Pension Overhaul Treats Lawmakers, Other State Workers Differently

In Missouri, the new retirement age for government employees is 67. For legislators and other elected officials, it’s 62. As states look at reining in pension costs, are lawmakers giving themselves a better deal than everyone else?
July 29, 2010
 

When Missouri passed major pension reform legislation last week, lawmakers called it a difficult but necessary step for a state that — like many others — can no longer afford to provide the same level of retirement benefits that it has given to its state workers for years. Under the legislation, new employees will be required to contribute to their pension plans for the first time, starting in January. They will need to work twice as long until they become vested and can access those savings. And the standard retirement age will rise from 62 to 67 — the highest in the nation, along with Illinois. The plan is expected to save the state $660 million over the next decade.

Controversy surrounded many aspects of the overhaul, which lawmakers just barely passed in a special session. One of the more explosive elements was the fact that the new benefit rules are different — and more favorable — for Missouri’s elected officials. Members of the General Assembly will be able to retire at 62, not 67, and they’ll be eligible for a pension after six years of service, rather than 10. Statewide elected officials, such as the governor and attorney general, can qualify for a pension after four years in office.

“I want to know,” state Representative Stephen Webber thundered during a floor debate on the bill, “why the members of this body find ourselves so worthy that we should get to retire five years before regular state employees, and with four less years of service.”

The provision in question, Webber said in a telephone interview with Stateline after the bill became law, “had nothing to do with the fiscal stability of the state or modernizing the pension system. It had everything to do with politicians cutting themselves a break.”

Missouri is not the only state that provides better pension terms for its elected officials than it does for other state workers. And there are some reasons why legislators might expect to get a different arrangement than other state workers. Term limits, for example, as well as the need to win elections, reduce lawmakers’ job security and, thus, their ability to work long enough to qualify for pensions. Missouri limits its legislators to eight years in each chamber of the General Assembly, making a 20-year legislative career impossible.

But the debate in Missouri serves as a reminder of just how sensitive pension changes can be — particularly when one group of public servants is seen as getting a much better deal than others. When the lucky group is made up of the politicians who write the rules, Webber says, “it shakes people’s faith that elected officials are looking out for the people and not for themselves.”

Spotlight on lawmakers, too

Missouri’s experience may foreshadow similar lines of criticism as pension reform gains momentum nationally, particularly in places where state workers and retirees are asked to give more and receive less than they were promised.

This year alone, with the specter of unfunded pension obligations on the horizon, 16 states have reduced benefits for employees or increased their contributions, according to the National Conference of State Legislatures. Some states, including Colorado, Minnesota and Wyoming, are taking aim at the benefits of current workers, rather than limiting changes to future ones, as Missouri did. And New Jersey’s state treasurer raised eyebrows this week when he refused to rule out the possibility that even current retirees will see their pension checks slashed or their health premiums go up as the state struggles with an enormous pension shortfall.

Many good-government groups, labor unions and others believe that the flurry of recent pension downsizing for state workers — and the likelihood of further reductions next year and beyond — should invite more scrutiny of the benefits received by the lawmakers who write the rules.

“The more you try to eliminate the benefits of the rank-and-file,” says Pete Sepp of the National Taxpayers Union, a Washington, D.C.-based advocacy group that pushes for lower taxes, “the less you can justify keeping your own package of perks intact.”

Pennsylvania is a notable example. Members of the General Assembly — which is still battling an image problem after lawmakers voted in the middle of the night to give themselves a pay raise in 2005 — can retire earlier and receive a higher rate of return on their pension plans than other state employees, thanks to changes lawmakers made years ago.

Tim Potts, executive director of a government reform group called Democracy Rising PA, believes changes are long overdue, and he notes that the House of Representatives has passed a bill that would provide more parity. But he isn’t holding his breath that the Senate will approve the legislation. “Everybody’s skeptical,” he says.

In Illinois, like Pennsylvania, the terms for current legislators are more favorable than for other state employees, leading critics to call for a change. The state did pass a major reform package this year that addresses some of those concerns, including raising the retirement age to 67 for lawmakers along with other employees. But lawmakers and judges still will be able to qualify for a pension sooner than other workers.

In Maryland, one of many states with a part-time legislature, lawmakers have fended off criticisms about the fact that they are entitled to a full-time pension while only being in session three months a year.

Not the first backlash

State legislators’ pensions are a common focus of scrutiny.

Louisiana voters passed a constitutional amendment in 1996 to ban pensions for newly elected legislators. In California — which has the nation’s highest-paid legislators — voters abolished pensions for lawmakers first elected after 1990. The change was part of Proposition 140, which created term limits and, on the whole, “was designed to make life a little less cushy for career politicians,” according Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, a group that favors limited government and supports the proposition’s changes.

Seven other states — Alabama, Nebraska, New Hampshire, North Dakota, South Dakota, Vermont and Wyoming — do not give pensions to lawmakers, according to a 2009 survey by NCSL, which also found a broad variation in pension terms given to legislators around the country.

In more recent years, anger over legislative and other government pensions have been aimed at specific practices that are seen as abuses of taxpayer dollars. Lawmakers in New Mexico, for example, this year passed legislation that sought to prevent “double dipping,” the practice of current government employees simultaneously collecting a paycheck and a pension payment for earlier service. Other states have clamped down on “spiking,” the practice of employees working overtime or otherwise increasing their pay in their last years of employment in order to maximize the salaries on which their pensions are based.

Shared sacrifices

What is driving reform this time around isn’t one particular practice of pension padding or high-profile example of abuse, but a recession that has laid bare the huge, unfunded obligations faced by state governments — and, by extension, the taxpayers.

State workers stand to lose the most from this fiscal shortage, as benefit reductions and higher employee contributions become the norm. For many critics of the recent Missouri pension bill, that’s the biggest problem: Lawmakers are asking state workers to make substantial sacrifices, while refusing to make those same concessions themselves.

Missouri state Representative Gina Walsh, for example, notes that new Missouri state workers will be asked to contribute 4 percent of their salaries toward pensions. “The 4 percent doesn’t seem like a lot, but if you only make $28,000 a year, it’s a lot of money,” she says, noting that Missouri state employees are among the lowest-paid in the nation.

That’s why it troubles Walsh that Missouri legislators didn’t accept the same terms for themselves when it comes to their pensions — notably, the length of time they need to work before they can qualify for one. “If we’re going to make state employees extend their vesting periods,” she says, “then we should do the same.”

By John Gramlich, Stateline Staff Writer

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