YOU ARE HERE: LAT HomeCollections

The Nation

Private-Sector Anger Builds as Public Pension Costs Rise

Lawmakers feel the heat from taxpayers who see their own benefits wither, and traditional payouts give way to 401(k)-style plans.

October 02, 2006|Molly Hennessy-Fiske | Times Staff Writer

HADDONFIELD, N.J. — For insurance agent Steve Adams, 51, the resentment began two years ago.

As he worried whether his stagnant 401(k) account would be adequate for retirement, his wife's employer ended her pension plan, forcing her to rely on a 401(k) as well. Then New Jersey lawmakers raised his property taxes to maintain state workers' pensions.

Last spring Adams joined a taxpayer group called Americans for Prosperity that is seeking limits on government employee pensions.

In June he attended a rally in Seaside Heights, N.J., where about 200 people urged state legislators to make cuts in such things as pensions rather than raise taxes again -- this time, a proposal to raise the state sales tax.

"We don't get anything nearly as generous in the private sector" as public pensions, Adams said.

Public employee pensions, one of the last bastions of guaranteed retirement plans in America, are under assault as cash-strapped state and local governments struggle to cover rising costs and as resentful taxpayers refuse to pay more to cover them.

The development has led to "pension envy" among people like Adams, as baby boomers struggling to make it to retirement see state workers retire early to reap rewards they may never enjoy. The tension has crept into relationships between friends, neighbors, parents and teachers.

The struggle to fund public employee pension plans is a familiar topic in California, where last year Gov. Arnold Schwarzenegger unsuccessfully sought to replace state workers' pensions with 401(k)s.

The California Public Employee Retirement System and California State Teachers Retirement System cover more than 2 million workers. CalPERS is 88% funded and CalSTRS 82% funded, according to their financial records -- levels that researchers at the conservative Pacific Research Institute say are high compared with states such as Illinois and New Jersey.

Alaska and Colorado have made changes to state pensions, and Illinois, Oklahoma, Montana, New Jersey, Pennsylvania and Providence, R.I., are contemplating similar steps.

About 90% of state and local workers in the U.S. have pensions, compared with about 20% of private-sector workers, said Keith Brainard, research director at the National Assn. of State Retirement Administrators.

Instead of company-paid pensions with guaranteed payments, most private-sector workers now are offered 401(k) plans, investment accounts that employees pay into and manage while they're working, then tap when they retire. Some employers contribute to 401(k) plans.

With state pensions, investment management is up to the state, but taxpayers are often called on to cover costs. As of last year, 84% of state pension plans were underfunded, meaning their assets don't cover projected payments, according to Santa Monica-based Wilshire Associates. Some lawmakers plan to make up the difference by raising taxes.

The tension between public employees and taxpayers is playing out across the country, but nowhere more sharply than in New Jersey.

Several of New Jersey's major private employers recently eliminated pensions. Telecom giants Sprint Nextel Corp. and Verizon Communications partially froze pensions last year, affecting some 18,000 workers in New Jersey. DuPont Co., which employs about 1,300 in New Jersey, announced plans this summer to freeze pensions, meaning the company intends to drastically reduce its pension fund for current employees and deny any coverage to new hires.

"More and more New Jerseyans find themselves without pensions and become resentful of the double whammy that they face: fewer benefits for themselves and higher taxes so that the public-sector workers can receive generous benefits," said David Rebovich, managing director of the Institute for New Jersey Politics at Rider University in Lawrenceville.

Nancy Burwell, 52, of Morristown, N.J., is one of them. She's been attending and organizing meetings of Americans for Prosperity -- seven were scheduled in September across the state, seven this month -- where organizers explain the public pension system and how it contributes to local tax increases.

Burwell, who works in sales, said she and her husband, a computer programmer, were saving for retirement without a pension or 401(k) because their jobs didn't offer them.

"We don't expect anybody else to help us out; we take care of it ourselves," Burwell said. "I really resent these public workers. Why should I pay for their retirement?"

State Assemblyman Paul D. Moriarty is pushing pension changes. "In New Jersey, life is still about keeping up with Mr. and Mrs. Jones. And the Joneses have state pensions and health care coverage," the Democrat said.

Retired construction contractor Charles Reveliotty, 67, of Cherry Hill, N.J., complains about public pensions but doesn't talk about them with his neighbor, a town engineer.

Los Angeles Times Articles