Who ‘Contributes’ to Public Workers’ Pensions?

Wisconsin's taxpayers are paying 100 percent of the cost of the benefits programs for state employees. But the benefits amount to a payment in kind.

David Cay Johnston of the progressive Tax.com argues that Wisconsin’s public sector workers are already paying for their benefits and therefore asking them to “contribute” more amounts to a pay cut.

Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to “contribute more” to their pension and health insurance plans.

Accepting Gov. Walker’ s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’ s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read (emphasis added), is: “The Employer shall contribute on behalf of the employee.” This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.

This is really a semantic argument. Wisconsin’s taxpayers are, as Walker suggests, paying 100 percent of the cost of the benefits programs for state employees. But, yes, as Johnston argues, the benefits amount to a payment in kind: They’re part of an overall package that people evaluate when deciding whether to work for the state.

If my employer pays for my parking and then announces that they’ll no longer do that, this policy change amounts to a pay cut. But I’ll likely get very little sympathy from those who’ve paid for their own parking to begin with.

Regardless, treating the current arrangement as a permanent baseline makes little sense. States, like any other employer, have to constantly evaluate their compensation packages in light of the market and their own ability to pay. Pension and other liabilities to retired employees are a more-or-less fixed cost. Pay and benefits of current and future employees are variable.

via memeorandum

FILED UNDER: General, ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. steve says:

    Of note, the Wisconsin pension is one of the best funded in the country. The union is being asked to take a pay cut to help pay for a budget shortfall. I think that is a legitimate request by the WI government and the unions agreed to it. That really addressed the budget issue. The rest is just power politics.

    You guys have not covered it, but I would think that thee libertarians at OTB would be concerned about Walker’s moves to take power seas from the legislature and concentrate it in the Governor’s office.

    Steve

  2. James Joyner says:

    Steve,

    First, I’m not sure that libertarians generically have much institutional preference as to how government power is exercised, just an aversion to said power.

    Second, I’m not sure who powers this act — which would be passed by the legislature — abrogates to the executive.

  3. John Ballard says:

    A semantic argument? I think not.

    Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009. If pension funds had earned returns just equal to the interest rate on 30-year Treasury bonds in the three years since 2007, their assets would be more than $850 billion greater than they are today. This is by far the major cause of pension funding shortfalls. While there are certainly cases of pensions that had been under-funded even before the market plunge, prior years of under-funding is not the main reason that pensions face difficulties now. Another $80 billion of the shortfall is the result of the fact that states have cutback their contributions as a result of the downturn.

    http://www.cepr.net/documents/publications/pensions-2011-02.pdf

    Looks to me like too many red herrings to count.
    If you’re gonna pick on Mr. Johnston you’ll have to do better than that.
    What’s happening in WI is naked union-busting, period.

    Wisconsin Governor Uses Police State Tactics (Literally) on Democratic Senators (Updated)

  4. James Joyner says:

    @John Ballard

    I’m not sure what any of that has to do with the question at hand.

  5. Steve Verdon says:

    I guess my question is, is Wisconsin’s public employees retirement plan a defined contribution or defined benefits plan? If it is defined contribution then yes Johnston is right. If it is defined benefit then no, Johnston is not right in the plan will always be “well funded” in the sense that tax payers are on the hook to cover the shortfall. A defined contribution plan is NOT like that. I have a defined contribution plan, if the stock market does not do well tax payers are not liable. Is it part of the compensation package for employees? Yes, and a damned nice one. I think it is quite unfair to set up a pension/retirement plan this way. It really does come down to robbing Peter to pay Paul if the stock market does not perform as expected.

  6. John Ballard says:

    My bad. I should have known.
    Sorry to have troubled you.
    Feel free to delete the comments.

  7. Drew says:

    “This is really a semantic argument.” That’s gentlemenly; I’d say sophistry. (Having returned from out of the country with no internet capability, and reviewing recent commentary I’d say there’s alot of that going on around here. At least it wasn’t as agregious as Alex’s “the tax code doesn’t redistribute wealth” post.) In any event, its all taxpayer funded. The only portion funded by state workers is their share of taxes paid.

    John Ballard – you need to take up your argument with the state comptroller or treasurer, who probably is in charge of choosing the pension fund’s asset manager, not James.

  8. Loviatar says:

    Upon reviewing David Cay Johnston piece James and his choir of wingnuts come up with their interpretation of the facts.

    However we have a difference of opinion from two other readers of the same piece.

    Nobel Prize winner in Economics

    Professor of Industrial Relations and Labor Policy at MIT in both the Engineering Systems Division and the Sloan School of Management (who happens to be from Wisconsin and is a University of Wisconsin graduate).

