Public Workforce

Pension Perils

Juicy retirement plans for legislators are mostly a myth. But it can be hard explaining that to voters.
by | December 2006
 

Indiana state Senator Allen Paul did something a little unorthodox a few weeks ago as he debated his reelection challenger. Paul pulled out his W-2 form, showed it to the audience and proclaimed, "If they want to see what I made, here it is. At less than $22,000 a year," Paul said, "I'm probably the lowest-paid person in the room."

It was a bit of a non sequitur. Paul's challenger hadn't criticized the Republican senator's salary. What he had done was bring up the retiree health care package that members of the Indiana legislature receive. He was arguing that, no matter how small the paychecks might be, every legislator is granted a juicy subsidy from the taxpayers when he chooses to retire.

Retirement pensions don't normally become a contentious issue, but that's what they are now in Indiana. This spring, the president pro tempore of the state Senate, Robert Garton, had his 36-year legislative career unceremoniously ended in a Republican primary largely because of the benefits issue. Garton didn't lose to a seasoned officeholder or even an up-and-coming star but to a political novice best known otherwise for his stand in favor of flogging convicts.

Nobody in Indiana expected retirement benefits to be a volatile issue when the legislature quietly enacted a retiree health plan for its members without much discussion or disagreement in 2001. But the program did make legislators much better off than other state employees. Their spouses, dependents and even ex-spouses were entitled to health care for life. That, combined with a pension system dating from 1989 that gives lawmakers $4 in matching funds for every dollar they contribute, created a backlash. In 2004, Republicans used the issue to regain control of the state House of Representatives. When they took over, they ditched the health program for themselves and launched plans to eliminate the 4-to-1 pension match as well. But Garton, the dominant presence in the Senate, refused to eliminate the health plan in that chamber and merely scaled it back. That's when the anger turned on him.

David Vorbeck was one of those who was outraged. Until last year, Vorbeck, a small businessman, also served as the volunteer head of a nonprofit group that taught new mothers how to avoid shaken-baby syndrome. When Vorbeck's program found itself on the state budget chopping block, he frantically searched for some other appropriation of a few million dollars that could be cut in its place. He came across one that wasn't clearly labeled: the legislators' retirement program. He was incensed that his public health initiative was competing with private pension benefits--and that, in his view, lawmakers weren't being forthright about these benefits. Vorbeck decided to run for office himself, losing a bid for state Senate last month.

So far, no other state comes close to matching Indiana in the potency of pension rage. But the events there this year do serve as a reminder, if one was needed, that legislative compensation--even retirement compensation--can be a source of populist resentment. Many citizens feel that, of all the possible uses of public funds, few deserve a lower priority than rewarding lawmakers. And they almost always object to the fact that legislators generally set their own benefits, sometimes without much public scrutiny.

OFF THE RECORD

Similar debates, albeit without the intensity of the one in Indiana, have been playing out in other states. Under Texas' peculiar system, the pensions of state legislators are linked to the pay of district judges. The legislature's decision to boost judicial salaries last year--not coincidentally without a recorded vote--became a topic of discussion in campaigns this fall. Legislative pensions have also been an issue in Pennsylvania, where, because of a provision tying pension benefits to salaries, last year's much-criticized legislative pay raise feathered retirement nests as well. Pennsylvania is indisputably one of the most generous states when it comes to pensions, and a large proportion of the electorate now knows it.

An increasing number of voters in several states are now aware that when state legislators make policy related to public employee pensions or retiree health care, they're affecting their own retirement benefits. The potential conflict of interest is motivating critics to argue that legislators shouldn't have power over their own benefits even indirectly.

But as the Pennsylvania example shows, disputes over retirement benefits are only one piece of a much larger debate over the role and compensation of the modern legislator. In many places, there's still an expectation that representatives be classic citizen lawmakers, with low pay and benefits and meager staffs that befit their status as ordinary people who just happen to spend part of their time legislating. When they don't fit this mold, constituents get upset. "I don't see why our legislators should be taken care of more than our jurors," says Indiana's Vorbeck. Part of the reason Pennsylvania has been the focal point of pension debate is a decades-long transition from a part-time to a full-time legislature that never truly gained public acceptance.

