Will Government Union Bosses Break Their Pension Promises to Future Retirees, or Foist Massive Additional Burdens on Taxpayers?

As of last year, according to data compiled by economists Barry Hirsch and David Macpherson, state and local government employees across the U.S. were roughly seven-and-a-half times as likely to be unionized as their counterparts in the private sector.  Government-sector union density is so high, in fact, that even the compensation plans of non-union public employees are modeled on those negotiated by Big Labor bosses wielding monopoly-bargaining privileges.

Typical differences between the benefit plans for public and private employees reflect the out-sized clout union bosses wield over the first group.  Big Labor greatly prefers defined-benefit pension plans over defined-contribution plans.  The former are pervasive in the public sector, but increasingly rare in the private sector.

Critics of government unions often charge that the pensions they negotiate are excessive, and the data indeed show that the benefits PROMISED to public employees who retire after, say, 20 years, typically exceed by a wide amount the retirement income their private-sector counterparts with the same number of years on the job can expect to obtain from their 401(k)’s and Social Security combined.  But promises are not always fulfilled.

A recent column by Steve Forbes, editor-in-chief of the business magazine named after his grandfather B.C. Forbes, quotes two remarkable sentences from a March 2015 American Enterprise Institute (AEI) paper that suggest the gap between government union bosses’ pension promises to future retirees and what public employers are actually able to deliver could be very wide indeed:

It took 401(k)-style plans just three years to recover their financial-crisis losses, and today total assets are almost 37% above 2007 levels.  Contrastingly, state and local government pensions are currently less than 5% above their 2007 peak, despite benefit liabilities that have grown by 36%.

Based on this assessment by the AEI’s Andrew Biggs and his coauthor, pension consultant Sylvester Schieber, a calamitous future for government union pensions seems inevitable.  The only question is which outcome:  Will unionized public servants receive pension benefits that fall far short of what they have been promised?  Will an enormous new burden be foisted on taxpayers so that government pension promises can be kept?  Or will both government retirees and taxpayers get hit hard?

Regardless of the exact scenario that unfolds, the evident lack of concern on the part of both government union bosses and the public officials sitting on the other side of the table regarding whether or not funds will be available for the pension promises they make is likely to have disastrous consequences.

And well-founded worries about whether or not their pension plans are viable are just one of many reasons why public employees might reasonably believe that having a union act as their monopoly-bargaining agent is not a “benefit” for which they should be forced as a job condition to pay union dues or fees.

A recent paper coauthored by American Enterprise Institute scholar Andrew Biggs (pictured) and pension consultant Sylvester Schieber offers a powerful illustration of government union bosses’ reckless disregard concerning whether unionized employees’ pensions are adequately funded. (Image: American Enterprise Institute)


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