Posted on

The pension system, particularly for public employees, is certain to create future social challenges for the US economy. The nation is dividing into two when it comes to pensions, and this may lead to future discord and a financial challenge for taxpayers who must fund half these pensions. In the public sector, you have some 22 million government employees (which includes those who have already retired) who will or are already enjoying good payouts from generous pension plans, many of which are guaranteed by state law.

Meanwhile, in the private sector, employees increasingly are suffering at the hands of companies who are relinquishing their pension obligations (for example, in the airline industry) in record numbers to ensure the companies can remain viable, if not come out of bankruptcy. The grim reality is that, with the stock market down and a rocky economy for the near term, retirement funds for those in the private sector likely means people will have to work longer and have less when they retire, unlike those who work for the government.

Adding salt to the wound, government employees are more likely to have better salaries in the first place, according to the US Bureau of Labor Statistics. Local and state government employees average $25 an hour, one-third more than private sector employees who, on average, make $19 an hour. Government workers are also more likely to accrue more retirement benefits: Four out of five local and state employees are likely to have pensions, while only one in five of those in the private sector do.

In addition to these disparities, most of these state and local pensions are under-funded, according to Boston College’s Center for Retirement Research. At a time when tax revenues are shrinking due to problems with the economy, public sector pensions are non-negotiable territory in many state and local budgets. Yet, with such massive problems at the state level, most states have chosen to ignore the problem while they deal with more immediate budget issues, putting off the pension funding problem for some future date.

Boston College’s Center for Retirement Research notes that the average public pension plan is under-funded by 35 percent, which is likely to increase to 41 percent by 2013 if stocks remain at their current levels. Every hit taken to state investments that fund public sector retirements must be made up by the taxpayers. Add that to the projected Social Security shortfall certain to be faced by the federal government in the future, and taxpayers are in for some nasty surprises in coming years.

There is, of course, at least a partial solution to this forthcoming dilemma. If government workers were to accept the same 401(k)-style pensions as private sector employees, at least the stock market shortfall in funding government pensions could be addressed. In fact, California tried to make this very change in 2006. The result was a state government bombarded with advertising (paid for by unions of state government workers) and a failed attempt at reform.

The current employees are not as downtrodden as they once were and would resort to extreme measures if their rightful demands are not met and they expect to receive their pension on a regular basis the moment they retire from their jobs and the pension system needs to take it seriously to avoid repercussions. Therefore, it is best that they take regular rfp proposal training on how to deal with proposal issues.