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Shakedown: The Continuing Conspiracy Against the American Taxpayer

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Soundings

Steven Malanga
Pension Propaganda
Don’t believe the public-sector unions when they say that worker pensions are modest.
Summer 2011

Recent polls show that public opinion is turning against government workers because of their rich pay and benefits—especially pension benefits. A spring poll conducted by the Los Angeles Times and the University of Southern California, to take one example, found that 70 percent of Californians favored a cap on public employees’ pensions because of the widespread perception that pension costs have become a crushing burden to state and local governments (see “The Compensation Monster Devouring Cities”). Faced with this declining support, unions have counterattacked by claiming that government pensions are actually quite modest. They argue, for instance, that the average annual pension of a state worker is under $30,000 in California and even less in New Jersey and New York. But their figures are misleading: the real size of pensions for those retiring now on full benefits is much larger.

Consider California. Earlier this year, state treasurer Bill Lockyer, a Democrat who has received union backing in his political campaigns, claimed that the average retired state worker in California was getting just $2,500 a month in benefits. When Contra Costa Times columnist Daniel Borenstein investigated, he found that Lockyer’s average included people who had worked for the state for as little as five years and were collecting partial benefits, as well as those who had retired years before the state significantly enhanced pension benefits in 1999.

But if you limit the average to currently retiring workers who have spent more time working for California and thus can retire with full benefits, a different picture emerges, Borenstein found. The average state worker retiring in 2009 with full benefits received a pension of nearly $67,000 a year. Local government workers in California did even better. Looking at his own town, Contra Costa, Borenstein found an average pension for new retirees of $85,500 annually. There’s more: though government workers don’t automatically qualify for Social Security, about 65 percent of the retired government employees who are members of CalPERS, the state’s government-employee pension system, do get Social Security benefits because the state has made contributions for them for years. The average benefit comes to $19,000 a year. So sweet are California’s pension deals that a report by the state’s Little Hoover Commission, a government watchdog agency, estimated that the average government worker retiring with full benefits and Social Security will get 109 percent of his final working salary as a pension.

Still, union advocates have found that citing misleading pension figures makes for effective sound bites. During a rally against New Jersey governor Chris Christie’s pension reforms last year, an official of the Communications Workers of America claimed that the average pension in New Jersey was a mere $20,000 a year for state workers and $13,000 for local workers. But the Newark Star-Ledger reported strikingly different numbers: an average of nearly $40,000 a year for state workers who retired with 25 years of service; $46,486 for teachers; and $73,571 for police and firefighters.

Similar statistics in New York are just as deceptive. Union reps argue that state workers receive just $19,000 a year, on average, but the actual median pension for those recently retired with full benefits is more than $50,000 a year, according to state pension-fund documents. For New York teachers, the median pension is often reported as slightly more than $48,000; for those retiring now with full benefits, though, it’s about $71,000.

The difference in these numbers is significant, especially because in most state systems, current workers are earning benefits at the same high levels as recent retirees, not at the levels of those who retired years ago or retired with partial benefits. That’s why the annual contributions that many governments must make to pension systems for current workers are exploding. Take the case of a New York teacher retiring at 60 with a $71,000 pension. To finance that pension over the retiree’s expected remaining lifetime would require a guaranteed lifetime annuity of $1.2 million, according to a pension calculator constructed by the Manhattan Institute’s Empire Center for New York State Policy. And that sum doesn’t include health benefits for the retiree, also paid by the state. In short, the public is right to worry about the rising cost of public-sector pensions—notwithstanding the unions’ misinformation campaigns.

Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. He is the author of Shakedown: The Continuing Conspiracy Against the American Taxpayer.

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