Recent debate over proposed changes to the Medicare supplemental insurance provided to Kentucky’s public retirees may have left some of their private-sector brethren agape in disbelief. People who retire from careers in business often have to fend for themselves if they need insurance coverage beyond Medicare – just as active workers increasingly have to build their own retirement accounts through personal savings in 401(k) accounts while public servants continue to enjoy the security of guaranteed pensions.
These systemic discrepancies have led to bitter strife between public and private sectors in some places, especially in light of the concern that underfunding of public benefits could leave taxpayers holding the bag.
So who’s better off, public or private workers? The latter, according to a study by the Kentucky Center for Economic Policy. The author, Jeffrey H. Keefe of Rutgers University’s School of Management and Labor Relations, explains that you have to look at the big picture. Public workers do get better, more reliable benefits, but they tend to be better educated than many private-sector workers and receive less overall compensation for their qualifications. The down side for state workers has deepened since the state legislature stopped their cost-of-living pay adjustments because of budgetary difficulties.
The $19 billion unfunded liability in Kentucky’s public pension accounts adds to their worries. “While the recession impacts everyone, the public pension system’s problems have been created primarily by poor legislative decisions,” said KCEP Director Jason Bailey. “It’s unfair to put all of the burden of that problem on the backs of the workers.”
The Kentucky Retirement Systems’ interest in reducing the price of retiree health insurance by moving to a Medicare Advantage plan may stem partly from the realization that trimming the cost of actual pensions would conflict with the state’s legal requirement to keep its promises. The private sector is generally unaffected by such considerations.
The worsening plight of public pension funding could force still harder choices. Last week, at the same time KCEP called attention to the “undercompensation” of Kentucky’s public workers, another organization, the nonprofit State Budget Solutions of Alexandria, Va., said public pension plans nationwide are even worse off than the official numbers indicate. Because projections were based on the expectation of higher investment returns than can be expected in today’s weakened marketplace, shortfalls may have been understated. SBS says a more realistic assessment of public retirement solvency nationwide shows an actual unfunded liability of $4.6 trillion.
“Without government action,” SBS President Bob Williams warns, “states, counties, cities and towns all over America will go bankrupt. ... It is vital to reform public pensions now.”
Whether career rewards are better for public or private workers and retirees could become little more than an academic argument. Cold numbers show the generous benefits that supposedly counterbalance public pay deficiencies are on course for a nasty train wreck, portending unpleasant consequences for employees, retirees and taxpayers alike. There may be no choice but to get on a different track sooner rather than later.