The NYT Week In Review’s lead story
was about the impending retirement of a number of pubic employees and its financial effect upon state budgets. While the rest of America works in the private sector, where pension futures are dubious and 401k plans are the only protection for retirement ease, 11% of the country’s workers are public employees. Their retirement age is 55 with generous benefits and increases that are too good to be true.
Now, reports James Dao, state retirement funds face a $267 billion shortfall. Governors blame the weak economy for their fiscal woes. However, the WSJ reported Friday that state revenues increased by an average of 8.1% nationally (NY increased 8.5%, PA increased 9.3% and CA increased 8.2% for instance). So this shortfall is not due to the “stock market prices trending down” per Dao. It is caused by spending exceeding revenue. Cato's Moore and Silvinsky
report that state government spending doubled between 1990 and 2000. That is way ahead of inflation. Moore and Silvinsky say that "states that keep tax rates low and restrain spending growth have the best economic performance and thus the best longterm fiscal health." And note, the term "restrain growth" is not cutting spending as normally reported in the MSM.
Who “negotiated” the terms of these retirement plans with the unions, anyway? Our state “managers” must have fought very hard for our money when dealing with the unions (that contributed large sums to their campaigns. Need we mention Jim McGreevey?).
Dao claims that the trade-off for these lucrative pensions for state employees (receipt of 80% of the best salary years) is the state jobs “connote a dull stability- the promise of unexciting pay, but a secure pension.” Is it dull when there is no threat of being fired for poor performance, you have every holiday and then some off from work and only minimal effort is ever expected.
It is interesting that the public employees complaining the loudest today are the ones now being assessed-the public school teachers. They have filed a lawsuit against the federal government over its gumption to require, not exemplary performance, but the mere tracking of their performance. When you do a bad job and know it, the worst thing is for others to know as well. Especially your employers.
Doa’s opening paragraph stated: “Interest rates are ticking up while stock market prices are trending down, eroding 401k savings.” Now, wouldn’t many 401ks be increasing if they were invested in bonds? And do not lower stock prices indicate lower purchase prices for people intending to buy now and hold them for a few decades? And this trend of stock prices dropping began when? The 1st quarter of 2005? However, the Dow has dropped in the 1st quarter of the past 3 years. Maybe the trend of a higher Dow in the following quarter will occur again. Life cycle investing can avoid these doomsday scenarios for retirees.
I guess I am shallow for being unconcerned for that about-to-retire American who just started a 401k plan last December and invested solely in the stock market. But then, he was not very concerned about himself either.