What was the message delivered Tuesday by voters in Wisconsin, San Diego and San Jose? Quite simply this: We, the employers of public sector workers, are no longer willing to pay for pensions and benefits that are many, many times more lucrative than what the average private sector employee can expect upon retirement.
Wisconsin Gov. Scott Walker’s impressive defeat of the effort by unions and Democrats to oust him from office captured the nation’s attention and was the top story from the election. Since becoming governor in 2010, Walker has taken on the public employees’ unions by stripping them of their collective bargaining rights. One of his targets is the public pension system that he says, quite correctly, is a major drain on the state’s treasury.
But more important stories unfolded in San Diego and San Jose because they demonstrated what can be done at the local level to change the public pension system.
Here’s how the New York Times described the game-changers on the West Coast:
“Residents of San Diego and San Jose voted overwhelmingly to cut the pension benefits they give city workers. And they did so in a way governments traditionally avoid: moving to cut not just the benefits of future hires, but also for those of current city workers, whose pensions generally have much stronger legal protections than those of private-sector workers.”
The keyword in that quote is overwhelmingly. It reflects the national mood of private sector workers who have seen their pensions frozen, or eliminated, and have watched as their 401(k) plans have tanked.
But while this reality has caused families to rethink their retirement plans, public sector workers keep retiring at relatively young ages with pension benefits that are forcing states to deal with ballooning unfunded liabilities.
In San Jose, which is a charter city like Youngstown, Measure B reduces pension benefits not only for future hires, but current employees’ remaining years on the job, according to the Silicon Valley MercuryNews.Com.
MercuryNews.Com listed the following changes to the current pension plans: current employees keep the pension credits already earned but must pay up to 16 percent more of their salary to continue their benefit or choose a more modest and affordable plan for their remaining years on the job; limit retirement benefits for future hires by requiring them to pay half the cost of a pension.
It is noteworthy that the mayor of San Jose is a Democrat.
In San Diego, the plan approved by the voters would require future hires to enroll in a defined-contribution plan, similar to a 410(k) plan, the New York Times reported. Public employees would be responsible for investing their own retirement money, and if their investments fail, the city’s taxpayers will not have to step in.
Of great significance is the provision that freezes the amount of an employee’s pay used to calculate pension benefits. The Times noted that San Diego officials estimate that it will save $1 billion over the next 30 years.
Why is this significant? Public pensions are calculated using a formula that includes the average of the three highest earnings years. That results in public employees shopping around for high-paying jobs as they approach retirement age.
Such abuse of the system has triggered a public response that is sweeping the nation. In Ohio, under the Public Employment Retirement System, the employer (taxpayers) contributes 14 percent of the annual salary for the pension, while the worker kicks in 10 percent.
The state’s five public pension plans are undergoing some legislative tweaking in Columbus to deal with projected revenue shortfalls, but nothing major is being proposed.
Therefore, it’s up to Ohio Gov. John Kasich, who took a beating last year at the polls when voters strongly rejected his collective bargaining reform law.
What happened in Wisconsin, San Diego and San Jose should inspire Kasich, a Republican, and the GOP-controlled General Assembly to make the kind of changes to the system that voters are demanding.
And they should go a step further: make all public pension records public, so the taxpayers know how much money their servants are receiving in retirement for the rest of their lives.