Yesterday Wisconsin voted to curb the scope of collective bargaining for its public workers.To what extent does collective bargaining drive up pension costs? It's worth noting there's not necessarily a correlation between the two. Consider also this graphic in The New York Times. It shows the the percent of salary replaced by pension benefits in several states.
About 25 percent of Colorado's public employees are covered by a
collective bargaining agreement. Public sector workers enjoy pensions
that replace 90 percent of their salary. By contrast, fifty-two percent
of Illinois' public workers are covered by a collective bargaining
agreement, and can expect 56 percent of their income to be replaced
when they collect their pensions. As Mary Williams Walsh writes, "places with the most
unionized workforces are not necessarily those with the most generous
pension benefits."
The size and cost of pension obligations have been consistently obscured through bad accounting. Governor Walker has ordered new estimates from the state's actuary that will indicate the need for larger state and employee contributions. The actuary thinks workers will need to contribute 12 percent of their income annually, and lowering the return assumption to 7 percent, would increase that figure to 16 percent, which would require $2,000 to $3,000 more. (And this would increase even further under a risk-free discount rate)
Yesterday's vote included a measure that would require workers to contribute 5.8 percent of their salary a move many workers are outraged over.
Ms.Walsh also points to another fact. Even where workers collect very modest pensions, it can amount to a huge bill for a local government. The average annual benefit in Wisconsin is $26,500. Multiply that by a hundred or more workers, who retire at 50 and will collect that sum annually for 25 or more years. That is not insignificant for a municipal government. This points to one of the downsides of defined contribution plans. They are costly for the sponsoring employer - the government - to operate.
The size and cost of pension obligations have been consistently obscured through bad accounting. Governor Walker has ordered new estimates from the state's actuary that will indicate the need for larger state and employee contributions. The actuary thinks workers will need to contribute 12 percent of their income annually, and lowering the return assumption to 7 percent, would increase that figure to 16 percent, which would require $2,000 to $3,000 more. (And this would increase even further under a risk-free discount rate)
Yesterday's vote included a measure that would require workers to contribute 5.8 percent of their salary a move many workers are outraged over.
Ms.Walsh also points to another fact. Even where workers collect very modest pensions, it can amount to a huge bill for a local government. The average annual benefit in Wisconsin is $26,500. Multiply that by a hundred or more workers, who retire at 50 and will collect that sum annually for 25 or more years. That is not insignificant for a municipal government. This points to one of the downsides of defined contribution plans. They are costly for the sponsoring employer - the government - to operate.
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