In the private sector, there has been a pension revolution during the past 20 years. Generous, company-financed, “defined-benefit” pension plans have been replaced by 401(k) retirement plans, which require employees to finance their own pensions through “defined contributions.” Because health costs have skyrocketed in recent decades, most private companies have also drastically curtailed the availability of health benefits for their retired employees both before and after the ex-workers become eligible for Medicare at the age of 65. One big reason the Big Three auto companies — General Motors, Ford and Chrysler — face such difficult long-term financial problems can be traced to the pension and health-care benefits for their retirees, many of whom begin collecting their benefits in their early fifties.
Commenting on New Jersey’s $58 billion unfunded liability for health-care benefits promised to its retired state employees and the $2.2 billion in annual “catch-up” payments required to bring New Jersey’s underfinanced state-employee pension plan into balance, we noted last summer that “the taxpayer-financed public sector has achieved a near monopoly on gold-plated, early-retirement pension plans, which are buttressed by extravagant, taxpayer-funded health benefits for 10 years and longer. And most taxpayers don’t have a clue what they will be facing in the near future.”
On July 28, 2007, coincidentally the day before we expressed our disgust over the irresponsible pension/health profligacy of politicians in New Jersey and other states (e.g., New York, California and North Carolina), the Milwaukee Journal Sentinel published an eye-popping investigative report on public pensions. Last week, reporter Dave Umhoefer, who researched and wrote the article, “Pension twist costs county millions,” won the 2008 Pulitzer Prize for local reporting. Even by the horrifying standards of taxpayer-funded, public-employee retirement benefits, the scandal unearthed in Milwaukee County by Mr. Umhoefer represented egregious self-dealing largesse among county workers who had conflicts of interest that were exceeded only by an utter contempt for the public that must pay for the greed.
“Hundreds of Milwaukee County workers have pumped up their pensions by a total of at least $50 million through an obscure program that skirted county laws and federal tax rules,” Mr. Umhoefer reported. “Workers ranging from gardeners and grass-cutters to county government’s highest-ranking officials have tacked on extra years of service by taking advantage of uncommonly generous ‘buyback’ practices that convert ineligible service into pension-worthy time. By purchasing credit, in most cases for seasonal or part-time county stints worked in their youths, employees are getting five- or six-figure gains over a retirement lifetime. They can retire earlier with full benefits, and some qualify for lifetime health insurance because of their buybacks.”
A county accountant who worked for less than a month at the county zoo as a teen paid $69 to convert that time to pension-eligible service, thereby raising his annual pension as much as $8,500 per year. Another public employee, whose brief 1969 stint in the register of deeds office could not even be verified by county records, paid $683 in 2000 to convert that time into pension-eligible service. The result was a $9,000-per-year increase in her annual pension. The unusual buyback was approved by the Pension Board’s in-house legal adviser, who was a friend of the woman’s husband (the sheriff at the time). The legal adviser also paid for the first installment of the buyback of seasonal work performed by his son (a deputy sheriff) one day before he had issued a “legal opinion cementing the link already in place among buybacks, higher pension rates and health insurance,” Mr. Umhoefer reported. Another insider, the former county retirement system director and secretary of the Pension Board, made a one-time payment of $2,872 to convert summer employment at a golf course in the 1950s into pension credits. That raised his annual pension by 39 percent to $30,100.
Public employees who participated in the questionable buyback program will gain an estimated average of $140,000 per person in additional benefits. The retirement benefits of the top third of the gainers will increase between 25 percent and 100 percent. After the Journal Sentinel published its article focusing on 357 buyback participants, the county conducted its own investigation and concluded that 175 of the transactions, or nearly half, should not have been allowed.