June 15th, 2012
07:46 AM ET

Why we need pension reform

By Fareed Zakaria

A day after Governor Scott Walker won his recall election, the New York Times wrote, "The biggest political lesson from Wisconsin may be that the overwhelming dominance of money on the Republican side will continue to haunt Democrats." Democrats have drawn much the same conclusion. "You've got a handful of self-interested billionaires who are trying to leverage their money across the country," said David Axelrod, Barack Obama's senior campaign strategist. "Does that concern me? Of course that concerns me."

But then how to explain the landslide victories in San Jose and San Diego of ballot measures meant to cut public-sector retirees' benefits? What should concern Axelrod far more is that on the central issue of the recall–the costs of public-sector employees–the Democratic Party is wrong on the substance, clinging to its constituents rather than doing the right thing.

Warren Buffett calls the costs of public-sector retirees a "time bomb." They are the single biggest threat to the U.S.'s fiscal health. If the U.S. is going to face a Greek-style crisis, it will not be at the federal level but rather with state and local governments.

Read more about the staggering numbers and why this has happened in my TIME column

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Topics: Debt Crisis • Economy • Politics • Time Magazine

soundoff (12 Responses)
  1. GOPisGreedOverPeople

    The GOP solution: Turn all the Old, Sick, Poor, Non-white, Non-christian, Unemployed, and Gay people into slaves. Then whip them until they are Young, Healthy, Rich, White, Christian, Employed, and Straight. Or until they are dead. Then turn them into Soylent Green to feed the military.

    June 15, 2012 at 11:06 am | Reply
    • Bruce Dixon

      Those who say that Republicans (or anyone else who favors pension reform) want to make "slaves" out of poor non-whites are not only missing the point...they're out of touch with reality. Think, people.

      June 21, 2012 at 12:39 pm | Reply
  2. stevenbeto

    “In California, total pension liabilities–the money the state is legally required to pay its public-sector retirees–are 30 times its annual budget deficit.”
    Clarify this for me, Mr. Zakaria. Are you comparing the total pension liabilities for one year with the budget deficit of the same period of time? How do you define the ‘total’ pension liabilities? I need the numbers on this one, sir.
    “Last year, California spent $32 billion on employee pay and benefits, which is up 65% over the past 10 years.”
    Should we be looking to reduce the size of government as you say occurred in San Jose?
    “Current workers will have their salaries cut, their numbers thinned and their benefits slashed, all to maintain relatively comfortable benefits for retirees, who are on average richer than the people who are being asked to make these sacrifices.”
    I don’t believe this, sir. I am 61 years old. I do not own property and I have less than $40.00 in the bank, the cost of parenting. When I retire, the pension fund and social security is all I will have. Because of a tendency in non-government jobs to get rid of employees long before they retire, individuals jump from job to job and in my case, my pension is $121.00 a month. Social Security benefits are in my case estimated to be around $800.00 per month.
    $921.00
    I am willing to bet, Mr. Zakaria, that you have on occasion spent more on your dinner.

    June 15, 2012 at 11:31 am | Reply
  3. 100% ETHIO

    How people become Billionaire?
    Well, imagine if you work $1,000.00/hour and have expenses of $5,000.00/Month and you are 25 Years Old. You can't be Billionaire until you will retired.

    They become Billionaire, because they are Thieves. They know how to embezzle and counterfeit.

    When I was young, and working at Famous Restaurant, we had Dozens of Eggs and Poultry that grew by MONSANTO seeds, GMO. These products are already outdated, in the process. Customers doesn't know what is going on behind the door/Kitchen. They don't see it. Our customers are high-class and spend a lot.

    Your car can carry 50 Gallons fuel. If I calibrated the system from the pump, I will make you to pay for 100 Gallon fuel, which your Car can't even carry. Mostly, for big Trucks, it works.

    In the name of Democracy, I will cause trouble on One Country to be divided. In the process, I will sell you words and Weapons Thousands of times its estimated value. Not only that, I will force you to smuggle expensive things, free. That I could sell and make more Money.

    They don't know my secret process, how I become Billionaire. But, they know the cover-up business that I registered and own it.

    These all a must required, reliability and trust with conspiracies. That's why some ethnic groups are kept their secrets of success, without others knew. If someone is try to leave from their groups, the result will be automatically death.

    Do your experiment, if you can.

    Follow the roads of that...wealthy, either you will ended-up being a dustbin or you will take over the wealth, automatically.

    June 15, 2012 at 11:35 am | Reply
  4. 100% ETHIO

    Sir Conrad Black was the highest figure, when he was in the group. But, because of....he left from the groups. Then, what happened? He just become Mr.Black and lost.....Will he go back again? I don't think so. It's like, once when you're a member of the Gang, you can't leave.
    How he will get his pension is in jeappardy.

    If you are not the member of financial gangs to own Banks, keep your Money under the Mattress. At least, you will have guaranteed Pension Money, on the latter date.

