Benjamin Franklin once said “When the well is dry, we know the worth of water.” The same could be said today for public pensions that aren’t fully funded. Sooner rather than later they will dry up and it’s public workers who pay the price. If you don’t believe me, just ask the 200 retirees of the East San Gabriel Valley Human Services Consortium, known as LA Works, who just had their pensions slashed.
There’s many hands that played a part in what’s happening to the LA Works retirees: policy leaders who originally set up the risky pension structure, which eventually had no tax base nor revenue source; the four cities that didn’t keep up with their pension payments and later refused to pick up the tab when the consortium folded; and the California Public Employees’ Retirement System (CalPERS), which never looked into the pension’s risky structure nor notified retirees that their employers has fallen behind on payments. And it’s CalPERS that recently voted to cut the retirees’ benefits by as much 63 percent.
What has happened to LA Works retirees exemplifies the danger to all public employees and retirees when pension plans are systematically underfunded and jurisdictions fall on hard times. We saw a similar scenario play out last November when CalPERS voted to cut benefits for city of Loyalton retirees. In good faith, the city is making up the difference in benefits from what CalPERS refuses to pay.
State and local pensions across the U.S. are estimated to be $5 trillion in debt. CalPERS’ pension debt increased by $170 billion since 1999. This massive growth in pension debt puts public employees and retirees at risk when cities run low on money.
While pension debt isn’t new, neither is the decision to cut retirement benefits when plans can’t pay up. One just needs to look at Stockton, San Bernardino and Vallejo — all forced into bankruptcy with massive pension obligations, causing retirees to lose their health-care benefits. Looking past California, Detroit, Mich., Central Falls, R.I. and Pritchard, Ala., retirees have all taken hits to their health care and pension benefits because pensions weren’t being funded properly.
In nearly every scenario, retirement benefits were cut because policymakers over-promised and underfunded employees’ retirement futures. Making sure that pensions are being fully funded should be the number one priority for all policymakers. It’s pretty straightforward really, a simple lesson we all learned in adolescence, the importance of living within our means. Yet, when policymakers don’t, it’s the retirees who are dealt the blow.
Take for instance the LA Works’ retiree who spent 27-years at the consortium, turning down other job opportunities because she didn’t want to forgo her pension. Now helping to support her disabled husband, she faces poverty without the pension benefit she worked so many years for. Another retiree is at risk of losing her home with such a drastic reduction in her pension benefit. Another retiree questions how after paying into the pension fund for 25 years this could happen without employees ever being made aware of the risks. And the list goes on.
These retirees and countless others are the people whose futures policymakers are playing fast and loose with when they don’t meet their pension obligations. It’s up to state and local governments to ensure that their retirement plans are sustainable, fiscally sound and responsibly managed so that all retirees and employees get paid what they have earned.
Failure to fully fund pension obligations as they are incurred makes retirement security impossible. All workers deserve safe and secure futures, not a swift kick in the stomach because of a dried-up pension that should have been fully funded but wasn’t.
Chuck Reed, former Mayor of San Jose, is a board member of the Retirement Security Initiative, a national, bipartisan advocacy organization focused on protecting and ensuring the fairness and solvency of public sector retirement plans.
