Editorial: The price you pay for guaranteed public employee pensions
Death and taxes are the two most generally agreed upon guarantees in life.
There’s one more – for government employees only: A pension that provides a guaranteed income for life independent of the market realities of the investment portfolio that funds the retirement program.
You are the ultimate bank for this program.
Case in point was the announcement this past week that property owners in Yavapai County next year could see a jump in their annual tax bill between about $40 and $120 a year depending on the value of your home.
A major chunk of that will go toward paying off the county’s $50 million share of Arizona’s under-funded liability with the Public Safety Personnel Retirement System.
The Public Safety Personnel Retirement System – for police and fire employees – is one of two government retirement programs in Arizona. The other pension program for non-public safety employees, the Arizona State Retirement System, is also operating in the red as it is currently funded at 74.1%, according to Cottonwood finance manager Rudy Rodriguez.
With both systems, when investment strategy doesn’t balance the books, the bailout is the Average Joe Citizen taxpayer.
It’s important to emphasize that any debate over the propriety of guaranteed-income government pension programs is not premised in whether public employees deserve a healthy if not prosperous retirement. Especially with public safety officials – firemen and police officers – most level-headed people will agree they are most deserving of such.
The question instead needs to be focused on the fiscal sustainability and financial wisdom of such guaranteed pension programs. There is obviously a problem and it’s not unique to Arizona. Time Magazine has called government pension shortfalls a “Time Bomb in America.” RealClearPolicy reports the State of Illinois has hundreds of billions of dollars in unfunded liabilities in public sector pension and health-care plans. The American Spectator reports California is facing “Death by Pension.”
The typical government solution to this pension crisis is to perpetuate the problem. Rob Peter to pay Paul by cutting funding in other programs across the board and/or by raising taxes. At all costs, keep the pension program alive, even though it is spending money at a rate that out-paces the funding mechanism to balance the books.
A common-sense solution to closing off the bottomless pit of government pensions is unlikely. The very people charged with solving the problem are the same people who hope to one day reap its bounty.
Private business realized the futility of pension programs years ago. Today, typical private business retirement programs are anchored in the philosophy of personal responsibility. The government’s role in such programs is through tax-deferred incentives that encourage personal saving and wise investment.
Americans who roll the dice with programs such as a 401k learn that there is no such thing as a guarantee in life. Retirement investment is a gamble, a roller-coaster ride through the hills and valleys of economic volatility. You make wise decisions, stay the course, and hope for the best, but there are no guarantees.
Government pension programs promote an entitlement premise that there are guarantees in life.
Like it or not, your tax dollars provide that guarantee.