Tuesday, March 03, 2009

The looming crisis in public employee pensions

If we ever solve the problems in the housing market and banking industry, one of the next crises that will sink governments is the problem with guaranteed generous pensions promised to public service employees. As these employees start retiring, local and state governments will face devastating expenses in paying generous pensions for their employees. The problems facing New York City in their generous pension promises to public employees demonstrate what the city will be facing.
The latest alarm bell: a Post report last week about the soaring number of retired cops - more than 10,000, by last count - under the age of 50.

That's a huge and growing share of the total number of officers on pension.

Not only are their payouts fat; these cops can be expected to collect for 40 years, on average. Where will all the money come from to pay them?

And here's the surest sign that police pension costs are unsustainable: Each year, some 2,000 officers retire - while only 1,000 or so stop getting pensions upon death.

At the FDNY, meanwhile, retirees average a whopping $85,000 a year, with 72 percent getting higher-paying disability pensions. One retiree, The Post reported, rakes in $175,000 a year.

And remember: All public pensions in New York are guaranteed. That is, not only are they immune to market fluctuations, but the state Constitution prohibits them from ever being diminished - at least for current staff and retirees.

What a deal: Private-sector working stiffs would kill for such terms.

But this means that state and city government must replenish pension funds, which are invested in the markets, whenever Wall Street slips.
Such generosity cannot be maintained, yet it is a political disaster for any politician to advocate trimming these pension plans. Public employees, particularly police officers and fire fighters, deserve good and guaranteed pensions. But cities and states cannot fund such generosity for so many years. It is unsustainable. Just as our national politicians have to confront the promises we can't redeem on Medicare and Social Security, these local politicians will need to take on the public service employees unions.