mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Salon Warns Public Workers: Your Pensions Are Not Safe


It’s taken a while, but mainstream publications are finally coming to terms with the severity of the public pension crisis. After Detroit declared bankruptcy last month, the NYT noted that Chicago could be next in line. Now Salon is weighing in with an even more expansive warning that Detroit’s and Stockton’s attempts to discharge their pension obligations in bankruptcy may tempt other states and cities with similar public pension woes:

Pensioners are not well positioned for this contest. They have little negotiating leverage. Bondholders can threaten the city with higher borrowing costs going forward or even being shut out of capital markets if they aren’t repaid as promised. There is a lot of bluster to bondholder admonitions, but pensioners cannot credibly make similar threats of withholding labor.

Pensioners also make a politically attractive target for distressed municipalities. It is easier politically to cut the pensions of a limited number of employees than it is to cut services for everyone or raise taxes on everyone. In Detroit, this argument is framed as pitting the interests of 20,000 employees and retirees against the future of a city of 700,000. Pensioners get demonized as the holdouts preventing the recovery of the city.

The MSM has caught onto this story late: it’s been clear for a long time now that public pensions have been in trouble. But better late than never.

While we’re pleased to see more media outlets recognize the dangers posed to public pensions, we’re rarely pleased by their proposed fixes for this problem. For Salon, Adam J. Levitin notes that public-sector pension plans, unlike private-sector ones, are not insured by the federal government. He thus encourages government to expand insurance protection to public pensions:

Expanding [Pension Benefit Guaranty Corp] (PBGC) coverage to public pension plans would not have to cost taxpayers anything. The PBGC is not taxpayer-funded. Instead, it collects premiums and invests them, just like a mutual insurance company. Premiums would not have to be particularly onerous because only a small number of municipalities would have pension funds making insurance claims in any given year. Yet being forced to pay insurance premiums would in turn impose discipline on municipalities: If premiums were based on the size of a pension’s obligations, it would also act as a disincentive for offering lavish promises of future compensation as there would be an immediate price tag for doing so. And it is hard to imagine public pension insurance creating a moral hazard: No municipal government wants to flirt with bankruptcy, even if some of the cost will be borne by others.

This strikes us less as a bold plan to protect public workers than as a last-ditch effort to avoid the inevitable: defined-benefit pensions, whether public or private, are on the way out. There are many reasons for this, but a key one is that defined-contribution plans are much safer for both employers and workers, particularly in industries where automation is decreasing the number of employees, thereby decreasing the number of new workers paying into the fund that retired workers are drawing upon. Unlike defined-benefit plans, defined-contribution aren’t bound up in the health of the company (or municipality) that provides them, and they don’t require a constant influx of new hires (or tax increases) to keep the coffers full.

The private sector has already largely made this shift; only 18 percent of workers are still covered by defined-benefit plans. If automation begins to slim the ranks of the public sector workforce as we believe it will, public workers will face the same challenges. Rather than locking themselves into the defined-benefit model, struggling municipalities should shift their pension plans to a model that will survive the changes to come.

[Protest photo courtesy of Shutterstock]

Features Icon
show comments
  • Corlyss

    “The MSM has caught onto this story late”
    Just like in 1995-6 when the MSM didn’t discover the debt/unfunded liability crisis and its implications until conveniently AFTER they had vilified and excoriated Gingrich and the Republican Congress for WEEKS for “shutting down the government,” thus distorting and trivializing the discussion to this very day. I’ll never forget ABC’s John Cochran appearing on that pundit show run by Mary Matilin and DeeDee Myers, admitting that “there were important issues to be discussed about the fiscal health of the nation, and we in the media failed to report on them.” Duh!

  • Pete

    “While we’re pleased to see more media outlets recognize the dangers posed to public pensions, …”

    You have it backward. The real story is the danger that public pensions pose to society.

  • bpuharic

    WRM, a tenured professor, with his TIAA CREF pension, is insulated from the effects of the ‘free market’ so may be unaware of the disaster that 401k’s are for the middle class

    Only around 60% of workers even HAVE a 401k. And of those more than half are worth less than 100K. Who can retire on that?

