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The Defined Benefit Pension
For some reason my military pension has become an issue on here. I cannot tell whether this is so because the implications of the obligation in financial resources is huge or if it is just a personal thing with those who have no pension and envy those who do. Assuming some maturity on here let us look at the defined benefits conundrum we have created for ourselves.
The defined benefits pension programs tie back to the process government (and some large companies) used to pay their employees some twenty years ago and more. In order to deliver much in the way of goods and services governments (AND COMPANIES) held employee pay low but used deferred remuneration (defined benefit pensions and health care) as a kickers to attract employees (it also helped with retention as you had to stay around to get it). The public got the goods and services desired. The employees saw a total package that was attractive. The elected officials got reelected and the CEOs rewarded for the goodies they delivered at little apparent cost to the consumer or taxpayer.
Belatedly we have discovered the obvious. We cannot afford those promises. Private industry and their unions abandoned them some time ago under the threat of global competition. The federal government is in the process of phasing them out. Our own state is addressing the large unfunded liability. Elected officials have consistently underfunded or not funded the future costs of those benefits (they are large). That meant they could be reelected as they continued to deliver services to the population at large without extracting the full costs in taxes for those services. The bill is due.
Today, from some (who enjoyed the government services bought at low cost through promises to employees) there now come demands to end the programs abruptly. Obviously, the government employees and their unions are fighting that vigorously. Some politicians who bought those low cost services with promises now act belatedly with fiscal consideration and support precipitous termination of those plans.
For many of the long term or retired government employees who provided the services demanded by their fellow citizens for relatively low pay some twenty of more years ago there is now a sense of betrayal. They met their obligations to the state that employed them. They have always expected the state to make good on the promises it made to them, its employees. Politicians, seeking electoral survival, are moving to renege on those promises by casting the public employee as greedy citing current salaries.
Our elected officials have created this notion that government employee’s salary and benefits are entitlements in the same sense as those we provide in our social safety net. To the public employee they are contractual obligations made in return for services delivered akin to what union workers earn through collective bargaining. To the public at large they are an open ended demand on their pocketbook. To the politicians who created the mess they are an embarrassment to be avoided with blame placed elsewhere.
So people, how do we fix it? Do we simple walk away from commitments made in our name? Do we make good on those commitments at somebody’s expense (perhaps the politicians who caused the mess)? In the end the full faith and credit of our governments are involved. The next few years will reveal just how much that may be worth. It remains to be seen how righteous we will be in treating our legacy obligations to past employees.
In the meantime, moving away from those defined benefits programs for future government employees is a really good idea. Our federal government and Kansas are doing the right thing as far as the future.