Pension for Disruption

We get pretty angry at big bonus payments to employees of government-bailed companies. On March 19^th, the House of Representatives approved a 90% tax bill on bonus compensation paid to employees earning over $250K at companies – not exactly mentioning AIG by name – that have received government bailout cash. Why leave 10%? One Congressman (NY Democrat, Charles Rangel) said something like: “Gotta leave something for the states.” Are private sector employees wishing they had chosen a life in “public service” (the euphemism that means you work for the government) instead?

There was a time where working for the government meant self-sacrifice for the good of the public at low pay. With the except of a few highly paid (for how much longer in this economy?) union workers, senior corporate management, and a few of the remaining professions, most Americans now receive pay and benefit packages that pale in comparison to state, local and federal employees.

How many companies today will let you retire – assuming they even have a retirement program – at age 55 or after as little as 20 years of service? Add that you get a “defined benefit plan” – where (often corrected for inflation) you get a fixed payment even if the pension fund falls through the floor, since taxpayers are often “funding as they go.” Social Security funds also deliver a defined benefit, while such plans are rapidly leaving the private sector in favor of plans that accumulate invested cash and payout whatever remains in that fund (over time, in a lump sum, or perhaps as an income stream from a purchased insurance policy).

How many private employers even provide health insurance these days (48 million Americans don’t have health insurance), and of those that do, how many pay 100% of the cost of the policy premium (not to mention a share of the deductible)? Pension and healthcare issues have been the huge issues facing the automakers, without which there would never have had to have been a bailout in the first place. And it costs thousands a year ($6K-$12K depending on plan and age) to maintain these policies for individuals and families.

The Pew Charitable Trusts' Center sees states alone shelling out about $2.73 trillion dollars to their pensioners over the next 30 years. While most folks in the private sector have to rely on a feeble and underfunded Social Security system and what they can salt away in a 401(k)-type plan – the value of which this market probably has destroyed – government workers will tell you that these benefits were one of the major motivating factors in their signing up for the job in the first place.

theDaily.deal (March 4^th): “And yet state and local workers get angry when the likes of New Jersey Gov. Jon Corzine says state workers have to take 12 days of unpaid leave to help combat the budget deficit. Or teachers get upset and threaten to strike when school boards try to do what has been common practice in corporate America for a decade or more -- have them contribute to healthcare premiums out of their paychecks.” Teachers don’t make a lot of money, even if they get their summers off, and most government workers are cherished and dedicated public servants. But this pressure on government retirement and healthcare costs is a huge issue for a graying population… and the next generation that will be asked to bear this burden along with the repayment of our massive deficit.

Just based on crass economics alone, it seems that a national healthcare system – universal medical coverage – is a no brainer even for fiscal conservatives. The time has just come. For all but the most diehard doctrinaire anti-government support believers, the battle will be over who gets what and how it is funded, not whether we need health care anymore. But we are also going to have to struggle with how to readjust governmental pension benefits into a model that we can actually pay without simply printing money and inflating the economy (the result if the federal government has to bail out the states in this arena, not to mention their own Social Security and federal pension issues). Life is getting a lot harder.

I’m Peter Dekom, and I am looking for answers.