    The right’s war on the middle class has produced 3 decades of wage stagnation, the busting of labor unions and the destruction of a secured income in old age.

    American exceptionalism.

    • Tate Metlen

      Math has won. What cannot continue will not continue. Pray tell; where is it better to work and where does the middle class have a better ability to retire?

      • bpuharic

        How do you retire on 100K total, for savings?

        • cubanbob

          Well if younger people were allowed to kick in 12.4% that they do now in FICA-the mother of all Ponzi schemes in to their 401k plans over forty years they would have enough to retire on.

          • bpuharic

            And how’d that work out with the financial collapse of 2007?

          • Doug

            Actually, it worked out pretty well unless you needed the money right away. Most retirement funds are now worth more than they were in 2007.

          • bpuharic

            Mine is close. But the failure is in your own words.


            It’s not 2007. It’s 6 years later. I was 52 in 2007. I lost 6 years of income growth, courtesy of Wall Street’s ‘free market’ approach.

          • rogerzimmerman

            You needed to be able to ride out a trough of approximately 2 years to become 80% whole (in nominal terms, but inflation is caused by government policy), and 4 years to become 100% whole. The median worker retiring in 2007, had they been allowed to save 10% of the income, instead of losing 12.4% to FICA, would have had ~$1M in savings given market returns from 1967. So, they could have withdrawn their $50K/year from their private savings during the downturn, and still had ~$750K by 2011. Not a lavish lifestyle, but certainly fine, and way better than their measly SS payments.

            Of course, I am assuming self-control and long-range planning, but that is what life as a human being requires.

          • bpuharic

            401K’s lost about 25% of market value in 1 year. To regain that requires 33% growth. Hard to come by in a recession. It’s been 6 years for this one and we’ve just recovered close to the values in 2007.

            And with no pensions…and no social security? that 50K is it. Totally unprotected from market forces.

          • cubanbob

            You have a conceptual problem of equating paper losses and real losses. Since my portfolio was investing in decent quality dividend stocks and I didn’t panic and sell I didn’t lose anything thank you for your concern. However as a GM bondholder I did get slaughtered thanks to Obama’s corruption of the bankruptcy laws. By the way how are your Detroit bonds doing? That ain’t a paper loss.

          • Jim__L

            Why are you looking for a source of free money? They don’t exist.

            “Root, hog, or die.”

          • bpuharic

            Sure there’s free money. If you’re rich and you make billions you keep it. You lose billions the govt steps in to bail you out

            That’s free money…but only for the rich

        • Doug

          Where do retirement savings come from? That’s a good question. Your thought apparently is that retirement savings grow on trees. The fact is that whether you have a defined benefit plan or a defined contribution plan, retirement funds can only come from two sources, the employer or the employee, plus any earnings on the retirement fund. If together the employer and employee are not saving enough to pay for the worker’s retirement, then they must save more. This may mean a reduction in current consumption. That’s just simple math. If most workers only have $100,000 in their 401(k) plans, then all that means is that they should consume less and save more. There is no alternative.

          • bpuharic

            The US has the greatest rate of inequality and the LEAST social mobility of ANY western country. Where’s the middle class gonna get hte money?

            Consume less? Uh…we’re just recovering from a Right Wing caused recession. We cut back, we go back to recession

    • epobirs

      “The right’s war on the middle class…”

      Really? Does the term kulak mean anything to you? It is the left that has always hated the middle class. They cannot be manipulated so easily as the poor and have to be highly mindful of budgets, unlike the wealthy. Thus the middle class was always perceived as the greatest threat to the left’s intentions because they need to see through the lies on a daily basis to keep what they’ve got.

      • bpuharic

        The right views the ending of slavery as a misfortune. Just think of how much work you could get out of the middle class if you threatened them with slavery!

        • teapartydoc

          That’s what is happening right now. Read The Road To Serfdom.

          • bpuharic

            I seldom have time to read fiction, fantasy or comedy.

            The right lives on it.

    • Bruno_Behrend

      The solution to your posed problem is simple. Stop hawking/denigrating defined benefit/contribution plans.

      Both are part of a rational retirement plan.