    June 15, 2012 at 12:05 pm | Reply
  5. Xavier

    401k is called a defined contribution plan. The employee contributes a set amount of money out of their paycheck which may or may not have an additional employer contribution added to it. That amount is then invested and the employee receives the results of the contributions and earnings at retirement. How much those earnings are is dependent upon the quality of the investments. Thus the risk resides entirely upon the employee. They may or may not have contributed enough to retire and they may or may not have earned enough on those contributions to retire in comfort.

    Pension is generally thought of as a defined benefit plan. This plan is entirely funded by the employer. How much is funded on an annual basis is dependent upon actuarial calculations. The employee receives a set amount per month upon retirement. If the trust has enough money to pay that set amount per month then the employer is not required to make a contribution for that year. If the trust looks to be short then an additional contribution may be required. Since the employer is the only one allowed to make a contribution and the payment amount is defined...the entire risk lies on the employer.

    June 15, 2012 at 8:18 pm | Reply
    • Arthur

      This is a good example of the misinformation I was talking about. Both employer AND employee make contributions to their pension fund. Take the State of Vermont employees for example. They have virtually doubled their contribution to help maintain the fund at close to full funding and saving the State millions of dollars each year that the State does not have to contribute.

      July 1, 2012 at 6:46 pm | Reply
  6. deep blue

    It is important to note that the government employees, other than the politicians, are not responsible for this mess . They negotiate a contract with the government and the government obligates that contract.

    Most government employees get much less pay than private sector employees with the same education level and job responsibilities, if you don't factor in the pension. So, you will find that if the government backs out of his contracts, it will have under payed hard working employees for decades.

    I'm not saying the pension program is not a problem. It obviously is. I'm not saying that we shouldn't fix it. We should. But you can cut people's pensions and still acknowledge that you are violating their contracts and messing up their financial plans. You can say we need to reform the system without demonizing public sector employees.

    The Republicans are right that the system needs to be reformed, but they are wrong to not acknowledge the sacrifices that they are asking the public sector employees to take. They are wrong to pretend that teachers are driving around in Cadillacs, that fire fighters are lazy bums, and that police officers are scamming the system.

    June 16, 2012 at 10:44 am | Reply
  7. hawkwind

    one of the harsh realities of pensions is that workers , with the agreement of employers, postponed salary increases for comfortable retirement., and now, like with the 50% increase in ss back in the 80's that was supposed to fix things, now we're all evil wicked greedy employees, when you borrowed the money (against our wishes) to get re-elected or whatever, and don't want to pay it back. reminds me of the gang of four album cover "the indian smiles ,shakes the white man's hand 'cause he has found a new friend, the white man smiles 'cause the indian is so easily fooled. "

    June 16, 2012 at 9:48 pm | Reply
  8. Kamal

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    11th June 2012: Evosys wins Oracle Ebusiness Suite Project for Delmon Poultry Company in Bahrain. The Delmon Poultry Company, established in 1981, produces poultry, and hatchery products in Bahrain under the world famous brand, Farm Chicken.

    With this win, we will enable web ERP, SCM & EBS solution in Delmon. This has provided us with an opportunity to showcase our expertise and augment our delivery area. While improving the management and employee experience, the solution also opens an opportunity for smoother functioning and in turn persistent rapid growth of DELMON.

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    June 18, 2012 at 3:14 am | Reply
  9. Arthur

    Fareed is totally off base. Why are you joining the pile on public workers?

    Some pension funds have been vastly underfunded and some undoubtedly mismanaged. This does not mean all pension funds are underfunded and mismanaged. Reforming the ones that need reforming is necessary. Pulling the rug out from under hundreds of thousands of hard working, middle class, Americans who have given their careers working for the public good is immoral and outrageous.

    The pension liability is the amount that is due over the next thirty years. Calling this a time bomb is like saying no one should ever buy a home unless they can pay cash. Let’s put things in perspective instead of crying like chicken little.
    It is no “victory” when the largely ignorant and misinformed (by people like you) general public vote to decimate public worker benefits. They will vote for anything they think will lower their taxes, and be the first to complain when public services are no longer available to them.

    Stating that public employees are richer than everyone else with no proof is simply irresponsible. A number of recent studies prove that public employees make less than they would earn in the private sector for the same jobs and pitting public workers against public services is nonsensical. You can’t have one without the other.

    It is no secret that conservatives have set out to destroy public unions for purely political reasons having nothing to do with state’s budgets or pension problems. Repeating their baseless claims that public unions are the cause of any of the recent economic problems with no evidence to support these claims is offensive. Unions have been the bedrock of the middle class. It should be no surprise to anyone that the decline in unions has corresponded with the decline of the middle class in America.

    The 401k experiment is a proven failure. Instead of tearing down hard working public employees over pure jealousy that they earn decent (not great) pay and benefits, the question should be why isn’t corporate America paying the rest of the workforce decent wages and retirement benefits? Surely with corporations making record profits and CEO’s taking home record pay they could afford to treat their fellow men and women a little better.

    July 1, 2012 at 6:38 pm | Reply

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