As far as major campaign issues go, fixing state pension systems wouldn’t seem to offer a lot of obvious sizzle.
But these are not normal times, and with many states struggling to pull themselves out of budget crises, state pensions, including those that fund teachers, have emerged as a big topic in this fall’s races for governor around the country, according to one recent analysis.
A number of states are face huge unfunded liabilities in their pensions system. By one estimate, there’s a $1 trillion gap between what states have promised current and retired workers—in many cases, including teachers—in pensions, health care, and other retirement benefits, and the money they have on hand to pay for them. Faced with that reality, many gubernatorial contenders and other candidates for state offices have made getting pension costs under control a major part of their campaigns this fall. Stephen C. Fehr, a researcher and pensions expert at the Pew Center on the States, examines what the candidates are saying in a new, and very thorough online essay. The pension issues is also playing out in some form in state elections in California, Florida, Illinois, Iowa, Minnesota and other states, Fehr explains.
State officials know that the money they spend on pensions is money they can’t spend on some other state programs, and if pension obligations rise, they’re likely to have to look at cutting spending in other areas, or raising taxes, as Fehr told me in a recent interview. The public seems to share a desire to cut costs, which is one reason why so many candidates are raising the issue on the stump.
In general, many Republican candidates are arguing that their states need to shift away from a defined benefits systems, in which employees receive a promised amount of benefit in retirement, to a defined contribution,or 401(k)-type system, in which workers do most of their own retirement planning, and take their own risks in the market. A lot of Democrats, Fehr writes, favor sticking to the current, defined benefits systems but taking steps to cut costs, such as by freezing cost-of-living adjustments, raising the retirement age, and making other changes.
“The contrast between Republicans and Democrats reflects a fundamental policy reality,” Fehr writes. “Public employee labor unions, which want to preserve defined benefits, usually provide money and campaign workers to Democrats.”
As I noted in a recent story, major teachers’ unions in California are campaigning against Republican Meg Whitman in her race against Democrat Jerry Brown, partly bcause of the unions’ worries about Whitman’s proposed spending cuts. Whitman has vowed to move the state’s pension systems away from defined benefit plans for newly hired workers.
Over the past few decades, many private sector employees have moved away from offering defined benefits plans, a 2010 report by the Education Sector found: in 1985, four-fifths of private-sector works had access to a those plans, but by 2009, that number was closer to one in five. By comparison, 89 percent of teachers and 84 percent of state and local government works are still enrolled in DB plans, the organization reported.
Will promises to change pension systems resonate with the public? And what kinds of changes to these plans are realistic in the years ahead?
A version of this news article first appeared in the State EdWatch blog.