By Marc Joffe, Policy Analyst, California Policy Center and Founder, Public Sector Credit Solutions.
While the public pension crisis has been an issue on the right for many years, left-wing thinkers show relatively little interest in the issue. When progressives do opine on pensions, they often reject the alarm expressed by conservatives, seeing it as a smokescreen for unneeded austerity or a way to attack the public sector. In a deep blue state like California, pension reform advocates will have to reframe our arguments to better engage the left. Any such reframing should focus on two themes: sustainability and fairness.
Progressives are deeply concerned about climate change largely because scientists predict that greenhouse gas emissions will cause long-term environmental consequences. These effects, such as rising sea levels and severe heatwaves, will cause deteriorating living conditions for future generations. In short, they believe that greenhouse gas emissions must be capped because they are unsustainable.
Pension reformers have plenty of evidence that public employee retirement benefits are also unsustainable. For example, over the last ten years CalPERS contributions have been growing at a slower rate than benefits and the system is less than 80% funded. Unless something changes, there will be a day of reckoning as we have seen in places like Detroit and Puerto Rico. Even in the City of Dallas, a run on the pension system forced the mayor to change promised benefits without notice.
So, if we don’t want to leave a mess for future citizens and government employees, it is essential that we place public pensions on a sustainable footing: one in which conditions do not continuously deteriorate and there is a high likelihood that all promised benefits can be paid without crowding out other spending priorities.
Progressives also have a strong belief in fairness, which is why concerns over income inequality have gained so much traction. To many on the left, it seems unfair that some should be able to live in great comfort while many others struggle to make ends meet. This is why we have a progressive income tax system – a legacy of the first Progressive era a century ago.
While the largest fortunes are made in the private sector, many public sector managers and public safety workers are becoming rich from government work. At our $100k Pension club website, California Policy Center lists over 50,000 public sector employees who receive more than $100,000 in annual pension benefits. Many members of the $100k club receive cash benefits in excess of $200,000 and even $300,000 annually, plus retiree health insurance.
A public employee retiring in his fifties with a $300,000 annual pension, could easily live another thirty years. That translates into lifetime pension benefits of $9 million before factoring in cost of living increases. Public employees retiring at a young age with a comfortable income can further enrich themselves with consulting gigs or new jobs in either the public or private sector. Their pension benefits are not reduced when they receive employment income. This contrasts to social security beneficiaries who lose $1 of benefits for each $2 they earn above $16,920 between the ages of 62 and 66.
In fact, retirement income prospects are much better for career public servants in California than for those of us who must rely on social security. In a new study for California Policy Center, Ed Ring finds that California public employees who worked 30 years receive pension benefits averaging $68,673. This is more than double the maximum social security benefit for workers who begin collecting benefits at the full retirement age of 66.
So, we see a great inequity between private and public workers generally, and especially the highest paid government employees who qualify for gold plated pensions. To level the playing field, perhaps some Progressives would agree that benefits for the richest pension beneficiaries should be capped or taxed. Savings realized by the state and by local governments could go to restoring public services lost due to increasing pension costs, or to bolstering the assets of public pension plans – making them more sustainable over the long term.