Unions Fight their Members’ Interests on Pensions

Containing and curing pension underfunding benefits retirees, workers and taxpayers

Unions are supposed to look out for the interests of their members. But the well-being of their workers is forgotten when it comes to pensions.

In the Lansing State Journal, American Federation of State, County and Municipal Employees Council 25 legislative director Nick Ciaramitaro argues that the state needs to keep its hands off worker retirement systems.

He ignores the billions in debt these pension systems have incurred. The failure to adequately fund pensions has drained taxpayer resources, forced employee concessions and left pensioners to question their retirement security.

Few of Michigan’s government pension systems have set aside enough to pay for the pension promises they have made. The largest system — the one for school employees — has promised $68 billion in pension benefits, but saved only $41 billion.

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Thus the need to make extra payments into these pension systems. Most of the money now being paid into this system now goes to catch up on past underfunding, not to build a nest egg to cover the new pensions current employees are earning.

Ciaramitaro isn’t the only union official that refuses to acknowledge the burden of these unfunded liabilities. In response to a bill to offer new employees defined-contribution benefits, MEA spokesman David Crim told Mlive, “This provides a solution to a problem that does not exist.”

But the $26.7 billion in unfunded liabilities are a problem. Payments by school districts to catch-up on unfunded pension liabilities have swollen from 4 percent of payroll in 2006 to 15 percent today. This is forcing school layoffs and salary concessions across the state. It means today’s school funding increases are merely covering deferred expenses from yesterday’s classrooms, rather than providing value for the children sitting in today’s classes.

Mr. Ciaramitaro claims taxpayers will be forced to pay perilous “transition costs” if new employees are no longer enrolled in school pensions, meaning the system’s debt needs to be paid off more quickly. While putting more money in the system would pay down unfunded liabilities, no law requires this. Other states have closed their government pension systems without triggering these phantom costs.

Not enrolling new hires into the underfunded pension systems – instead giving them employer contributions to retirement savings accounts – would contain and eventually cure the underfunding problem. That would benefit retirees, workers and taxpayers alike.

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