Right-wing media have used recent votes by California cities to change the pensions public workers will receive to attack all such pensions. In fact pensions for police officers, firefighters, teachers, and other public workers are not bankrupting states, and public pensions shortfalls at best need minor reforms to ensure their solvency.
On Tuesday, facing budget shortfalls, voters in San Jose and San Diego approved plans to reshape the pensions for public workers in those cities, including cuts in benefits and a move from traditional pensions to 401(k) programs.
Republicans have signaled that, emboldened by the election results in California as well as by the Wisconsin recall, they will fight more battles against public sector workers this election cycle. And the right-wing media stands ready to do its part.
During the June 7 edition of Fox's Your World with Neil Cavuto, host Neil Cavuto responded to the San Jose and San Diego votes by promoting cuts in public pensions:
CAVUTO: I'm not saying your target those people entirely, but you've got to target what is right now the biggest and most ballooning part of public cost across the country, and that tends to be pensions, benefits. It's unfair, but it's the reality of the times, I guess.
A June 7 Breitbart.com post claimed, "obscene pensions ... threaten to bankrupt to the country just like Greece, Italy or Spain" and that pensions and other benefits are "bankrupting America and all 50 of our states."
However, public pensions are not the cause of state and local governments' budget woes, and radical restructuring of those pensions is generally not necessary to make them healthy.
In a May 2011 report, the Center for Budget Policy and Priorities (CBPP) found that "[s]tate economies and budgets continue to struggle because of shrunken revenues and higher needs" and that: "long-term pension shortfalls are not the cause of current state fiscal problems."
Additionally, the report explained:
The long-term nature of the problem means that most state and local governments can fashion a plan that postpones significant additional pressure on state budgets for a few years until revenues have recovered from the current downturn.
Like the CBPP, a March 6, 2011, McClatchy Newspapers article, citing Boston College's Center for Retirement Research, stated public pensions are not bankrupting states. From the article:
Pension contributions from state and local employers aren't blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.
Though there's no direct comparison, state and local pension contributions approximate the burden shouldered by private companies. The nonpartisan Employee Benefit Research Institute estimates that retirement funding for private employers amounts to about 3.5 percent of employee compensation.
Nor are state and local government pension funds broke. They're underfunded, in large measure because -- like the investments held in 401(k) plans by American private-sector employees -- they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.
Pensions are only a problem because of the recession
Furthermore, in a February 2011 report, economist Dean Baker stated:
The size of the projected state and local government shortfalls measured as a share of future gross state products appear manageable. The total shortfall for the pension funds is less than 0.2 percent of projected gross state product over the next 30 years for most states. Even in the cases of the states with the largest shortfalls, the gap is less than 0.5 percent of projected state product.
Even though public pensions are not bankrupting governments, the recession induced pension shortfalls are a concern for some governments. Many pensions that suffered shortfalls will recover as the economy and stock market continue to recover. In a May 12 post, the CBPP stated:
[T]he funding ratio -- a comparison of the assets in state and local trust funds to the estimated cost of providing future benefits -- likely stopped falling in 2012 and will slowly begin to recover over the next few years (see graph). These figures are based on pensions' standard method of calculating the cost of future benefits, which is to use the historical average return on pension plans' assets (roughly 8 percent) to discount future costs. (Some analysts believe that a lower discount rate should be used, however, which would result in lower reported funding ratios.)
Under what they consider the most likely scenario for future growth in the stock market and the economy, the Boston College researchers project that state and local pension trust funds will be large enough by 2015 to cover 82 percent of future liabilities. Many experts consider a funding ratio of 80 percent or higher to be adequate.
To be sure, that 82 percent is just a projection, which assumes continued growth in the stock market and future returns on pension-plan assets close to the historical average.
CBPP illustrated this point with this graph:
Other public pension funds only need minor changes to ensure solvency. Baker, in his February 2011 report found "most states are facing shortfalls that appear easily manageable." The CBPP listed a series of reforms in its May 12, 2011, report, recommending, among other things, that states change rules to stop "uncommon but damaging abuses" and gradually boost contributions and scale back benefits for employees.