Public Sector Pensions: Why “Fixing the Problem” IS the Problem

Dramatic increases in public sector pension liabilities at a time when state and local governments have seen their revenues shrink drastically have resulted in an explosive backlash against public sector unions and the workers they represent. At the very time that high levels of unemployment increasingly have forced those who have lost their jobs to seek government services, they are being told that those services are being cut because of huge payments required to fund the pensions of public sector employees. This news has turned a spotlight on public sector pensions and served to demonize public sector employees.

Some states are taking advantage of this backlash to curtail or dismantle completely public sector workers’ collective bargaining processes. While discussing public sector pension reform efforts, the executive director of the California Labor Federation recently was quoted as accusing partisan lawmakers across the country of undertaking a “…strategy that goes beyond simply fixing the problems as we know them.” Presumably he wants them to stick to the pension funding issues and leave everything else alone – i.e., maintain the status quo.

Aspiring to the status quo is a big mistake. Simply “fixing” public pension systems is like treating the symptoms of a recurring illness and ignoring the underlying cause. While the symptoms may go away in the short-term, they will recur – often at a much more severe level. The cause itself must be addressed and a workable, long-term resolution achieved. There is overwhelming evidence that the status quo is not working any more. It’s time to stop merely “fixing” the problem and begin working toward eradicating its source.

Unfunded or under-funded pension liabilities in the millions and billions of dollars are grabbing headlines because they drastically reduce the amount of money available for state and local government services. As serious an issue as this is, in fact it is a symptom of a larger and more complex problem, namely the process by which public sector employees are compensated. That process is dysfunctional, which means that a continuation of the status quo is not sustainable.

There are many aspects of public sector compensation systems to consider, including what form the compensation takes (e.g., current vs. deferred salary, types and levels of benefits) and how pay is determined and changed. In unionized workplaces, these issues are addressed through a negotiation process. Bargaining often is conducted between elected officials and labor unions whose leaders provide substantial support in the form of money and campaign workers to labor-friendly candidates during elections. It seemed easy for lawmakers to agree to generous pensions and other terms of employment whose results wouldn’t be felt for years, or even decades – long after the elected officials had retired or (more likely in these days of term limits) moved on. How can that dynamic not influence the provisions of the resulting contracts? Who is looking out for the public in this process?

Providing short-term “solutions” to long-term problems has done a disservice to the public and to the workers who agreed to the employment conditions they were offered. Let’s not forget, however, that there are at least two parties to every contract, and that both must agree to its terms. Public sector unions did not impose their terms on elected officials; both sides were parties to the negotiated agreements. Unfortunately the public has been woefully uninformed about these issues. Yet whose fault is that? How many members of the public have taken the initiative to seek out that information?

In short, there is plenty of blame to go around. But playing the blame game is counterproductive because it doesn’t change anything. “Fixing” the problem with an eye on maintaining the status quo is not a viable option because it doesn’t address the underlying dysfunction. Instead, the focus must be on (a) what government services we as a society are willing to pay for, (b) compensating public sector employees fairly, (c) creating transparency and accountability in budget processes, and (d) implementing a plan that will enable us to achieve those objectives.

It’s time to stop “fixing” the problem by applying short-term “solutions” to long-term issues. We need to go well beyond the status quo, which is not functional or sustainable, to create a process that serves employees and the public well. What are we waiting for?