Public employees have to contribute more to their own retirements now and double-dipping (being on the payroll while also drawing a pension) has been limited. The real reform – eliminating pensions and moving to a 401(k) benefit with new employees – remains to be accomplished.
Shifting public employees into 401(k)s has become an issue in the Phoenix mayor’s race, as well as for the state.
At both levels, it is often claimed that giving new employees 401(k)s costs taxpayers more in the short run. But if that’s true, it is an admission that the current system is unsustainable and underfunded and we’re all being ushered down a primrose path to eventual financial ruin. After all, a properly funded pension system should not be a Ponzi scheme, ever dependent on new members in order to stay afloat. Instead contributions by current members, at any given time, should be sufficient to cover future pensions.
Think pension-induced financial ruin can’t happen? Then read the article “California and Bust” from the last issue of Vanity Fair magazine. The Golden State illustrates the risk of pension systems. They become larded with new benefits by politicians anxious to please voting public employees during good times. Then they become difficult to sustain during bad times.
Our state pension systems are in a sad state even with banner rates of return last year, and beneficial assumptions make them appear to be in better shape than they actually are. Job one for reform is doing the same favor for taxpayers that corporations did for stockholders years ago: put new government employees on 401(k) retirement benefits.
Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.
Goldwater Institute: Defusing the Pension Bomb: Making Retirement Plans Solvent for All Public Workers
Goldwater Institute: $50 Billion Tidal Wave: How Unfunded Pensions Could Overwhelm Arizona Taxpayers
Arizona Republic: Phoenix mayoral election 2011: Pension reform
NewsHouse: Arizona Republic political reporter receives first Toner Prize
Vanity Fair: California and Bust
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