NCPA - National Center for Policy Analysis


January 17, 2006

Public employee pensions have become increasingly generous since 2000, promising a more comfortable retirement for civil servants but a serious financial challenge for future taxpayers, say observers.

The beefed-up pension benefits come at a time when the pension funds' financial health has deteriorated and private pensions have been scaled back.

Governments have been increasing monthly benefits, making it easier to retire at 55 and spending more on retiree health benefits. State and local governments, which cover 21 million workers and retirees, have been adding benefits the fastest:

  • A Wisconsin Legislature study of 85 big public pensions in all 50 states -- covering three-fourths of public employees nationwide -- found that governments continued to enhance benefit formulas, ease early retirement and improve other benefits from 2000 through 2004 despite states' financial problems.
  • The New Jersey Legislature has approved 17 benefit enhancements since 2000 that increased the unfunded obligations of public pensions in the state by $6.8 billion, according to a task force studying the issue.
  • Average annual benefits for retired state and local workers grew 37 percent from 2000 to 2004, to $19,875, according to the Census Bureau; the rising payments reflect the early retirement of baby boomers, who started to qualify for full benefits in 2001, at age 55, under most government pensions.

"These pensions are unaffordable," says Rep. Bert Stedman (R-Alaska). "If we don't act now, we're going to have social conflict in the future between the haves and the have-nots -- those with government pensions and those without."

Federal, state and local governments have promised pension and retiree medical benefits that would require more than $5 trillion to be invested today to cover costs over the next 75 years, according to the financial statements of the retirement plans.

Source: Dennis Cauchon, "Public workers' pensions swelling," USA Today, January 17, 2006.

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