Public-sector unions claim outsized share of U.S. pension assets

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More than a third of the nation’s $9.3 trillion in pension assets belong to state and local government employees, even though they make up only 15 percent of the U.S. work force, a study shows.

Research by the Spectrum investment group found that public-sector employees, primarily through powerful unions, have accumulated by far the most generous retirement programs in the country. Meanwhile, many private-sector workers have had their retirement plans cut back and have had to delay retirement.

Even with $3.4 trillion set aside to pay public pensions, dozens of strapped state and local governments are struggling to make payments. Wisconsin, Ohio and Florida are calling on state employees for the first time to contribute to their retirement plans the way workers do in the private sector.

These efforts have met sharp opposition from public-sector unions and are at the center of battles over whether unions should have the right to collectively bargain with the government over pension and health care benefits.

The $3.4 trillion total set aside for public pensions understates the burden for states and taxpayers since the plans collectively are underfunded by as much as $2.5 trillion, said Milton Ezrati, senior economist at Lord Abbott & Co.

“The undeniable fact is that most states and municipalities offer more generous pensions than they can afford,” he said, noting that the plans typically allow employees full retirement benefits after 20 or 30 years of employment and include generous cost-of-living increases, health care benefits and other perks that are not common in the private sector.

Gerald W. McEntee, president of the American Federation of State, County and Municipal Employees, said reports about lavish pension benefits are false. He said the average member of his union receives a pension of only $19,000 a year.

“Spreading false information about pay and benefits is just another way of demonizing the men and women who staff 911 centers, teach our children, care for the infirm and plow our streets,” he said.

Still, the budget emergency is providing states and cities the cover to make adjustments such as raising the retirement age that are needed to make the pensions more affordable, adjustments that would have been “politically impossible” in more prosperous times, Mr. Ezrati said.

Many public employees have been able to retire as young as 55 and start second careers while having guaranteed pension benefits. In the private sector, employers have increasingly replaced traditional pension programs with 401(k) plans that require workers to contribute out of their own salary and guarantee only the funds that they have saved and invested at retirement.

“Corporate America recognized that traditional defined-benefit plans were far too expensive in the 1980s and 1990s and started requiring workers to save for themselves,” said George Walper, president of the Spectrum Group.

“The issue has only come up at the state level since the economic crisis” drained state and local revenues and led to the budget crisis, he said. “Much like the rest of America,” state governments are finding that “we cannot afford these rich retirement benefits,” he said.

The Spectrum study found that the nation’s 19.7 million state and local employees constituted 15 percent of the 128-million-strong American work force in 2009. Yet they laid claim to more than $3 in retirement assets for every $1 set aside for the retirement of the nation’s 108 million workers in the private sector.

“Everybody would rather have a defined-benefit plan rather than see their 401(k) shrink,” Mr. Walper said. “But I’m not sure the country really understands the facts. They’ve gotten lost in these ugly protests.”

Over the strenuous objections of Wisconsin’s public unions and Democratic legislators, Wisconsin Gov. Scott Walker, a Republican, won passage of a bill this week that would end collective bargaining for public-employee unions over pension and health care benefits and limit negotiations solely to wages.

The governor contends that this is necessary to enable the state and many local governments to gain control over burgeoning debts and avoid steep tax increases.

A poll by the Wisconsin Reporter last month found that 69 percent of Wisconsin residents were aware that public employees have better benefits than private workers, and majorities supported the governor’s plan to curb those benefits.

Florida is another state that last month started requiring its workers to contribute 5 percent to their pension plans, for a savings of $1.4 billion each year. Illinois, which has gone deeply into debt to keep up with its pension payments, last year raised the state’s retirement age for government employees from as low as 55 in some cases to 67.

Taxpayer groups are hailing the trend, while unions and their Democratic supporters are trying to halt it.

“Phasing out and eventually eliminating defined-benefit plans must be at the top of every state’s long-term fiscal planning,” said Bill Wilson, president of Americans for Limited Government. “There is too much at stake.”

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