Why the Hell are There New Active Public Pension Plan Participants?

I was talking to a buddy the other day and somehow the discussion of public employees came up, and we asked ourselves the same exact question at almost the same exact time:

Why in the hell are new public employees still able to join State backed defined benefit pension plans?

First and foremost, I am not talking about seasoned public employees since they were made promises by the government and those promises should be followed through with.  We will just ignore the the fact that I thoroughly doubt the promises made to me by politicians about Social Security will ever be followed through with.

Why Are Public Defined Benefit Pensions in Trouble and Threatening State Budgets

It isn’t hard to find news stories about how a State’s pension system is underfunded and in dire need of additional funds.  I believe (read: didn’t do any studies) that the problem is two fold all having to do with the actuarial assumptions:

  1. All those people that retired in the 80s were supposed to be way dead now, but are kicking into their 90s; and
  2. What actuary is going to assume zero percent growth in equities and record low bond rates for any extended period of time?

Again, I didn’t do any research into the subject as to “why are they failing” since I was much more interested in the question “why are they still around.”

Why are New Employees Allowed to Join Defined Benefit Pension Plans?

Other than the terrible argument of “I deserve it I work for the public” I can only think of one semi-logical argument; public employees are paid less so this offsets it, however, that is such a bullshit reason.

Currently there is a waiting list for police department in my area…that includes New York City! and the NYPD starting salary is about $46K.  Less than $1,000 a week to put this guy in Harlem? HELL NO.  But for some reason even the NYPD has a waiting list! My brother is in the FDNY and his wife is a teacher in NYC and both have said that currently it is almost impossible to get hired by either place.

So even if they took away the pension system for NEW cops, firemen and teachers  maybe half would drop off, so you just have a SMALLER WAITING LIST!  Hell use the savings to pay these brave men and women more.

It should be mentioned that most public employees have a 401(k) equivalent (usually a 403(b) or a 457) so just start matching contributions like most of the country.  This doesn’t even take into account the health and insurance benefits some public employees get (as they should especially police and fire).  I doubt any public employee pays $10,000/yr  for health insurance (like me).

In the past I have taken some heat for my post about teachers, so I want to be clear that I am talking about all public employees that receive a pension – cops, firemen, court officials, judges, etc.  Before I get nasty comments I understand that not all public employees receive a pension, but the question is still relevant are you for or against these types of pensions backed by your tax dollars?

We live in a free society if removing pensions for new employees of the public sector causes that much of a drop in employment what is the worst thing that happens? YOU BRING IT BACK.

 

Can anyone give me a good reason why new public employees should be able to participate in a pension plan backed by my tax dollars?

25 Responses to Why the Hell are There New Active Public Pension Plan Participants?

    • If I can’t be honest on my anonymous blog where can I be open (you know besides to my family and friends who have to constantly listen to me)?!

      Interesting article, but it doesn’t say if one of the protections the DC teacher is giving up is her defined benefit pension.

  1. Hear Hear dear husband!!! Great post and I totally agree! All people do is complain instead of looking for solutions, and although it’s hard this country needs to make ALOT of changes… Changing this could make a HUGE difference in my opinion.

  2. Hmm… you bring up a solid point – with the hurting budgets, it is hard to justify aggressive pension plans. I always like to settle for compromise… so why not ease it out over time?

    • I think the compromise would be to cut off all new employees…no? As opposed to lowering coverage/promises on existing members.

  3. Haha @ “I believe (read: didn’t do any studies) that the problem is two fold”… that’s great. You aren’t far off – a lot of the problem is the assumptions public funds used were so far from reality they would make Enron’s accountants blush.

    I do think we’ll see more participant directed retirement funds – the writing is on the wall, and pensions are becoming extinct. Of course, people will fight for them while they’re still on the book so it might be a few years now…

  4. Until recently I was a state employee. By law all state employees have to be in the state’s pension plan. There is no way to opt-out of it or avoid it. They do have a 401k-style system that you can contribute to, after you’ve contributed your 9% monthly into the pension system.

  5. Because the government can lose money indefinitely and is not bound to serve its customers in the same way a private enterprise would have to.

    Think about it – governments can lose money all day, pay too much for just about anything, and get away with it because you won’t stop paying your taxes.

    • And there is the reason you will never see balanced budgets, nor fiscal responsibility, nor sound money management – the money won’t stop. If you had a legit way of stopping the money you would have a way to change this.

    • I guess that is probably a great reason why they exist you would think there would be a candidate out there with enough balls to just say no more

  6. “Can anyone give me a good reason why new public employees should be able to participate in a pension plan backed by my tax dollars?”

    I’ve got nothing.

    I find this particularly unsettling when legislators start looking to raise state income tax rates. I’ve paid enough dammit! I need whatever extra cash I can get my paws on to fund my defined CONTRIBUTION plan.

    For years, my employer didn’t make any contributions to the company’s 401(k)plan – matching or otherwise. Why should private sector employees be tasked with funding the pensions of those who work in the public sector?

    I don’t wanna sound like a whiner, but…IT’S NOT FAIR!

    • “Why should private sector employees be tasked with funding the pensions of those who work in the public sector? ”

      I wish I added this paragraph in my post lol

  7. The reason there are overly generous benefits to public sector workers is that it’s a political kickback scheme. The workers are forced to join public sector unions, who take a portion of their salary and give it to democrat politicians who vote to make public employment yet more attractive, thereby generating more money for kickbacks. It’s a nice, tight little loop.

  8. Although I am a teacher in Los Angeles, I am not advocating public pensions. I pay into my pension similar to Social Security except I contribute 8% vs. 6.4%. The school district contributes a equal share similar to Social Security. I have been a teacher now for 11 years and only received one (1) increase. I will be working another 5.5 years and do not expect any increases considering the economy. I could make much more in private industry and did as a CFO. I do not feel that my pension is that different for Social Security. If our Federal government would take Social Security and invest it similar to CalStrs (my pension), we would not have a problem.

  9. I completely agree. I use this argument all the time. As a teacher, I consistently have to deal with a mass of co-workers who are just “putting in the days/years” until their great pension plan, even as they soak up other extreme union-generated benefits. We have a huge waiting list of motivated, energetic young teachers who can’t find work, and would definitely take some pension and benefit-reformed packages in order to work. This just makes common sense. The unions and universities have so perversely messed up the supply and demand balance because of their self-serving actions that we are left with crazy imbalances.

  10. Part of the issue is the governments genius solution of offering older employees an early retirement package. The government gets the high salaries off the books, but the pensions are stuck dealing with an earlier than expected retiree that is paid more in retirement due to the package they signed.

  11. It is quite shocking when you look at how broke the government (at all levels is).

    We too have waiting lists for firefighters and police officers. I will say though that I would not complain at all if people in both these professions made more money annually. 46k in New York for new police officers? That is ridiculously low in my opinion.

  12. Here is a simple answer as to why public employees are still in pension systems – because in some states are NOT in the Social Security system. I live in MA and my SS check will be reduced by 40% because of the pension offset. I worked 25 years under SS and that’s what I get. I pay 8% of my gross check into my pension, as does my public employer. More than from SS requirements (4.5%, I think). I also pay into Medicare so my withholding are much larger than a private sector employee’s withholding.

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