The National Conference for Public Employee Retirement Systems is the combination of organizations in every state that look out for the interests of the employees of state and municipal governments and their retirement plans. Corporate employees often have retirement plans guaranteed by their employers. These employees sweat out corporate takeovers, merges and bankruptcies since these are the greatest threat to the plans that protect their retirement funds.
A mention of the word “Enron” is all the explanation that’s needed. The situation is different for public employees whose retirement system is dependent on the whims of the voters and politicians up for reelection in addition to fluctuations in the stocks or bonds that retain the value of their retirement monies.
The State of the System
The structure of the public employee retirement system differs from state to state. Some public employees are not required to participate in Social Security. Some states allow public pension funds to be used for other state and local fiduciary needs. This is known as “raiding.” A governor can “borrow” funds not being used to pay pensions to shore up shortfalls in the budget.
The pensions then lose the interest it should be earning. When a governor is facing a tough reelection, it is doubtful that he or she will raise taxes or cut programs to pay back the pension funds quickly, putting retiring employees at risk. This is especially dangerous as public employees are often pushed to take early retirement to save on salaries during those difficult budgetary times.
Some states are changing the public employee retirement system from defined benefit plans to defined contribution plans. Traditionally, long-term public employees were guaranteed a specific amount of money during retirement, calculated either on the number years employed or on a percentage of salary.
This is the defined benefit plan. For some employees, a portion of the money is deducted from each paycheck and for others the money comes from the department that is the employer as a benefit. A defined contribution plan is similar to a 401(k). Each individual employee decides how much to contribute and how it will be invested. This offers a far less reliable type of pension.
Why not a 401(k)?
You may ask why a defined contribution system is good enough for a corporate employee system but not good enough for public employee retirement system. For the corporate employee, a plan similar to a 401(k) supplements or replaces the traditional profit-sharing plan. Often, the individual plan holds investments in the employee’s own company.
The government is not set up to make a profit and its employees are not expected to provide services that are profitable to their employers. Since a public servant’s employer can’t contribute to his retirement out of profits, it is only reasonable that a public employee retirement system be configured differently.
When you, the taxpayer, get upset over the special treatment of the public employee, remember that said employee is not laboring for the benefit of a single company or organization, but for you. That’s why we call them public servants.