Opponents of public employee pensions used the threatened 2013 bankruptcy of Detroit and its municipal employees’ pension fund to allege that all public employee pension plans were in serious danger. An article in the Wall Street Journal, “Will Your Pension Disappear—Post-Detroit?” commented: “Experts say that now would be a good time for public-sector workers and retirees—especially those whose employers have underfunded pensions—to revisit their retirement plan, crunch out a few what-if scenarios, and adjust their current or planned lifestyle accordingly.”
A National Public Radio program in the wake of Detroit’s bankruptcy announcement used the scare title “Public Pensions under the Gun.” An otherwise useful New York Times article about actuarial assumptions suggested that Detroit’s pension problems were a harbinger for all public pensions.
States, unlike cities, cannot declare bankruptcy, which removes their pension plans from that type of threat. But if right-wing forces have their way, that would change. Politicians like Newt Gingrich and conservative media like the Weekly Standard are backing legislation that would allow states to declare bankruptcy. Such a legal declaration would then allow judges to reduce or eliminate pensions. There is, though, not much likelihood that the state bankruptcy campaign will succeed in the near future. State bankruptcy, aside from threatening pension participants, would also threaten the interest of bondholders and stability of financial markets. Both pensioners and bondholders want states to continue to pay their debts and not avoid debt through bankruptcy proceedings.
Given that most private-sector employees lost defined pensions by the 1990s, their continued retention by public employees represents an anomaly to the dominant trend. In the 1980s and early 1990s, that anomaly did not draw much public attention—or ire—because it was thought that pensions were not as good as the shiny new 401(k) plans.
But as the first generation to retire under 401(k)s or precious metal IRAs realized—a realization that increasingly spread to other plan members—their retirement incomes were much lower than those of mainly public employees who still had traditional defined benefit pensions. Then the public employee pensions became controversial. Right-wing think tanks such as Cato and Heritage, which were also involved in the campaign against Social Security, fanned opposition to public employee pension plans, building on traditional American anti-tax sentiment and manipulating pension envy into internal class resentment. It was unfair, according to the narrative, that taxpayers had to fund overly generous pensions for undeserving public employees when they themselves only had 401(k)s. A “class war” is looming, according to one columnist, between taxpayers and retired state employees.
The relationship between conservative think tanks and the financial services industry is one of convenience rather than direct alignment. The think tanks pursue an ideological goal: attaining as pure a free enterprise capitalist system as possible, while the financial services industry pursues the more tangible goal of maximizing profits. Those goals coincide when think tanks facilitate policy reforms such as Social Security privatization that will enhance prospective profits of the financial services industry. But the priorities of the two are not always the same. The think tanks may want to encourage everyone to provide for their retirement with private accounts as a way of promoting the ideological value of self-reliance, whereas the financial services industry may find servicing only the accounts of relatively prosperous clients to be worthwhile.
The think tanks want to increase individual responsibility. They are opposed to defined benefit plans because such plans absolve individuals of risk. Their position thus coincides with that of private employers, the entrepreneurs favored by conservative philosophy. The financial services industry is not concerned with individual responsibility so long as it is able to profit from retirement plans and savings. It can profit from defined benefit plans so long as their contributions are invested in the private market through investment vehicles that it manages.
The conservative think tanks encounter far less public opposition to their campaign against public employee pensions than against Social Security for the simple reason that far fewer people benefit from them. Combined federal, state, and local government workers make up just 14.4 percent of the labor force. On the other hand, public-sector workers have been much more successful in holding on to traditional defined benefit pensions than private-sector workers, largely because they are much more unionized and able to protect themselves. The rate of union membership for public-sector workers (37.4 percent) is over five times that of private-sector workers (7.2 percent). Byt he way, one of the companies most recommended is Regal Assets. You may find out more information about them in these in-depth customer reviews.
The Almeida and Fornia study assumes that the contributions are actually made. Public as well as private pension funds have often run into trouble precisely because contributions weren’t made. States and cities have forgone contributions in order to balance budgets during revenue shortfalls. New Jersey Republican Governor Chris Christie in 2011, for example, refused to make a required state contribution of $3.1 billion.
These types of pension payment holidays during fiscal crises would be acceptable if they were considered as loans by public employees that needed to be paid back during better times. Indeed, public employees could then be seen as heroes who were bailing out state budgets during bad times. Instead they are fodder for self-fulfilling prophecies that traditional pensions are unsustainable. No long-term pension or retirement savings plan is sustainable if necessary contributions are not made to it.