Pension Envy
As I watched my 401(k) vaporize during the Great Recession, I envied two people in particular. The first was a colleague who in late 2007 moved his entire 401(k) into cash because he was afraid there would soon be another massive terror attack. He was wrong about that, but his timing was dead on. He skated through the crash of 2008 without a scratch.
The other guy I envied was my neighbor, a cop. He didn't have a 401(k). In fact, he had something better: a public pension. After 20 years on the force, he was going to retire with 80 percent of his salary, whether there was a market crash or not. He was safe, and I wasn't, and I hated it.
And I'm not the only one. Olivia Mitchell, the great retirement thinker and executive director of the Pension Research Council at the Wharton School, has seen enough of this resentment to give it a name: Pension Envy.
Do you have it? Check the symptoms: One is strong feelings of regret that you didn't become a teacher or judge or dog catcher. The other is anger over the rising taxes you will have to pay to support government pensioners.
There is no known cure for pension envy, except perhaps this one: Arithmetic. Last month, the Pew Center on the States released a study of state pension plans that found a $452 billion gap between the pension benefits states have promised to employees and what they have set aside to pay them. My CBS MoneyWatch colleague John Keefe dissects the study and its implications nicely in an earlier post.
Pensions, by the way, are the lesser of the taxpayers' state retiree problems. States have put aside essentially no savings at all to fund their health care promises. There the gap between the health care expenses that states are on the hook for and the pittance saved is $587 billion, stretching the total retirement benefits gap to more than a trillion dollars.
Some states have already begun to try closing the gap. The measures will sound depressingly familiar if you've watched your private sector retirement benefits get downsized in recent years. In some states, new employees get stingier benefits than veterans. In others, the age at which you can collect full benefits will rise. In still others, employees are being asked to contribute more toward their pensions. In other cases, as CBS MoneyWatch retirement columnist Charlie Farrell points out, state pension administrators are taking questionable investment risks to close the gap by juicing their returns. Politicians can also close the gap by raising taxes, of course. But in light of the current epidemic of pension envy among voters, that's a move that can end with the politician having to tap his or her own retirement program prematurely.
As the late economist Herb Stein famously said, "If something can't go on forever, it won't." States can't continue to promise more than their taxpayers can pay. So, my prediction: pretty soon government workers will go through their own version of the cold reality bath we 401(k) jockeys went through. We learned that there's a lot of risk in a 401(k). It's a different sort of risk, but government workers are about to learn that the same is true of public pensions.
More on CBS MoneyWatch
The Public Pension Rip Off
California's Finances May Be Squeezed Further by Pension Plans
Are Government Pensions Gambling With Your Retirement?
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