Tag: public employees

What Do Americans Think About the Pension Crisis?

Most realize the problems, but they don’t want tax increases or spending cuts to fix them.

Scott Shackford | February 6, 2015

There is as much as a $4 trillion gap between what states have promised their public workers in retirement pensions and what they’ve actually set aside and invested in order to pay for them. There are enough reasons this has happened to count as a survey question on the most boring episode of Family Feud ever—states and cities didn’t set aside enough money, employees didn’t contribute enough, and guaranteed investment returns are overestimated, among many other problems.

But what does the average American think about the pension crisis and what would they do? A small number of communities like Phoenix, Arizona, and San Jose, California, have put pension reform in the voters’ hands, with mixed results. In our latest Reason-Rupe poll, we decided to focus almost entirely on the pension crisis, asking Americans how seriously they view the problem and what sort of trade-offs they would accept to fix it.

Yes, Americans Are Concerned About the Pension Crisis

Pension worriers will be pleased to hear that Americans are at least paying attention. A full 72 percent of those polled are either “very” or “somewhat” concerned about state and local governments’ ability to fund the pensions they’ve promised to public employees. A similar number (74 percent) are concerned that state or local governments will raise taxes in the future in order to meet these pension obligations. When asked to prioritize dealing with the pension crisis, 35 percent said pension reform should be a top priority, while 41 percent said pension reform should be an important but lower priority.

Actually tackling the pension crisis is a much more complicated affair. The poll asked participants to consider a host of different possibilities—raising taxes, reducing services, capping maximum pension payments, requiring workers to pay more, and transferring public employees to 401(k)-style defined contribution plans, rather than guaranteed pensions.

The most consistent response is probably also the most obvious: Americans want pension reform solutions that push public employees to play a greater role in their own retirements rather than relying on taxpayers to bail them out. Those surveyed were significantly opposed to raising taxes (74 percent) or cutting government services (77 percent) in order to fix funding problems with public employee pensions. Instead, when given a list of choices, participants strongly supported (82 percent) requiring public employees to contribute more to their own retirement funds. When asked to rank potential solutions, “Require current employees to contribute more toward their own pensions and benefits” blew every other option out of the water with 63 percent of the vote as the first choice. No other option even hit double digits.

But that list of solutions assumed states and cities would keep the existing pension systems and salvage them. The Reason-Rupe poll also asked whether participants would like to switch public employees from pension funds to 401(k)-style defined contribution retirement funds. The answer was yes. The poll asked participants whether they would favor such funds for current public employees and a separate question for just future hires. In both cases, the majority said yes, but support for shifting over future employees was notably higher (67 percent) than for current employees (59 percent).

But when comparing the two types of retirement systems in different ways, differences in responses were notable. The poll asked participants a question where the benefits of switching to a 401(k)-style plan were described (“401k style programs give employees the flexibility to take the plan with them from job to job and are less costly to the taxpayer”) as well as the concerns about switching to a such a plan (“benefits would not be guaranteed and would depend on how well the employees saved and how the market performed”). When those descriptions were used to ask whether they supported or opposed a shift to 401(k)-style programs, 66 percent still supported the shift. But when asked to consider a shift to 401(k)-style programs given only the concerns, support dropped to 50 percent. And when people polled are asked if they’d support shifting to 401(k)-style programs if it meant “breaking a contract made with public employees when they first accepted their jobs,” support plummets down to 38 percent. When asked to trade off a shift to 401(k)-style programs with either raising taxes or reducing services to pay for retirement, support for 401(k) programs climbed back up (66 percent and 59 percent). Those polled even opposed increasing taxes or reducing government services in order to pay the current pension benefits for already retired employees.

The lesson here: Americans don’t necessarily want to break an agreement with public employees or push them into retirement plans where the future benefits are not guaranteed, but they are willing to do so in order to avoid additional tax increases or reductions in government services.

“But what do the millennials think?” You may ask. Do they understand the crisis they’re getting themselves into as they take up a larger and larger chunk of the workforce? Yes and no. Those polled under the age of 30 do have concerns, but the numbers are more muted than for older generations. The number of millennials who say they’re concerned about pension funds drops down to 59 percent, and they’re less likely to see dealing with pension problems as a top priority (only 25 percent). Nevertheless, millennials also supported shifting public employees to 401(k) plans and requiring employees to contribute more into their retirement plans. Variations in responses by millennials may indicate more that they have less experience in these workplace issues or with dealing with taxation impacts rather than any sort of generational differences. For example, millennials were more likely to believe (34 percent) that public employee and private employees received fundamentally the same retirement benefits, something older workers know is untrue (public employees are widely understood to generally get better retirement benefits). They were also the only age group where a majority (59 percent) believed that pension calculations for retiring employees should be increased by using unused sick time, vacation pay, and specialty pay, a system that has led to the abuse known as “pension spiking,” with public employees getting six-figure annual pension guarantees. When we break down the millennial age demographic further, millennials’ attitudes start to shift toward the overall average the older they are, more closely aligning with the over-30 crowd.

Public Employees Are Not in Complete Denial

The poll asked respondents whether they worked in the public or private sector (or if they were retired from the public or private sector) so their responses could be compared. Public employees accounted for 17 percent of the working respondents and 36 percent of the retired respondents. Public employees are certainly paying attention to the impacts of bankruptcy in cities like Detroit and Stockton, California. Public employees are more concerned (80 percent) about the state of pensions than private employees (67 percent). It’s understandable they’re concerned, since they are the most directly affected should their cities or states fail to address underfunding.

https://reason.com/archives/2015/02/06/what-do-americans-think-about-the-pensio