      Public defined benefit pension plans need to be much more transparent and locked into some form of sustainability (statutory limits on politically purchased benefit increases). There is no reason defined benefit can’t work if you keep the corrupt out of the cookie jar.

      Next, split payments so that every employee has access to both portable/owned 401(k)/403(b) and a well managed defined benefit plan.

      Both have a place in the solution.

    • Ron Coleman

      Sure, the problem here is not enough unionism. Absolutely.

      • bpuharic

        Almost no one belongs to a union so it’s not the unions. And destruction of unions has long been a right wing goal

        • Ron Coleman

          Almost no public employees belong to unions?

          • bpuharic

            Almost 90% of public employees are not unionized. Almost 95% of private workers are not unionized

            Yes, almost no one is unionized.

          • Ron Coleman

            But in the major cities they are overwhelmingly unionized, and that is the topic of this article.

            In any case, you believe the public pension situation would be better if there more union workers — public and private, right?

          • bpuharic

            As Edith Keeler said in ‘Star Trek’, a lie is a terrible way to say “hello”.

            There are no unions in SOUTHERN states and cities yet they’re in terrible shape.

            Yes, we’d be in better shape if there were more private sector unions. That’s provable by looking at the better rates of social mobility in other countries where UNIONS protect workers, whereas in this country, the right attacks the middle class

          • teapartydoc

            No unions in Southern States? Tell that to the local AFSCME in Birmingham.

          • bpuharic

            You don’t know what ‘right to work’ state is, do you?

    • Eddie_Baby

      Don’t worry about a lack of funds in the 401ks. The government is going to steal those eventually anyway.

  • gullycat

    So. Arrogant, ignorant, impolite and incompetent public sector employees won’t get their lavish, unpaid for lifetime pensions. Boo-efing-hoo. I know it’s juvenile, but I recall a joke from my misspent youth: “You know what this is? This is the world’s tiniest violin playing “My Heart Bleeds for You.'” Suck it up, libs!

  • Michael D Dirmeier

    The person who said this is out of their mind: “Expanding [Pension Benefit Guaranty Corp] (PBGC) coverage to public pension plans would not have to cost taxpayers anything.”

    There is no free lunch. If the municipalities paid those premiums, then the public would pay for them through higher taxes.

    It is truly amazing how many alleged journalists write stuff about which they know nothing. It’s also amazing how many journalism schools turn out total idiots.

  • Misanthrope

    Of course Salon’s leftist shills say taxpayer-guaranteed PEU pensions don’t cost taxpayers anything.
    They don’t believe it, but truth’s never been a priority for them.
    PEU’s have lived off the fat of the land for decades. Now they can suck it.

  • M. Report

    “No municipal government wants to flirt with bankruptcy” – Why not ? _They_ are never
    going to miss a meal. They are above the Law.

  • Bruno_Behrend

    Unions and public employees argue that their pensions are protected by both constitutional clauses and contract rights. They are right on the area of law, but wrong on the outcome. Past pension promises should be attacked from various sources.

    1. Impossible contract – there isn’t enough money in the world to fund “end of career” bumps, early retirement options, double/triple dipping, and other unsustainable perks.

    2. Unconscionable contracts – See above, same reason

    3. Voidable contracts – the agents (elected officials), supposedly negotiating for the principals (taxpayers consuming public services), where bought and paid for by the contracting party (public employee/unions).

    There never was a valid contract because there never was an “arms-length transaction. The Unions owned both sides of the table.


    Every public pension in America should be unilaterally cut to a sustainable payout. Zeroing out COLAs alone solves 80% of the problem.

    • bpuharic

      But, god knows, there’s plenty of money for the carried interest tax rate, capital gains losses, bailouts for the wealthy, etc. Let’s not talk about those…let’s talk about the non existent unions. It’s so much FUN!

      • teapartydoc

        What percentage of state/government employees do you reckon are unionized? What sector is the most unionized sector in the USA? What sector is having the most trouble with bankruptcy? I really admire your efforts to carry water for these corrupt people. You have your work cut out for you.

        • bpuharic

          About 14% of govt workers are unionized.

