Advocates of gutting public pensions are running into the same wall over and over again.
From California to Illinois to New Jersey and beyond, pension gutting efforts are being overturned by judges who recognize that breaking promises to workers isn’t just regrettable, it’s illegal. Pension opponents castigate the courts as the enemy while conveniently ignoring why legal protections exist in the first place—to protect public employees from politicians who spent years playing politics with their retirement savings.
For decades, elected officials across the country skipped pension payments, often while funneling money into pet projects. Until the Great Recession, politicians were able to hide these mistakes behind a booming economy. But by 2008 the economy had plummeted, shining the spotlight on this financial malfeasance.
When the average American faces a debt problem of their own making, they have to make tough choices and figure out a way to pay back their creditors. Politicians, however, are taking the opposite approach – fixing their mistakes by gutting worker benefits.
If that sounds unfair, that’s because it is. Workers did not create pension funding problems. In fact, the vast majority of employees contribute a portion of each paycheck toward their retirement.
But thankfully, forty-eight states have some kind of legal protections on the books for public employee pension benefits. That means that 96 percent of states believe that the workers’ rights are worth protecting. Those protections aren’t easily breakable.
The story is playing out in a big way in Illinois. Last month, the Illinois Supreme Court handed down a ruling strongly indicating that the pension-reduction package passed by the Legislature in 2013 will eventually be deemed unconstitutional.
Illinois’ pension funds have problems, but they weren’t caused by public workers. According to Chicago’s WBEZ, “the state, led by governors and General Assembly members, has never really paid its fair share.” Pension actuaries—the folks who study pension funding—have been sounding the alarm about government underfunding in Illinois since 1945. Seventy percent of the state’s pension debt growth between 1985 and 2007 was due to the government’s failure to make payments.
Illinois workers earn an average of $32,000 in retirement per year, and pay an average of eight to nine percent of every paycheck toward their pension. Four of every five public workers are not eligible for Social Security.
Despite protests from pension opponents, the Illinois courts are doing what they are supposed to do—protecting public workers whose rights are guarded by the state constitution.
A similar storyline unfolded in San Jose. As pension lawyer and expert Teague Paterson explained: “Mayor Chuck Reed pushed a legally dubious ‘Measure B,’ which would have cut the pensions of city employees who couldn't contribute a whopping additional 16 percent of their salary towardretirement. Judge Patricia Lucas rejected the initiative, tentatively declaring that as part of employee contracts, retirement benefits are protected by the state constitution and therefore, the whims of politicians.”
And then there is New Jersey. By executive order, New Jersey Governor Chris Christie recently cut payments to the state pension system by $2.6 billion. Ironically, Christie is using his own cuts to the system to advocate for a new round of (unspecified) cuts for public employees, over and above cuts he already forced in 2011.
Portions of the 2011 cuts, however, have been found unconstitutional. In June, the State Court of Appeals ruled that Christie’s efforts to freeze cost of living adjustments—better known as COLAs—violated worker’s contract right to yearly increases in their pension benefits, which are part of the state’s benefits package.
A pension works like a contract. Most public employees don’t make as much as their counterparts in the private sector, but in return are guaranteed a modest, but secure retirement. It’s deferred compensation for a lifetime of public service. For states to cut benefits is like promising your neighbor’s kid $20 to mow the grass, but wind up only paying him $12 because you went out to buy a six-pack.
Rather than finding ways to circumvent laws and spend millions of taxpayer dollars defending illegal “reform” packages in court, legislators in Illinois, New Jersey, California and states around the country should be looking at ways to strengthen and preserve retirement systems for generations of public employees to come. We can’t count on politicians to stick to their word. It’s promising that judges are forcing them to.