I recently read an article regarding why companies are attempting to do away with pensions, the same scenario the federal government wants to eliminate Social Security, the retirement benefit Americans have worked their entire life. The biggest mistake companies or firms make is focusing on industry investments while ignoring changes to the economic environment that caused the “Great Recession” the economy is currently within. This is not looking good for the coming years, the end of pensions as we know it.
The business environment or congressional members have not pushed companies to pledge a new pension plan. Instead slowly deteriorating pushing employees away from pensions forced into either a 401(K), Individual Retirement Account (IRA) or both which depend on current market conditions. Like Social Security, this will affect many older workers and retirees who are set to retire in the coming five or ten years who are at risk of seeing their secured pension benefits either cut or eliminated as public and private sector related jobs deal with reduced budgets and debt acquired from depending on the world financial market or company greed.
In the Public Sector, the pension plan allowed public employees to retire after 30 years of service with 90 percent of their pay. This was good for public employees. Public employees in federal, state and local levels make up 20% of our economy. Under the Bush administration the federal government increasing the number of federal employees to what we have today. The number of Federal employees exceeds “two million people” which calls for smaller government. “In the months ahead, state and local payrolls are likely to shrink even further, while Federal employment is expected to hold steady”. Pension plans were based on salaries.
Public pension system is underfunded because Congress did nothing to reform funding the retirement benefits of state employees. What states may do is make adjustments increase the retirement age over the next few years and make the appropriate contributions “to shore up the pension system reduce spending in parts of the state budget in order to contribute to the pension system”.
At municipal and local levels, elected officials should not have pensions. Virtually 95% of all these positions are part time, which means they probably have a full-time job or careers elsewhere. They should rely on their primary livelihood for their pensions. The public sector gravy train must stop, and now is the time to roll back the cost of government spending at all levels. Taxpayers need a break because public sector government jobs across the country is set to run out of money in the next few years with states in budget deficits being the highest there ever was in history. Look at the State of Illinois deficit fiasco.
Illinois could be the first state to go bankrupt and in desperate need of funds. If states could go bankrupt, Illinois might be the first in history. Illinois has a huge unfunded pension liability. According to the Pew Center for the State, “Illinois is worst in the nation when it comes to setting aside enough money for its pensions”. State pension funds in 2008 found Illinois had set aside less of the money that’s been promised to its state workers and retirees.
It has been reported that the unfunded pension liability in Illinois is much larger than the pension funds’ assets, and has inflated to a shocking$77.8 billion that means every person living in the State of Illinois is on the hook to provide funding to the state pension plan. The state has to find assets to fund this system.
Illinois lawmakers have failed for years to set aside enough money for pensions instead they have ignored their obligation by skipping pension payments, employed tactics that did not work and borrowed money which underfunded the system. This past January, Illinois issued more than $3 billion in pension obligation bonds to make this year’s payment toward the state’s pension funds. The state must begin repaying that debt next year, when payment is due.
Other states have also been hit hard by pension woes. In Yonkers, New York policemen are retiring in their 40s on $100,000 pensions more than their cop salaries. In California, the state’s biggest pension fund, have soared while financing for higher education has been cut leaving the state with a $19 billion budget hole.
Pension funds have three sources of contributed proceeds, contributions from employees, the employer, and investment earnings. Public employers have often contributed less than what’s required then having to borrowing against retirement plans to avoid having state government cut budgets or raise taxes. Retirement pension systems were gravely under financed because they did not have sufficient funds to pay promised benefits. Taxpayers were not aware that pension debts caused employee lay off with teachers being the hardest hit at state levels.
Some are saying with the influx of immigrants receiving pensions then leaving after a short stay in America, pension cost has risen sharply.
State and local governments could be forced to cut spending and raise taxes or start pension reform. Current pension systems in a majority of states are legally protected and can never be altered. In the private sector, private companies often negotiate or force their worker’s to accept pension adjustments. But in public employment, even discussion of cuts is outlawed. Recently, states have begun to investigate legal action for pension reform. Both Minnesota and Colorado cut cost for existing state workers’ pensions are now facing pending lawsuits.
In the private sector, corporations are also experiencing pension crisis. Corporate pension plan have “cap their benefits and or no longer accept new employees or contributions” because of the downside of the economy as many corporations have huge deficits forcing these companies to dip into their profits to fund pensions.
What should be done to offset the pension disaster including not raising the retirement age? Congressional members across the spectrum the likes of Democrats, Republicans, Conservatives, Liberals, Tea Partiers, Left, Center Right wingers to push pension reform with their political might with an economic recovery plan. This plan should be cost cutting of federal, state and local base programs that will lower stabilize budget spending.
It is time to redefine risks between employer and employee in both public and private sectors creating retirement reform. Federal, State and local pension funds offer retirement programs. Because of the pension crisis, no pension option for the next generation of middle class workers. There is a chance the middle class will be left without receiving pension benefits or Social Security.