Generational Battle Brews Over Gilded Baby-Boom Pensions

Resentment is building among younger workers, and Boomer unionists face a backlash.
October 8, 2009 AT 3:00 AM
Girard Miller
By Girard Miller  |  Finance Columnist
Girard Miller is the returning finance columnist for Governing.

Generation X and Gen Y are getting fed up and might not take much more. That's what I'm hearing from a number of younger public employees who responded to my column last month on the incumbent employee conundrum. The gist of their feedback was this: They don't appreciate bearing the brunt of pay cuts and benefits reductions -- the ones imposed by employers who try to balance the books on their pension and retiree medical plans by slashing compensation for younger employees and new hires. They'd like to see their elders share in the pain -- or at least pay their share.

As I explained in that previous column, public managers are struggling to find ways to make their retirement plans sustainable. Typically, they start with the youngest workers first, not the people who caused the problem in the first place. Unfortunately, constitutions, statutes, court decisions and legal opinions often preclude rollbacks of unaffordable benefits awarded to Baby Boom retirees and near-retirees. In California, the state pension system makes it virtually impossible to change key benefits features (like the payout formula and multiplier) for incumbent employees in the CalPERS plan. In such states, the only way that public employers can reduce benefits is to target new hires. In others, the unvested younger workers can be impacted as well, but this occurs less frequently.

Senior public employees who are vested in the retirement plans with ten or more years of service tend to consider themselves untouchable. So if Baby Boomer benefits can't be cut, the conventional approach to benefit rollbacks is to "tier" the retirement plan with reductions for new hires. This line of thinking leaves the next generation to pay for the mistakes and delusional thinking the Baby Boom negotiators -- on both sides of the collective bargaining table -- have had in the past decade.

If you ask members of Generations X and Y how they feel about this generation gap in benefits, you get responses like those below, which are direct quotes from e-mails I have received from both public employees and readers in the private sector:

o "As a Gen-X'er, I have heard the same things since I entered the workforce: 1) You will make less than those who came before you. 2) Your benefit package will be less robust than those who came before you. 3) You will pay more for your lower-quality benefit package. 4) You will be required to work harder on more complex tasks than those who came before you."

o "Recall that there was once a reason for the unionization movement. History repeats itself....The pendulum swings the other way."

o "Every place I've ever worked, within 6 months to a year they've reduced the retirement packages and benefit options for the younger workers. Sometimes they've done that two or three times while I've worked there. Meanwhile, companies and municipalities go bankrupt because the previous generation had it great on the negotiated-benefit front. Kind of rife for a lot of resentment."

There's no question that public-sector retirement benefits need reform, and in many cases this will mean a rollback that trims the benefits for new hires -- and thus younger workers -- disproportionately. But unless the burdens are shared more equally, a backlash could start to brew. We'll likely see it first in union halls: Younger workers will demand more seats on the bargaining committees and reject contracts that fail to share burdens of benefits reform more fairly.

In today's weak economy, job candidates are more concerned about getting a paycheck than the long-term benefits. So regardless of this emotional issue, new hires will be stuck with the new wage-and-benefit covenants. But Baby Boom leaders should look in the mirror and realize that the burdens of fiscal responsibility must be shared.

In many cases, the most viable way to achieve intergenerational equity will be to bill incumbent workers for a higher share of their retirement benefits. To some, that will feel like a pay cut, but if elder workers' benefits are untouchable, then heftier payroll deductions may be the only option left.

Girard Miller
Girard Miller | Finance Columnist |