The ideal for many American workers is to put a few decades into a career, then head off into retirement with a pension and a gold watch. A defined pension is rare in the private sector, and government pension plans are fast becoming a point of contention.
Military retirement plan could be casualty of deficits
Benefits of a U.S military career have always included a military pension after 20 years in the service and more recently health coverage under TriCare. The pension, a monthly stipend after retirement until death, according to Military.com, is an incentive for people to remain in the armed services as it guarantees income for life starting as early as age 37. However, like many other government pensions, the military pension may not be available soon, according to USA Today. Defense department officials have proposed replacing pensions with a 401(k) retirement account, accessible once the account holder turns 60 to 65, instead of an automatic monthly payment. The Defense Business Board found liabilities under the current military pension scheme would increase to $2.7 trillion in 2034, up from $1.3 trillion today. Currently, only $385 billion is funded.
Pensions under fire
Pensions and unfunded liabilities from them are quickly becoming a sore point for fiscal conservatives. According to USA Today, pensions accounted for $4.7 trillion in unfunded government liabilities in 2007, compared to $4.6 trillion for Social Security. Pensions can be large expenditures for state and local governments as well. Cook County, Ill., according to the Daily Herald, a Chicago area newspaper, spent $420 million on pensions in 2010. The state of New Jersey is being sued over Gov. Chris Christie stopping cost-of-living adjustments to pensions, according to Reuters. New Jersey had a $53.9 billion deficit in 2010, according to Bloomberg, and part of Gov. Christie’s reform strategy was a pension overhaul that would save up to $3 billion over the next decade. The goal is to have 80 percent of pension liabilities funded. According to CityJournal.org, 10 percent of California’s state budget is public worker pensions, and according to the Los Angeles Times, the state had more than $700 billion in unfunded pension liabilities as of January. The average pension, or “defined benefits,” fund among S&P 500 companies that offer them, according to the Financial Times, is 77 percent funded.
Risks and benefits
The benefit of a pension to a retired worker is that a pension payment, derived by a formula involving years of service and final salary, is a guaranteed regular payment. The risk to the administrator is that the fund from which retirees are paid has to have enough funds to meet obligations. Governments are having trouble keeping up. Pensions are increasingly rare in the private sector, aand they will likely become less common. Greater contributions from employees are going to be expected. According to USA Today, only 18 percent of private sector workers had a pension in 2007. As of 2009, according to the New York Post, it was 16 percent.