The battle over reforming the nation’s public pensions continues to simmer and be punctuated by salvos from the defenders of the status quo.
For example, California’s CalPERS is pushing back against Governor Jerry Brown’s proposal to save the state money by shifting towards a hybrid pension plan that includes a significant mandatory defined contribution segment. Of course, CalPERS has rushed out a report meant to squelch movement in that direction.
Meanwhile, efforts to have state employees pay larger shares towards their retirements in Arizona and New Hampshire face legal hurdles. Two recent court decisions in those states blocked reforms by arguing, “the higher contributions were unconstitutional because they broke the contract between employees and the state, which guarantees workers that they will not be asked to pay additional amounts after being hired unless they receive improved benefits in return.”
That precedent could derail similar reforms made in Florida and Nebraska.
This precedent, if applied elsewhere, means that every single current government employees could be locked into guaranteed benefits with no possibility of change no matter what the fiscal situation is for the state.
With the recent news that General Motors is moving from defined benefit pensions to defined contribution 401(k)s, one might hope that the public sector would wake up to the need for fundamental reform.
After all, GM is not some new high-tech start up. It is one of the purest representations of the old, blue social model. The fact that even after a federal government bailout, it has to shift with the times should be telling. The old way of doing business is over.
Meanwhile, state and local pensions are in crisis. As U.S. Senator Orrin Hatch (R-UT) made clear in a recent report,
“Today, public pension debt stands at an alarming $4.4 trillion with outstanding state and local municipal debt at nearly $3 trillion. The public pension crisis plaguing our nation demands a real solution.”
Ultimately, taxpayers are on the hook for these unfunded liabilities. No matter how these are financed, taxpayers will be the ones that have to pony up if reforms aren’t made quickly to bring these exorbitant costs down to a manageable level. Ohio is far from immune to this national challenge.
As the Buckeye Institute has shown in its Hanging by a Thread report, Ohio’s pensions are also unsustainable in the long-run. Our Diehl Fellow, Adam Schwiebert recently blogged about how things have gotten even worse for the five state pension plans.