          I really admire your fanaticism to blame an inconsequential factor for an event that was caused by the implosion of our economy caused by Wall Street greed. There are 8 million fewer taxpayers in the US vs 2007.

          But let’s blame the unions

          • teapartydoc

            Cities are not going broke because of Wall street, Thibeaux.

          • bpuharic

            Yeah the fact these problems have happened since the Wall Street financial collapse got rid of 8 million taxpayers is just a remarkable coincidence

          • BSafe

            Ok, let’s blame Obama! Threre, fixed it.

      • Bruno_Behrend

        You are pretty much an insufferable tool.

        I have no problem discussing changes in those items, though I’m an advocate of direct cash stipends to every citizen (around $13-15K/yr), provisions for health and retirement security paid out of those stipends, coupled with a transition out of taxing incomes and production and taxing consumption instead.

        We now return to your one-sided partisan bleating.

  • Rick Caird

    This is another argument for your own personal pension plan. It is an argument for defined contribution rather than defined benefit.

    The major potential problem is that when the federal government comes around for more money, the 401K and IRA present a tempting target. The Fed’s will offer to “save” your pension by giving you 3% bonds instead and then you are back in the same boat of relying on government to pay back what they promised.

    • bpuharic

      First, 40% of working Americans don’t HAVE a 401k so that’ s a failure. In addition, most are worth less than 100K so it’s a DOUBLE failure. The 401K is just another Wall Street scam

      • teapartydoc

        Yeah. So since it’s a scam, lets just appropriate the money back to where all the money comes from–the government.

      • Rick Caird

        That is really a dumb comment, bpuparic. The whole point of the article is that defined benefit plans will not meet their promises.

        If I had had a 401K in my 20’s, compound growth would mean I could give back Social Security and be way ahead. A 401K and an IRA are the greatest vehicles for retirement planning and wealth generation we have ever come up. Defined benefit plans are the dodo birds of retirement.

        • bpuharic

          The right is big on theory…as long as you ignore the evidence of how well their theories work.

          THe fact is only 60 percent of Ameircan USE 401k’s. So your view is a failure

          AND the average size for the fifty five to 64 population is less than 100K…not enough to retire on

          SO they’re a double failure

          But that won’t stop the right from telling us how great they are. Why?

          1. they make the rich ALOT of money on Wall STreet

          2. they show the middle class is lazy.

          Double for the right wing

          • Rick Caird

            That is because the other 40% is crippled with high taxes and the Social Security take. Plus, they have been fooled by the constant propaganda on Social Security, how much it will be, and how it will be around forever. Low information voters are constantly in for a surprise.

          • bpuharic

            Given the fact that those who DO invest in 401k’s aren’t doing so enough for retirement you can invent any excuse you like

            The program is a failure

  • dhowell969

    The conversion of Ohio’s public pensions to defined contribution has been underway for several years. OPERS, the largest of the funds, has been pretty well managed, and lawmakers recently made needed changes to the eligibility and healthcare pieces of the puzzle to ensure long term viability.

    However, many municipally managed plans and disasters like CALPERS, OPERS’ counterpart in Commiefornia, have not had the political courage to make the tough decisions. It is not a question of if they will fail, but when.

  • SGT Ted

    The article carefully avoids putting the responsibility where it belongs: the Democrat Party politicians and Public Employee Unions, who, after giving themselves cushy tax payer funded lifestyles, then spent the money that should have been used to fund the future pension on other things. The City denizens VOTED for these clowns, with the big support of the Unions.
    Trying the Nationalize the City and State debt is to reward the politicians, Unions and the irresponsible behavior of the voters that endlessly vote for the Democrats, who ran these City and State funds into the ground by purchasing Union support.
    You want the taxpayers to essentially pay TWICE for the gold plated benefits of the tax leeches that already blew the first pile of money we entrusted to them. They committed crimes in wasting the money, its called fraud. But WE’RE supposed to pay up endlessly, while they remain free? I don’t think so.
    The Public Sector Unions and the Democrats have been running a con game ripping off taxpayers tax for 50 to 60 years, and this is where their corruption has landed them; in bankruptcy. Now they want more money. No. No more money, until a bunch of them go to jail.

