On the job for 23 years and 10 months. Retire at age 47. Collect a pension of $10,900 a month — $130,800 a year. And still be nearly 20 years away from turning 67, the full Social Security retirement age for your high school classmates.
Nice work if you can get it.
Before it fell through, those were the terms of a retirement deal the City of Omaha had offered Fire Chief Mike McDonnell, the city’s largest-ever pension. Three previous Omaha police chiefs all retired before age 50, and today they’re among former city officials collecting six-figure annual pensions.
It's not a commentary on the jobs these individuals did for the city, but these examples help illustrate the disparity between the benefit plans for public servants and the recession-battered private sector.
Not all public employees receive such large pensions or retire so young, of course. Yet in some places, generous public-sector benefits have endangered the solvency of government itself.
Look at Detroit. Nearly half of the bankrupt Motor City's liabilities are due to the promises it made to employees for pension and health care benefits. The pension fund for retired Chicago teachers stands at risk of collapse, the New York Times reports, and Chicago's funds for other retired city workers are short by $19.5 billion. The state of Illinois faces a pension shortfall of $100 billion. Philadelphia, New York, Phoenix and Jacksonville, Fla., are among large cities with 60 percent or less of what's needed to cover promised retirement benefits, Bloomberg News reported.
In addition, many public pension funds have overestimated how much their investments will earn. While low interest rates and stock market gyrations have kept average investment returns low, many public pension funds still calculate their estimated returns at 7 percent or more. New York City Mayor Michael Bloomberg called that practice “indefensible.”
Omaha isn't Detroit, but it has a problem. Last fall, the Moody's investment rating service downgraded Omaha's bond rating — making it more expensive to borrow — and cited underfunded pensions as the reason. At that point, the city's unfunded pension liability was $794 million, with most of that amount, $610 million, from the police and fire pensions.
In Lincoln, a consultant recommended for the fourth year in a row that the city offset investment losses by putting more money in its police and fire pension fund.
Time was when working for the government paid less than working for a private company. To keep workers, government entities offered job security, plus generous retirement plans and other benefits. Over the years, it was easy for politicians to make promises that wouldn't come due for decades. Citizens never noticed.
Times most certainly have changed.
Even before the Great Recession, but certainly since, private companies have moved away from defined-benefit pension plans (which pay a guaranteed amount) to 401(k)-style defined-contribution plans (where employers contribute specified amounts but don't guarantee a monthly payout).
But not the public sector. The Economist magazine recently reported that while most government workers can expect a guaranteed pension payout linked to their final salaries, fewer than 20 percent of private-sector workers today enjoy such a promise.
Recent contracts between the City of Omaha and its police and fire unions have taken some steps in the right direction. Spiking — boosting pensions with extra overtime work — is being eliminated. New fire department hires will be getting different retirement deals than those already on the payroll.
The need continues for vigilant, diligent negotiators to watch the taxpayers' backs in future contract talks with public employee unions.
Several areas offer opportunities to help right the public pension ship and keep it afloat.
Public employees could work longer and retire later. Becoming a pensioner at 47 is unimaginable for most workers.
Shifting to 401(k)-style plans can be undertaken, most likely with new hires. That gives the employees more control over their retirement funds, and an employee could take the money to a new job if he or she left government work.
Other possibilities include having current employees contribute more to their retirements and setting reasonable maximum limits on pension payouts. End the benevolent practice of selling back sick leave and unused vacation, which sometimes factors into pension calculations. Use it or lose it, as private workers do.
The solutions won't be easy, and a number of court rulings have said that benefits already earned are generally protected. Still, solving the problems is in the best interests of taxpayers and the public employees who depend on those taxpayers for jobs and pensions.
This is an issue that has grown over time and one that will take time to solve. But now, not later, is the time to start.