In this podcast, we tackle the thorny issue of public sector pensions. My guests are Workforce Institute board members Dennis Miller, Chief Employment Officer at Cal Poly Pomona Foundation and Neil Reichenberg, Executive Director of the International Public Management Association for Human Resources (IPMA-HR). Both Dennis and Neil have decades of experience working in the public sector, and join me to explain the enormous financial challenges facing government employers as well as potential solutions to defray these costs.
Dennis Miller provides the following background information for folks who may not be familiar with public pensions:
- Public agencies across the country offer a wide range of “pension benefits” to their employees once they meet the respective retirement criteria. Possibly the two most important (and expensive) pension benefits include the defined benefit pension and post-retirement medical insurance. Those programs are most often administered by a state entity and are usually called “PERS” which is an acronym for Public Employee Benefit System.
- Public agencies include state government, cities, counties, municipal or local governments where participation in the public employee retirement system is often compulsory, while many other public agencies may have the option to opt in to the state provided pension benefits, such as local law enforcement agencies, fire, safety, public educational institutions, park services, water districts, special districts, port authorities, and the list goes on.
- While the “pay as you go” cost of these pension programs is enormous, the total long term cost of these programs is astronomical by any standard and even the pay as you go approach is truly unsustainable for a sizable number of public entities. The latest research tells us that 94% of all public pension plans are funded at less than 100%. Just the portion of public pension obligations that is unfunded (by all states combined and the federal government), is estimated to be more than $5 trillion.
As these pension benefit liabilities increase, the dollars have to come from somewhere, often at the cost of declining public services. According to this recent article in the Los Angeles Times, a recent survey of 170 California cities by the League of California Cities found that “most of the communities with police and fire employees expect to soon pay 54 cents in pensions for every dollar in salary. In some cities, those payments are expected to rise to 76 cents per dollar of salary.”
Historically, the availability of public employee benefit systems has been an important recruitment and retention tool for public sector organizations. How do these financial challenges impact the ability of public sector organizations to grow the workforces they need to provide public services? What can be done to preserve these benefits without bankrupting these organizations?
Listen in on our conversation to hear what our experts have to say about possible solutions.