Editorial: Painful public pension plans

Tuesday, April 17, 2007 | 7:05 a.m.

At some point local governments are going to have to sit down with the unions that represent their employees and discuss the runaway costs of pension plans.

Over the past few decades the issue has been raised in the private sector, and a sea change in how workers perceive and receive their retirement incomes has occurred.

Notable exceptions include those who work for the auto and airline industries, whose employers are so weighted down with legacy costs, including pension obligations, that bankruptcies, plant closings and cuts in salaries and benefits are common.

But most private workers are no longer signing on the dotted line with the expectation of receiving cradle-to-grave care from their employers, even if they plan to work for the company their whole lives. They now expect 401(k) plans, which ease the employer's burden and place more of the long-term saving responsibility on themselves.

But governments, which see as painless the option of passing the cost of pension plans on to future taxpayers (as opposed to current stockholders) continue to wrap their employees in security blankets. The kind of pensions common to most workers 50 years ago remain common in government.

Las Vegas Sun reporters Jeff German and Mike Trask, writing in Sunday's paper, documented the costs of such outdated policy. Over the past six years, they reported, local governments in Southern Nevada increased their contributions to employee pension plans by 62 percent, for a total of $1.3 billion.

The reporters found that with each of the local governments, their pension plans are growing significantly faster than the size of their workforce. That's because government payments to pension plans are largely based on workers' salaries. And public-employee compensation has been on the rise in recent years.

Pension funds are invested, but rarely, if ever, does the investment income come close to matching what must eventually be paid out.

Every dollar paid into a pension plan is one less dollar the government has to provide services. Where the real expense occurs, however, is after the employees retire, and their generous lifetime payments begin. Thousands of such payments, made over decades, drastically reduce the ability of government to address the needs of the community.

In our view, local governments should begin talking with the public-employee unions about phasing out traditional pension plans. A phased-in conversion to 401(k) plans would bring their employees in line with employees in the private sector, and save billions over the long run.

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