nationally, the states are harboring over $1,000,000,000,000 in unfunded pension accounts right now.  That means that the states have to come up with a million dollars a million times in order to meet the obligations they have promised their future retirees.  That's a lot of money, and Jason Chaffetz doesn't want to foot the bill.  How selfish.

Chaffetz feels that his state of Utah, named by the pew research center one of the nation's best managed states in 2005 and 2008, should not be punished for its success by having its taxpayers forced into bailing out states that have proven to be fiscally retarded.  Like I said, selfish.

I'm amazed at how readily our politicians promise things that they simply can't deliver.  Logistics seem to be an afterthought when they're legislating.  If they were thinking about logistics, Pittsburgh might have foreseen the hundreds of millions of dollars it may short its retirees.  So, here's my logistical solution.

States and municipalities need to quit offering extravagant pension plans and put the employee back in the driver's seat.  I was a federal employee for some time, so, though I have bailed out of that runaway train into the private sector, I do have a bit of experience in that arena.  Offering to continue to pay an employee a large percentage of his salary for the rest of his life after he gives you 15 or 20 of years of service is absurd.  By doing so, you create your own little (or big) ponzi scheme.  Eventually, more people are on the government's retirement dole than are paying into the pension system and the system collapses.

While I actually have a hard time believing that government employees deserve a better retirement than everybody else, I can understand the argument.  Firemen rescue, policemen protect, sanitation workers sanitize (unless they're from New York), etc. I understand that our lives would not to be the same if public employees didn't show up to work.  Then again, our lives might change just as drastically if all the nation's Walmart employees decided to stay home for a week or two.

The solution that would benefit all, as I alluded earlier, is to put the employee in the driver's seat.  Rather than offering an elaborate retirement package, governments should offer a great "company match" to its employees 401k accounts.  A "company match" of 5% is nearly unheard of in todays corporate climate.  I would propose a government match closer to 10% just to be nice.  Frankly, I would kill for such a deal.  For example, an entry level police officer in Utah can expect to make about $34,500 / year in base salary initially and over twice that if he works for 20+ years.  If he puts 10% of his salary into his 401k, that would magically become 20% / month.  If he invested that 20% / month at a reasonable 8% rate of return he could expect to have around $500,000 at the end of his 20 years.  Considering that the average retirement savings of a new retiree is under $70,000, I'd say he would be in a considerably better position that the average Joe.  And since we all know that all police officers die at age 59, that $500,000 would let him retire like a king.

I know it sounds harsh.  But reality is harsh.  And, the fact is, by promising pension plans that they simply cannot deliver, many municipalities have put themselves into a position in which, unless they get a bailout, they may not be able to give their retirees anything at all.  I'd much rather be realistic and have something to eat when I retire than rely on a near bankrupt pension plan for my late-life income.  Just sayin'.

All that requires one thing, though.  Responsibility.  Something, as I said earlier, that our country might just be finding for the first time in its recent history.