Monday, December 13, 2010

T-Paw Agrees With Governor Palin on the Need to Reform Lavish Public Employee Pensions



I can't disagree with the points Tim Pawlenty made in his op-ed in today's Wall Street Journal regarding the unsustainable salaries and benefits bestowed upon public employee union members. In his piece, Pawlenty discusses the all too familiar fact that the average public employee earns twice that of his or her private sector counterpart, and enjoys much greater job security and benefits, particularly in the area of their bountiful pension plans. Pawlenty then recites a bit of history on how public employee unions have used their taxpayer financed salaries to purchase the Democrat Party in an effort to perpetuate and expand their privileged position vis-à-vis those who work in the private sector and whose compensation is dependent on productivity rather than political patronage. Finally, Pawlenty proposes three overriding principles policymakers should follow in order to enact much needed reforms to what is essentially taxpayer financed corruption. The first two are as vague as they are innocuous, but the third one is specific:

Third, we need to end defined-benefit retirement plans for government employees. Defined-benefit systems have created a financial albatross for taxpayers. The private sector dropped them years ago in favor of the clarity and predictability of defined-contribution models such as 401(k) plans. This change alone can save taxpayers trillions of dollars.

Excellent suggestion, but it seems I have heard that one before, no? Didn't Governor Palin give a speech in Sacramento this past fall? Oh yeah, she did:

Pointing to her own record of scaling back pension benefits for new state workers in Alaska — and a switch from a defined benefit plan to a defined contribution — she applauded pension reform in California that curtails benefits for new workers.

So not only did she discuss the need for converting unaffordable defined benefit plans into defined contribution plans in a speech, she also implemented the change as governor, a point I made in a post last April:

...Governor Palin actually tried to address the problem by enacting some much needed reforms to the Public Employee Retirement System (PERS) and the Teacher's Retirement System (TRS). She ratcheted down obligations by using a tiered system for current employees that allots their pensions according to seniority. She also enacted a totally new system for those who are newly employed while honoring past commitments which she was legally bound to do.

[...]

the ticking time bomb of public employee pension liabilities is the direct result of the corrupt and symbiotic relationship between public employee unions like AFSCME and the SEIU and their patrons in the Democrat Party. This has been festering since 1962 when President Kennedy signed executive order 10988 which allowed for the unionization of public employees, as Daniel Henninger recently noted in the Wall Street Journal. In fact, I could write an entire post on the extent to which the Democrat Party is owned by the public employee unions. Oh wait, I did.

Much more recently, in a Facebook Note last week, Governor Palin presciently analyzed the link between the fiscal woes being experienced by many states and their unwillingness to meaningfully reform these extravagant pension plans, again emphasizing the need to convert them into defined contribution plans:

These states still won’t reform their costly defined benefit systems for fear of offending the powerful public sector unions. Sooner or later, their pension systems will collapse unless they do what states like Alaska did, which is to swap unsustainable defined benefits, which are more like glorified Ponzi schemes, for a more prudent defined contributions system.

My home state made the switch from defined benefits to a defined contribution system, and as governor, I introduced a number of measures to build on that successful transition, while also addressing the issue of the remaining funding shortfall by prioritizing budgets to wrap our financial arms around this too-long ignored debt problem.

Once again, Governor Palin correctly focused on the absolute necessity of converting these unsustainable defined benefit plans to defined contribution plans in order to prevent fiscal collapse. Her characterization of defined benefit plans as Ponzi schemes is as spot on as her metaphoric use of the term "death panels" to describe the rationing of health care to seniors which must occur under Obamacare. Any defined benefit plan is, by definition, dependent on current contributions to pay out current benefits. In short, it's not fully funded such as a 401(k). For this reason, politicians at all levels are scrambling to find additional dollars to make up the shortfall, and as the ratio of those collecting tax payer dollars to those paying them continues to increase, this problem has become a ticking time bomb, and time is running out.

Unless an enormous influx of young workers can be added to government payrolls, public employee benefits will have to be cut, and drastically so, for any of these government pensions plans to survive as is. This realization, I believe, is at least partially responsible for the enormous public employee support for Obamacare, a point I made last March. Public employees want taxpayers to shield them from market fluctuations, but taxpayers are catching on to this, and are rejecting calls by public employees to raise taxes to continue the swindle. At a time when governments at all levels are going broke, some sanity is required, and it's imperative that these ridiculously over-the-top public employee pensions are drastically reformed in order to comport with fiscal reality. Governor Palin is one of the few adults in the room who understands what's at stake. It's good to see T-Paw following her lead.

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