This situation has lawmakers feeling aggrieved. They say their workloads are increasing as out-of-session demands multiply, special sessions proliferate and public policy issues become more complex. In Indiana last year, base pay was $11,600, while in Texas it was $7,200, although both states offer per-diem supplements. "The salary is disproportionately low compared to the time that we spend," says Texas state Representative Will Hartnett, who chaired the committee that approved the judicial pay raise. "I think last year we were in session more that the U.S. Congress."

This was precisely the point that Allen Paul was trying to make by brandishing his W-2 form. Paul ran a packaging business with his wife, but had to give it up because his legislative responsibilities proved to be too much. He and other legislators say it's becoming harder and harder for nominally part-time legislators to work another job. "I feel guilty going to a football game to see my son," he says.

SHARING THE BURDEN

As this debate progresses, there's one big reason to believe that retirement benefits could come to the forefront: They're under scrutiny for public employees just about everywhere. Many states are suffering from large unfunded liabilities in their pension and retiree health care systems and, if cutbacks occur, aggrieved public-sector workers are likely to turn their anger to the people doing the cutting: legislators. That's the sense in Pennsylvania, where the 2005 boost to legislative pensions generated far more public attention--and bitterness--than a similar move four years earlier. "The pension explosion is a slower-ticking time bomb," says Eric Epstein, a Pennsylvania activist.

What's a little ironic about all this is that inordinately generous benefits are the exception, not the rule. Ten states don't offer any pension to state legislators. Most of these have true part-time legislatures, but California, where a ballot measure precluded lawmakers elected after 1990 from receiving retirement benefits, is also on the list.

Beyond that, it's difficult to say which states offer the most liberal allowances because there are so many factors involved--base pay, age and service requirements, employee-contribution rates and benefit formulas. What is clear is that many states aren't treating their legislators much different than other public employees.

More typical than Indiana or Pennsylvania is Washington State, where legislators get the same pension and retiree health benefits all state employees get, or Minnesota, where a decade ago the state switched legislators into the regular employee pension plan from a separate system that was considered less generous. Georgia legislators receive the same retiree health benefits as other public employees, except they can vest with eight years of service instead of 10.

Where there are significant differences between retirement plans for ex-legislators and retirement plans for other public employees, the advantage doesn't always go to the legislators. Members of Nevada's part-time legislature, for example, have much lower maximum pension benefits than state employees with the same length of service.

And where states are making changes to their legislative pension plans--one or two do this every year--the trend is toward making them less generous, not more, just as is happening with public employees in general. Some are switching legislators from defined-benefit to defined-contribution plans and are giving them the choice to opt out of the pension system altogether. For example, Washington State switched to making its system voluntary last year, which was actually a welcome development for lawmakers who had other sources of retirement benefits and didn't want to lose some of their regular paycheck to pensions they didn't need.

STICKING AROUND

Even if pension systems are changing less than voters in some states might believe, there are signs that the benefits are changing the lawmakers. In particular, they are affecting decisions about whether to run for reelection or retire. Last year, Pennsylvania state Representative Angel Cruz explained his decision to seek another term, rather than pursue a city council seat in Philadelphia, by pointing out that "I have two more terms to finish here before I can lock my pension in, and my medical coverage; it's silly for me to go backward." There are more lawmakers in this position in many states than is often publicly acknowledged. Most state retirement benefits remain tied to years of service, creating an incentive to stick around as long as possible, even if a legislator's passion for lawmaking has waned.

The dynamic played out somewhat differently in Indiana this year. Since the Indiana House had decided to ditch the retiree health benefit in response to public resentment, this was the last year House members could leave office and still enjoy the perk. Vorbeck and others point to retirements by some representatives as connected to that last opportunity. Something similar may have been going on in Pennsylvania, where legislative pensions are linked to the average salary of lawmakers' last three years in office. Last year's pay raise, although ultimately repealed, boosted these averages, thereby allowing legislators to retire with higher pensions this year--an option many were happy to take.

But there are effects on politics even in states that don't offer generous retirement benefits. Nebraska senators receive no pensions or health care--retiree or otherwise. Twenty of the 49 senators were term-limited this year, and the lack of benefits, especially given the growing time commitments associated with the job, served to depress the pool of candidates interested in running. "I know that there were candidates that were out there," says Senator Elaine Stuhr, the outgoing chair of the Nebraska Retirement Systems Committee, "who simply could not financially afford to run for the office."

Josh Goodman
Josh Goodman  |  Former Staff Writer
mailbox@governing.com

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