Government Sector Pension Plan – Who Pays?
~~~by Maureen Bader~~Wyoming Liberty Group~~
- Taxpayers contribute $7.70 for every $1 contributed by bureaucrats
Governor Mead's recent budget announcement is potential gold for government workers. In addition to a salary increase, the governor proposes to roll back modest pension reforms that provided some relief to taxpayers.
Instead of forcing taxpayers, many of whom do not even have a pension plan, to pay more towards the pensions of government workers, government workers must themselves contribute more to their own pension plans.
Legislation passed in 1979 required the State of Wyoming (read - taxpayers) to fund a portion of its employee's pension plan contributions. By 1991, the Wyoming Legislature authorized state agencies to pay all of the employee's contribution. In 2010, however, the employee-contribution myth came to an end when state employees began contributing what amounts to a smidgen - 1.43 percent of their salary - to their own pension plans. Taxpayers pick up the remaining 12.69 percent.
In 2012, the legislature further reformed this contribution inequity by increasing bureaucrat's contributions by 0.25 percent, to 1.68 percent. Taxpayers, too, took a hit and now contribute 12.94 percent into these pension plans. This means that for every $7.70 contributed by taxpayers, bureaucrats contribute $1. This remains burdensome to taxpayers, but represents a big improvement from the time when bureaucrats contributed nothing to their own retirement.
And yet the governor wants to claw back this taxpayer relief.
The Wyoming Retirement System manages eight pension plans for government workers. As of February 2013, the Public Employee Plan (the largest of the eight plans) was 72.8 percent funded. This means that if the plan closed down today, pensioners would receive 72.8 cents for every dollar promised or taxpayers would be on the hook to bail out the plan. To reach a 100 percent funding level by 2043, the Wyoming Retirement System says contributions must go up to 17.9 percent, instead of the currently legislated 15.12 percent.
But who will pay for this contribution increase? If the governor has his way, taxpayers will bear the burden of higher contributions.
The legislature is looking at increasing employee contributions to 1.93 percent and raising taxpayer contributions to 13.19 percent. This would reduce the inequity to 6.83:1, which is a move in the right direction.
But in an election year things rarely move in the right direction for long. The governor wants taxpayers to pick up not only the bureaucrat's current increase, but their previous increase as well.
Government workers already benefit from a type of plan rarely enjoyed by the people forced to fund them. Most government workers enjoy defined benefit plans, a type of plan that has mostly disappeared from the private sector because businesses cannot afford the massive future liability they create.
Pension plans come in two basic types: defined benefit and defined contribution. Defined benefit plans promise a defined payment when a person retires. Defined contribution plans, on the other hand, pay out depending on how much is contributed into the plan and how well the money is invested.
Defined benefit pension plans were the norm in days gone by. They were developed at a time when relatively few retirees took money out of the plan and many workers paid in and so are, in effect, Ponzi schemes creating big financial risks for organizations, retirees and taxpayers.
Today, defined benefit pension plans exist mainly in the government sector.
According to the Bureau of Labor Statistics, in the Mountain geographical area to which Wyoming belongs, only about 63 percent of private sector workers have access to any type of pension plan at all, while about 88 percent of government workers do.
While 83 percent of government workers have access to a defined benefit plan, only 12 percent of private sector workers do. If a company in the private sector has a plan, it is most likely a defined contribution plan.
It will take years to fully fund the state pension plan as it is currently structured. Pension contributions must increase, but treating taxpayers like cash cows is shameful. If Wyoming continues to offer government workers defined benefit plans, the governor must not turn back the clock but instead require government workers to contribute equally to their pension plans.