Pension reform without trashing those already retired and a West Virginia Senator who speaks common sense!

From John Curry, July 11, 2010

"Another potential barrier is determining who would be affected by comprehensive pension reform. There are clearly significant political and legal challenges to addressing the benefits of active and retired employees, so it is not surprising that in the compromise reached recently in California, only the benefits of new hires were changed. This has been the pattern in other negotiated agreements around the country."

http://wvgazette.com/Opinion/OpEdCommentaries/201007100367
wvgazette.com, July 10, 2010

Dan Foster: Time to change pension system

I AM STILL amazed at Sen. Robert Byrd's relative vigor and relevance at such an advanced age. I have seen this in my parents, as well, and in their contemporaries both here and in my hometown. This has led me to develop a newfound appreciation for the personal impact of pensions.

Promises were made that have been kept and have helped people to thrive into their golden years.

As Americans and West Virginians, we always try to keep our promises, but times have changed. Rather than breaking promises, we just may have to make some new ones. Although education reform has been getting most of the media attention recently, governments at all levels are facing long-term financial disaster because of health care costs and retirement liabilities.

The hope is that with the processes put in place by federal health care reform legislation, we have a real shot at dramatically slowing the growth of medical costs, which, coincidentally, could also have a beneficial effect on debt caused by Other Post-Employment Benefits. Unfortunately, the future for pension cost control is not so rosy.

Although we are often reminded that West Virginia state pensions are among the worst funded in the country, virtually every state has made unrealistic promises. Just a few weeks ago in California, Gov. Arnold Schwarzenegger reached an agreement with four major state employee unions to roll back pension guarantees. An editorial in the Santa Cruz Sentinel noted that, "the time is now for state and local governments to make inroads on unsustainable pension benefits".

Perhaps the most frequent suggestion has been that governments should eliminate financial risk by changing from defined-benefit or traditional pensions to defined contribution or 401k-type plans. This has become common practice in the corporate world and may seem to be a logical response. Yet, while the responsibility of a business with a 401k plan ends at the employee's retirement, in general, when retirees run out of money because they do not have a consistent monthly income, the use of various taxpayer-supported assistance programs can be expected to increase. This will then create more financial burden for local and state governments. This perception has undoubtedly hindered the move to defined contribution plans in the public sector.

Another potential barrier is determining who would be affected by comprehensive pension reform. There are clearly significant political and legal challenges to addressing the benefits of active and retired employees, so it is not surprising that in the compromise reached recently in California, only the benefits of new hires were changed. This has been the pattern in other negotiated agreements around the country.

What then can be done that is legal, could be considered fair to our employees, and will provide future sustainability for our state plans? Recognizing that only newly hired employees will probably be impacted, here are a few of the possibilities:

1) Increasing employee contribution levels, particularly if they are less than half of the normal cost of the pension benefit, makes sense. This allows employees to have some skin in the game if the time ever comes for future benefit increases.

2) With longer life expectancy of the average West Virginian and with Social Security retirement age now up to 66 and 67, encouraging workers to retire later would seem logical.

Other than the special cases of public safety personnel, where exposure to danger would justify an earlier retirement age, it shouldn't seem unreasonable or unfair to wait until at least 60 or 62 to get full retirement benefits with the opportunity to retire earlier with reduced benefits.

3) Adjusting the formula for determining final average salary (FAS), which is the basis for calculating traditional pensions, also has merit.

It has become commonplace to use the average of only the last few years of employment to make this determination. This has the potential to increase the base to a level that some may consider excessive. Perhaps, we should be more balanced and include more than just a handful of years in making this calculation.

4) As pension benefits are calculated by taking the product of the FAS and a "multiplier," making it also one of the keys to the size of the monthly payment, revisiting the size of this "multiplier" is a commonly mentioned strategy. Ten years ago when the American economy was flying high, many public plans around the country awarded generous increases in the "multiplier." A quick calculation will show that when combined with Social Security, an individual who retired and received a pension after working 30 years with a "multiplier" of 2 percent would in most cases be able to maintain his or her pre-retirement lifestyle. If the "multiplier" goes up to 2.5 percent, the pension would be increased by 25 percent. How high does it really need to be?

Some of these issues were addressed in recent reforms for municipal police and fire pensions. Affected employees realized that there was a real danger of default of these plans. Without major reform, the local governments that employed them could be severely restricted in the services they could provide.

The analogies to our state's predicament are obvious.

It could be that we will all have to work a little longer, save a little more, or even spend a little less - certainly not the end of the world.

We may not get the same deal that our parents got, but we are a resourceful people who understand the concept of shared sacrifice, and I believe that most of us strive for the ultimate success of this state and country.

It may take a little work, but I'm convinced that we will find an equitable solution that could be looked upon as merely a remake of "The American Dream."

Sen. Byrd just may be our inspiration.

Foster, a Charleston surgeon, is a state senator from Kanawha County