The AFT joined with 27 other public employee unions and public retirement plans this month to urge Congress to reject apples-to-oranges comparisons between private- and public-sector pensions. The warning is timely since President Bush on Aug. 17 signed a new law ratcheting up funding rules for pensions in the private sector. The yardsticks contained in the law were crafted specifically for non-government employers—rules that likely will pressure more private sector employers to jettison high-quality, traditional pensions for their workers. Any attempt to graft the new rules onto state and local public pension plans would be wildly inappropriate and could spell disaster for those public employees and their rights to a decent retirement, the coalition warned.

Already pressure is building to blur the public-private distinction now that the Pension Reform Act of 2006 is law. As the new private pension law was nearing completion, ranking members of the Senate Finance Committee asked investigators to conduct a sweeping study of public pensions. "Many of the public sector plans are even more poorly funded than their private sector equivalents," the lawmakers said in their letter to the Government Accountability Office, which also asked GAO to fold in a financial assessment of health plans for public sector retirees.

The letter prompted the AFT and other public employee groups to correct the record quickly.

Public and private pensions are not equivalents—there "are fundamental differences between governments and business that result in critical distinctions between plans in each sector and the way in which they are accounted for and measured," the coalition reminded Congress and the GAO in an Aug. 2 letter. Private sector plans covered under the Employee Retirement Income Security Act (ERISA) are insured by a federal agency, the Pension Benefit Guarantee Corporation (PBGC). But "public plans are backed by the full faith and credit of state and local governments [and accrued benefits] typically are protected by state constitutions, statues or case law," noted the coalition. This provides far greater protections for beneficiaries and means that public pensions offer higher credit quality than plans backed by private companies and federal insurance, says the coalition, and any move to saddle public plans with costly new rules adopted for the private sector—such as a mandate for 100 percent funding of private plans within seven years—would be devastating and contrary to sound policy.

Phony Crisis
The pressure to undermine state and local pension plans is largely an effort by conservative critics to generate a crisis where none exists. So, too, are calls to fold retiree health plan assessments into the upcoming GAO study—a move that will create liabilities where none exist and ignores fundamental facts about public pensions.

"Retiree health benefits are handled separately and independently and often are not administered or funded as part of a government retirement system" the coalition reminded lawmakers. Moreover, public pension plans are in good financial condition. As a group, 86 percent of state and local public pension liabilities are funded—a level that history and current standards deem healthy—and the levels are rising, the coalition stressed.

August 22, 2006