The agreement by the Patrick administration and legislative leaders to increase funding for the state pension plan to fully cover retirement obligations is admirable in that this shortfall has been neglected for too long and the bond markets will be pleased. Taxpayers working in the private sector without pensions have a right to expect government to move away from pensions as well, however, and that reality is not being addressed by government.
In an ideal world every employee would get a guaranteed pension, but that ideal world from the "Mad Men" era has all but vanished in the private sector, where most workers make do with 401-ks, IRAs and other retirement funds tied to the stock market that business owners may or may not contribute to. Hefty pension funds proved to be too much for private industry to bear in tough economic times, and the reality is that great economic times may not return soon, if ever.
Hefty pensions are no easier to bear in the public sector, but unions continue to expect them and municipalities and states continue to grant them because they can go to taxpayer resources to fund them. However, when pension obligations become too substantial to go this route any longer municipalities can find themselves crushed under the weight, as Pittsfield was at one time before winning some concessions and digging itself out.
As The Boston Globe reported Wednesday, the economic collapse of 2008 and 2009 so reduced pension funds stashed on Wall Street that the state and many municipalities were forced to extend their target dates to fully fund their pension plans by as many as 15 years, to 2040 in some cases. Along with reducing the value of the pension funds, the crisis left government with less revenue to make up for that lost value, so the longer the shortfall continues, the longer it takes to eliminate it.
The Beacon Hill plan announced Tuesday calls for a 10 percent increase or $163 million for funding to the state pension plan in 2015, followed by 10 percent increases in 2016 and 2017 and 7 percent hikes the next three years. It is an ambitious and necessary effort that, state Treasurer Steve Grossman, who chairs the pension fund, told The Globe should keep government borrowing costs low by protecting the state’s bond rating. The solution to the pension plan dilemma, however, must go beyond pouring more money into it. When state and municipal contracts end, elected officials must begin the process of phasing out public pension plans in favor of the retirement strategies now prevalent in the private sector.