    • bannedforselfcensorship

      This is why we need something like the Swiss Debt Brake, which stops politicians from promising largesse from tomorrow’s taxpayers.

    • bpuharic

      Let us completely ignore, of course, the crony capitalism like that of our REPUBLICAN PA governor Tom Corbett who just gave tax breaks of 800M to a bunch of companies here…

      nah…it’s all the unions.


      • teapartydoc

        Yeah. This isn’t a long-term problem brought about by years of Dem corruption. Let’s blame it all on some guy elected just a while back. What a moron.

        • bpuharic

          You mean we shouldn’t blame the guy who did it?

          Thought the right was fanatical on ‘responsibility’…guess not.

      • SGT Ted

        Quit being in denial. Citizens and businesses aren’t cash cows to be milked endlessly to enrich Unions and their Government cronies.

        • bpuharic

          Sure they are. The right wing has the economic policy that, if you’re rich and you make a billion it’s yours, along with low tax rates

          You LOSE a billion and you get to deduct it from your taxes AND get a bailout.

          The right wing thinks citizens and businesses are cash cows for the rich

  • Miguel Paw De Leon

    Here’s a fun fact.

    The NYPD has 34,500 active police officers costing the taxpayers 4.3 billion dollars and 44,000 retirees costing the taxpayers 4.4 billion dollars. So the case can be made that the NYPD is a pension plan that also happens to do policing.

    • BSafe

      Much like GM is a pension plan that also builds cars!

  • Jubal_Harshaw_1

    The Courts MUST find that these public sector so-called “promises” are invalid because they are not arms-length transactions and hence not true contracts. In the public sector, the unions literally choose the elected officials with whom they negotiate.

    “Give us big pensions & we will contribute to your re-election. Fail to give us what we want & we will ensure your opponent is elected through a massive get-out-the-vote campaign, massive contributions to your opponent, and massive dirty-tricks against you. And – what do you care — by the time the pension bill comes due, you will have moved on to bigger & better offices, so you won’t be held accountable.”

    Meet the REAL 1% — public sector unionized employees with their gold-plated pensions & Cadillac health care.

  • khm001

    Trusting politicians is always a fools game. That “public” employees trusted them with their retirement makes them some of the biggest fools in history. But quite frankly, I can’t help my schadenfreunde, thinking that after decades of malfeasance, they deserve to lose out on their pensions or have them severely reduced.

  • Jim__L

    Fascinating that, through 401k and such, we’ve discovered a way to democratize the “common ownership of the means of production”.

    What in the world would Marx have thought of the fact that, by muddling along, the dialectic has produced such a synthesis of capitalism and communism? So much for communism being the pinnacle of social evolution. (Capitalism either, for that matter.)

    Fukuyama is certainly a bright guy, but it looks to me like citing “the end of history” will eventually be considered a well-known fallacy, rather than whatever meaning he had intended it to have.

  • Jim__L

    “Expanding [Pension Benefit Guaranty Corp] (PBGC) coverage to public
    pension plans would not have to cost taxpayers anything. The PBGC is not
    taxpayer-funded. Instead, it collects premiums and invests them, just
    like a mutual insurance company. Premiums would not have to be
    particularly onerous because only a small number of municipalities would
    have pension funds making insurance claims in any given year. ”

    To be charitable: this might be true if it weren’t for the fact that we’re talking about extending coverage in the middle of a crisis. A comparatively large number of municipalities are in a situation where they are about to make claims, and there simply isn’t time for steady premium payments to build up a reserve for payouts. That’s why this Levitin’s idea is a bad one. (It’s like ObamaCare’s “guaranteed issue”. You don’t get insurance until you’re sick.)

    There are also reasons why Levitin’s idea is not just a bad one, but a horrible one — the municipalities that are in a financial position to start paying the premiums on such a system are well enough managed to maintain their solvency through prudently keeping up with pension investments, without the insurance.

    Levitin’s idea is for the grasshoppers to devour the ants’ reserves. No, thank you.

    • BSafe

      Insurance companies don’t insure buildings that are already on fire.

  • teapartydoc

    Maybe Sweden will bail them out.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service