    .
    I report, you decide; who is correct, James and his choir or the two esteemed professors.

    h/t Tom Levenson

  9. James Joyner says:

    @Loviatar:

    1. Familiarize yourself with our commenting policies. Disagreement is welcome. Name calling is not.

    2.That two liberal economists take a different tack than a conservative political scientist is hardly surprising. But there’s no disagreement on the facts between myself, Krugman, and Kochan. Or even Johnston.

    The contribution for Wisconsin public employment benefits is paid 100% by the taxpayers. Johnston is saying that this is because the employees are taking the benefits in lieu of pay. I don’t disagree. I simply argue that it’s a semantic distinction: It’s still taxpayer funded.

    Krugman and Kochan make a related but different point: that Wisconsin’s public employees aren’t being paid, when salary and benefits are factored in, more than their private sector equivalents. I don’t address that issue at all in the post. I did, however, address that in a different post a few days ago (Wisconsin Teachers and Average Pay), mostly to say that the comparisons are apples to oranges because public and private sector employees tend to do different jobs. I don’t think Krugman or Kochan would fundamentally disagree with that.

  10. Loviatar says:

    James,

    1) Please explain to me; who did call I a name? you, I’m pretty sure I called you by your given name, James isn’t it. Drew and et al (the choir), well I’m just going by your reasoning from your Obamacare post. Choir of Wingnuts is short, memorable, and nonjudgmental and at least to me it doesn’t conjure up negative imagery.

    But if you’re insulted I’ll refrain from using that term. In your world that would be Political Correctness, but I was taught common courtesy, which is to respect someones wishes on what they would like to called.

    2) Nice framing of the subject; using your argument, since executive pay of any company doing business with the government is taxpayer funded shouldn’t that pay then be subject to scrutiny and unilateral reduction by our government officials.

  11. James Joyner says:

    @Loviatar:

    1. I discourage use of insulting names for commenters. It doesn’t exactly lead to persuasion.

    2. Private companies engaged in contracts with the government get paid under the terms of the contract, which is generally for a specified period. Once the contract is up, government officials damned well ought to scrutinize the terms and decide whether they can get more favorable terms given the current market.

    And, just to be clear for those who haven’t been following my numerous posts on this standoff: I’m not anti-government employee. I’ve been one (Army officer, college professor in state institutions, and also a DoD contractor). My dad was one most of his working life (Army NCO and then DoD civil service). But terms aren’t in perpetuity. Army retirement benefits, especially health care, have changed radically over the last thirty years. Federal civil service benefits — especially retirement pensions — are radically less favorable than they were 35 or so years ago.

  12. Loviatar says:

    1) So I see, the typical IOKIYAR mentality. Obamacare is fine but Choir of Wingnuts is insulting.

    2) Pulling out your “government employee” reps still doesn’t change the facts that you’re advocating unilaterally changing provisions of a contract that was negotiated, reviewed and signed by the two parties.

    Also, please explain to me what is the difference between a union negotiating with the government on behalf of their members and expecting their negotiated settlement to be honored. And a “private company” negotiating with the government and expecting their negotiated settlement to be honored.

    Finally, based on your arguments I expect to see you in the future advocating the government to go back and scrutinize all past contracts (private company or union), because we are now in a radically different economic time. Boeing, Haliburton, etc better watch out James Joyner is on their tale.

  13. Marsha says:

    It is this public relations professional’s opinion that Mr. Walker did a masterful job at diverting attention from substantive issues by hiding them behind the “no negotiation” tactic with the unions.

    The unions already offered to take a pay and benefits cuts.

    Many articles don’t mention the 16 forced unpaid furloughs under the Doyle administration, nor do they mention that shortly after the election (and 15 months of negotiations) the administration and employee unions finally came up with a new contract agreement that included substantial concessions including more unpaid furlough days and increased contributions to pensions and health care. Many of those in higher level professional jobs are working late and on weekends to catch up with work they can’t do while on furlough.

    Business owners like myself are concerned about other issues in the bill that are not being reported: the no bid contracts, particularly those related to the sale of government-owned power companies; the influence of outside campaign contributors on his decisions; the cuts to BadgerCare which provides access to health care for children; and now highly-publicized lack of willingness to negotiate — on anything.

    This bill has come on top of his killing of the high speed rail project and the businesses and jobs related to it; the killing of the wind energy projects at great expense to their respective companies — and loss of more jobs.

    Take a look at the campaign contributions and PAC money. There appears to be more than a casual alignment.