American Elephants

The Peculiar Problem of Public Pensions. by The Elephant's Child

Scott Walker’s victory in Wisconsin demonstrated clearly that when the issues are straightforward and presented clearly, the people respond. His victory should gain support for efforts around the country to reform one of the biggest perks protected by public employee unions. Retirement benefits are increasing to the tune of $3 trillion in unfunded promises to state and local workers. If reformers want to fix this issue, the lawmakers must overcome their own special interest.

Legislators in dozens of states have drafted retirement perks that are far more generous than those of their government employees. The Chicago Tribune recently gave Illinois residents a glimpse of how former Chicago Mayor Richard M. Daley had gamed the system. In early 2011, as he was ending his 22 year tenure, Mr. Daley complained about the growing cost of government and warned that rich pension benefits for public workers might ruin Chicago’s budget. He did not mention that he had exploited the system he was criticizing to boost his own final retirement package to $183,000 a year. Steven Malanga of the Manhattan Institute spelled out how it’s done:

According to the Chicago Tribune, Mr. Daley hit the jackpot using an obscure loophole in Illinois pension law. As a former assemblyman, he is allowed by the retirement plan to collect both a legislative and mayoral pension. What’s more, while mayor he was allowed to re-enter the state legislature’s pension system for a month so that his legislative pension would ultimately be based not on his small legislative salary of $17,500, but on the much larger salary he earned as mayor. The result: He now collects an additional $50,000 a year in retirement pay.

Elected officials in dozens of states enjoy similarly generous deals. In Arizona, Florida and Kentucky, for instance, the pensions of legislators are calculated with a more generous “multiplier” than those of regular employees. (The “multiplier” is used in the equation that translates a worker’s years of service into the percentage of his final salary that he will receive as retirement pay—the longer one works, the larger the percentage.)

The tricks vary from state to state, from adding the per diem (intended to defray a legislators costs to come to the capitol for a session) to the salary to get an increased  base on which to calculate a pension, double-dipping,  collecting a pension while still working, triple-dipping. They should be embarrassed, but they are doing it quite legally by taking advantage of poorly written laws.

Until legislators are willing to rewrite laws in order to force themselves to be honorable and ethical, we will have a hard time getting rid of the inflated benefits that public employee labor unions manage to get past the legislators.



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