April 15, 2018
There has been an ongoing battle in major media outlets against public sector pensions. Papers like The New York Times and The Washington Post have regularly featured pieces telling readers that these pensions are unaffordable.
This crusade, carried on mostly in the news pages, has often taken bizarre twists. Back in 2011 the Washington Post had a front page article complaining about generous pensions that highlighted the story of former employer who was getting a pension of $520,000 a year. People who read through the article discovered that this former employee was a former administrator who was under indictment for fraud at the time, not the typical California employee.
In this vein, The New York Times had a piece on pensions in Oregon that highlighted the pension of an eye surgeon who had formerly been employed by the government who receives a pension of $76,000 a month. It then goes on to discuss the $46,000 a month pension of a former University of Oregon football coach.
While these pensions do sound exorbitant, there are two important points to keep in mind. First, pensions are part of worker’s pay, just like their health care insurance and the money they get in their paycheck every month. The second is that these pensions are far from typical for either Oregon or public sector employees in general.
On the first point, workers sign contracts that specify compensation. Most of it is in direct pay, but benefits like pensions are often part of the contract. This means that people worked for their pensions. Taking back pensions for which people worked is like taking back a portion of their pay after the fact.
It is certainly possible that governments pay some of their workers too much. But governments also sometimes pay too much on contracts or sell land or give away various rights for too low a fee. No one suggests retroactively taking back excessive payments on generous contracts or charging an additional fee for land sold fifteen or twenty years ago. For some reason, the pension crusaders feel that workers uniquely should be able to have terms of their contract changed after the fact to their detriment.
As far as the claim that public employees are overpaid, most research shows that they are actually paid less than their private sector counterparts when controlling for education and experience. The examples highlighted in this piece are a highly paid doctor and football coach. Their claim is that they made concessions on pay which were offset by higher pensions. It requires more information to assess the accuracy of this claim, but the real question is whether Oregon is overpaying its top doctors and its football coaches, not the generosity of its pensions.
The second issue is the generosity of public pensions. While the piece implies that public employees typically get generous pensions, this is not true. The Detroit pension system, which is referenced in the piece, pays an average annual benefit of $20,000 a year, or less than $1,700 a month. Most other public pension systems provide comparable benefits to typical employees as opposed to highly paid doctors and football coaches.
There are several states and cities (such as Illinois and Chicago) where benefits are substantially more generous, often averaging over $30,000 a year. In these jurisdictions, workers do not contribute to Social Security, so their public pension is likely to provide the overwhelming majority of their retirement income. That fact is often left out of reporting on this topic.
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