Public Employee Retirement Benefit Distributions and Its Future

This morning, the Washington Post reports:
The retired city administrator of Vernon, Calif., pulls down a pension of $43,320.53 a month - or close to $520,000 a year - through the underfunded California Public Employees' Retirement System (CalPERS), which covers about half of all government workers in the state and is the nation's largest public pension administrator.
Stories like these happen often enough, and even more often, they constitute fodder for the right wing assault on not outsized benefits but on collective bargaining right itself of the American worker. And yet,
Fat pensions like Malkenhorst's are not typical, of course. AFSCME, which is the largest public-employee union, says that its average member earns less than $45,000 a year and receives an annual pension of roughly $19,000.
Public employees across this country, for the most part, work hard and are able to retire with some dignity and a small pension. And yet, a small portion of them make out like bandits. Dean Baker of the Center for Economic and Policy Research estimates the following from the numbers in the Post article:
...this means that roughly 3 percent of retirees account for almost 20 percent of total benefits (assuming an average pension for the over $100k group of $110k), which means that the average pension for the bottom 97 percent is a bit over $16,000 a year.
The right wing nutjobs pick up on that 3% and make it look like the entire group of public employees spend their retired lives eating government cheese and smoking expensive government cigars. That doesn't mean, however, that as progressives we do not have to look at reforming public employee retirement systems in fiscally responsible means. It may be only 3% of retirees that are costing a lot of money, but they're still costing a lot of money.

One of the other considerations in public employee retirement reform needs to be the length of time that a retiree draws from the system. I am not talking about limiting the number of years for which benefits can be collected but rather retirement ages. The highest pension earning professions often also enjoy the benefits of early retirement, retired police and firefighters, for example. Take a few stories in Florida.
A Pembroke Pines police captain retired last fall with a lump sum of nearly $700,000 and an annual pension of $120,000. He's 46 years old.

In Hollywood, two firefighters recently retired with more than $1 million each plus a monthly pension check and health insurance for life. [...]

Nearly 40 DROP participants have retired from the city's police and fire departments in the past three years. Most had accumulated $300,000 or more in their accounts, with the highest at $668,712, pension fund records show.

On top of that, these retirees now collect pension payments of $61,000 to $155,000 a year.
Now, no one should want to deny a modicum of decent life to those who literally put their lives on the line to protect our public safety, and these jobs are admittedly more demanding than most ordinary work. But when early retired, police officers and firefighters hardly stay unemployed. They often go on to be gainfully employed in the private sector while receiving pensions for their public service. No one should fail to understand that cities and states cannot be expected to fund 30, 40, 45 year long retirements at or near six-figure payments on the longer term.

Like the budget, the public employee pension systems require a scalpel, and not a hatchet, to fix. Just as we should reject the idea that all public employees are sucking the taxpayer dry, so should we refrain from buying to the frame that everything with public employee pension systems is just fine. There is nothing smart about denying the fact that a problem exists. The nation's largest non-federal public employee pension system, CalPERS (California Public Employee Retirement System), which manages the retirements of 1.6 million people, reports that it currently has only between 65 and 70% of its obligations in assets. In another analysis done by Stanford researchers reached a the conclusion that CalPERS assets covers only about half its long term obligations, using a more realistic growth rate.

So it's important that we understand two things: first, yes, there's a problem with the funding of public employee retirement systems. Equally importantly, no, the vast majority of public employees - and their representatives in collective bargaining - do not receive lavish retirements benefits and are not responsible for the problem, but a few outlandish benefits for a few employees is primarily responsible. The solution involves bringing these lavish retirement benefits down to more modest levels, and perhaps lengthening the time of service (or requiring a minimum age to start receiving benefits) required to start receiving benefits. It also involves requiring public employees to contribute more to their own retirement funds in places where they do not.

One last note: a relatively smaller problem in the public employees retirement system is that their obligations are based on defined benefits while the value of their assets are based on a variable of investments that tend to gain and lose value depending on the stock market, other investment measures and the times. I am not for doing away with defined benefit plans, but varying those benefits based on the assets available at the time (this would mean lower benefits in bad economic times and higher than average benefits during a boom, with a floor to keep retirees above poverty and a ceiling to save money during good times for a rainy day fund) is one idea I'm willing to explore. States, cities, unions and citizens need to become partners in this effort and not adversaries.