Government Employees Begin to Lose Control over Their Pension Plans
American state employees have enjoyed pension plans for decades now – ones that are just the same, in principle, as the one’s famous corporations like General Motors have always provided. These companies supply for their pension plans by reserving a large pension fund that they invest in the stock market or elsewhere. Their investments, technically, are supposed to take care of all their obligations. States across the country have usually done the same. Depending on how long an employee works with the government, they set aside funds to invest that they hope will bring them the kind of money they promised to pay in pensions monthly. Occasionally, the government will even promise a guaranteed growth rate on their pensions – so that they can trust on getting bigger payouts in the future. The trouble with all these plans of course is that there is no way to be sure that those investments will pay the way they actually hope they will. For example, when the entire market collapsed in 2008, it rocked the whole foundation of the many pension plan. Their values plummeted. Large corporations were so badly hit that they found they just could not pay their pensions any longer. That’s why some like GM filed for Chapter 11 – to be able to be forgiven their obligations.V8B2W7V3DMKB
The states have even bigger problems funding their pension obligations. Of course, states place their funds in investments they hope will bring them returns. However, in large part, states also depend upon their property tax receipts. When property values dropped over the country (by as much as 50% in states like Florida), the state governments had nowhere to turn. Since property, taxes are calculated on home values, they were suddenly receiving 50% less than that they expected. Pension plans are starting to change all over the country. Government employees progressively these days are being forced into accepting defined-contribution plans – which are like the 401(k). Funding guaranteed pensions is just turning impossible for the government.
Essentially, pension plans get into trouble for two reasons.
To begin with, their actuaries give them bad information for the kind of yearly payments to their pension systems that they need to make to keep up with their obligations. And then, they go and offer cost-of-living raises, health benefits and improved all-round benefits, all without thinking for a moment, of how they’re going to fund all this for a long time to come. Basically now though, just as there is a great deal of change that has come to the kind of collective-bargaining rights that government employees take for granted, there is a great deal of change that states all over the country have in mind for their pension plans. There are many states that are already switching over to defined contribution’s plans, and leaving their defined-benefit plans behind.
In Alaska for example, every person who enters into employment with the government today is put on a defined-contribution plan. The same is true with Utah and Michigan. Of course, it’s very unpopular, and unions keep asking every legislative session that the lawmakers repeal the law. Florida and North Dakota switched to such a plan as early as the year 2000; Colorado gave in 2004 in Georgia did it in 2008. It surely would appear that government workers no longer enjoy the protections they once assumed.
