He Was a Retiring Sort

The fiscal winds are blowing cold in state capitols as legislators face the inevitable conclusion that their tax base and committed capital simply cannot handle the existing, much less the expected future, load of retiree benefits, both pensions and healthcare. Older state and municipal employees are smelling burning flesh in the air, hoping that it is not their own. While so many workers in the private sector, with home values and investments decimated, are expecting to work much longer, perhaps never retiring, state workers are beginning to believe that if they stay too long, the plans under which they have expected to retire for so many years may actually be terminated, reduced, negotiated down or simply de-funded.

So their reaction has been quite different from the private sector: retire earlier so you can claim that your rights have already vested and cannot therefore be changed. “The numbers of retirees are way up in Wisconsin, where more applications to retire have been filed this year than ever before. Workers in California’s largest public employee pension system have retired at a steadily increasing rate over the last five fiscal years. In New Jersey, thousands more teachers, police officers, firefighters and other public workers filed retirement papers during the past two years than in the previous two years.” New York Times, December 5^th.

Traditionally, government jobs have lured applicants because of their purported job security and solid health and pension benefits. Uniformed services – from the US military to firefighters and police officer – have further benefits from shorter required work periods until full vesting to larger percentages of terminal salaries being the determiners of the level of retirement benefits, many of which come with luscious cost-of-living escalators. Indeed as private retirement plans move increasingly to defined contribution plans (where you just get what’s in the kitty when you retire), governmental employees usually enjoy defined benefit plans where retirement income is simply set at a fixed percentage of terminal earnings.

But in today’s era of financial collapse, the myth of low paying government jobs seems to have vaporized in a flurry of downsizing and wage cuts in the private sector. Indeed, the aurora of government job security and indestructible retirement and health benefits also threatens to join the world of nostalgic mythology, particularly as private taxpayers, facing their own reduced lifestyles, are increasingly bitter that they are paying government workers for benefit that such private workers will never see.

What makes this scenario worse is that 13% of the population of the United States is over 65, and with the massive population bulge we call the Baby Boom generation retiring in waves, the number of retirees sipping at the government pension/retirement trough is expanding more rapidly than ever. Combined with this is a substantial decrease in traditional employment, where such younger workers at least contribute to pension plans for older workers… a seeming Ponzi scheme that appears destined to fail.

For some communities, these accelerating retirements have at least moved people off one set of active books into secondary accounts where allocations are made for retirements and layoff payments: “In some places, the rise in retirement has brought welcome and needed financial news. Kansas announced last month that it would save $34.5 million over two years because more than 1,000 workers had agreed to accept cash and health insurance incentives to leave. State officials said they had yet to determine which of the positions of departing workers they considered critical enough to refill.

“But some experts and workers question the ultimate result of so much leaving, saying it is already leaving some governments short-staffed (and, in some cases, obliged to pay overtime) and at risk of losing institutional knowledge and technical expertise as older workers vanish.” NY Times. The system is being taxed, perhaps inevitably to the breaking point, and while all the attention is on Washington and the federal deficit, the problem at the state and municipal level is reaching “intolerable,” and local communities don’t have the federal government’s ability to “print money.”

“Still, even with lingering queasiness over jobs and the larger economy, there are other signs that the mood of public workers is turning toward retirement, a worrisome possibility for some already precarious, underfunded pension plans… In 2009, a survey of more than 400 state and local governments found that about 85 percent of public workers were postponing retirement (presumably because of the grave economy), while fewer than 9 percent were accelerating their retirement dates. This year, a similar survey by the Center for State and Local Government Excellence, a nonprofit research group, found 40 percent still delaying their retirements, with nearly a quarter speeding up their retirement dates.

“Already, the trend is apparent in places where lawmakers have made the clearest calls for decreasing workers’ benefits or increasing their contributions for health care insurance and pension plans. And in the last two years, 41 states have made significant changes to at least one of their retirement plans, the National Conference of State Legislatures found.” NY Times. Major cities like Harrisburg, Pennsylvania and Birmingham, Alabama have sought protection under federal bankruptcy laws, and while those actions are anything but clear, the harsh reality is that states and municipalities are running out of money with nowhere to turn. They most certainly are looking for relief from their retirement obligations.

What we are seeing around us is a big “reset” in the way we will be paid and how we will live. Those with benefit that were created and vested prior to the big reset are seen to have inherited a windfall that most taxpayers never envisioned. The answer lies not just in figuring out how to continue governmental retirement benefits, but on how to retrofit our entire society to survive through the downsizing we call our future.

I’m Peter Dekom, and I find myself squirming uncomfortably when I do the math.