A recent budget agreement under consideration by the federal government involves the growing trend of reducing pensions in order to gain revenue. Governments at the local, state and federal level have all been introducing budgets that trim pension benefits in an attempt to correct funding issues that resulted from the financial crisis and fiscal mismanagement. In general, the decrease in employee pension plans has only targeted government workers that were recently hired. However, as the practice continues, even workers that have already been promised a pension may have cause for concern.
For example, a ruling handed down from a bankruptcy judge has stated that the troubled city of Detroit has permission to cut benefits that retired city workers are already receiving. The judge’s order will be appealed and, according to a spokesperson from a government leadership center, it’s likely that the case will go to the Supreme Court. In Illinois, recent changes to the pension law slashed benefit increases that were meant to cover the rising cost of living. The decision affects both retired workers and current employees. California has a measure in the works for 2014 that could give cities permission to reduce retirement benefits.
Some governments in Texas and all around the country have already done away with pensions for new workers entirely. Instead, these governments set up retirement accounts similar to 401(k) plans that most employees of private companies receive. A problem with this arrangement, however, is that employees usually don’t put enough money into the accounts. Even though the average amount that people have saved has reached a record $120,000, it’s still not quite enough to cover 15- to 20-year retirements.
Government employees can unfortunately no longer assume that a promised pension will actually be there when they retire. It’s a truly sticky situation, as government retirees may be unable to even pay rent if their benefits are cut too much. On the other hand, cutting government programs in order to save pensions will hurt communities as well. Either way, anybody who feels that they’ve been wrongly denied their promised pension after a long, successful career should at least consider taking legal action.
Source: Texas Public Radio, “Pensions Become Less Certain For Government Workers” No author given, Dec. 12, 2013