Government Employees begin to Lose Control over their Pension Plans

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 ones famous corporations like General Motors have always offered. These companies provide for their pension plans by setting aside 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 typically 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 each month. Sometimes, the government will even promise a guaranteed growth rate on their pensions - so that they can rely 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 instance, when the whole market collapsed in 2008, it rocked the entire foundation of many a pension plan. Their values plummeted. Large corporations were so badly hit that they found that they just could not pay their pensions anymore. That's why some like GM filed for Chapter 11 - to be able to be forgiven their obligations.

The states have even larger problems funding their pension obligations. Of course, states place their funds in investments they hope will bring them returns. But in large part, states also depend on 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 hoped for. Pension plans are beginning to change all over the country. Government employees more and more these days are being forced into accepting defined contribution plans - which are like the 401(k). Funding guaranteed pensions is just becoming impossible for the government.

Basically, pension plans get into trouble for two reasons. To begin with, their actuaries give them bad information for the kind of annual 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 are going to fund all this for years 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's 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 contributions plans, and leaving their defined benefit plans behind.

In Alaska for instance, 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 in 2004 in Georgia did it in 2008. It certainly would appear that government workers no longer enjoy the protections they once took for granted.

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