Mom and Dad, I Want to Work for the Post Office!

Olive Trees near Moulay Idris, Morocco - photo by JoAnn Sturman

Scott Sturman
fliesinyoureyes.com


Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.

Benjamin Franklin, Historical Review of Pennsylvania, 1759

Parents like to talk about their children – where they plan to go to school and their future occupations. It is refreshing to listen to their hopes and aspirations, but lately an unsettling trend has visited the discussion. Not uncommonly these young adults are contemplating jobs based their retirement benefits rather than intellectual stimulation or the prospect of owning one's company. It is a different mind set. Play it safe, do what one is told to do, and then settle into a comfortable retirement. Better to opt for a secure career with the United States Postal Service than the risky proposition of venturing out independently into a profession which will consume most of adult life and where failure can lead to a Social Security funded retirement.

Two recent articles, one an op-ed piece from the Wall Street Journal and the other "The False Promise of Public Pensions" by Hess and Squire from Policy Review, address this change in occupational priorities and illustrate two fundamental issues which are at the heart of the problem – the high percentage of unionized public employees and the defined benefit pension plan.

2009 was the watershed year when the number of public union employees outnumbered those in the private sector. 51.4% of the 15.4 million union members in the United States now work for the government. Although overall union membership has dropped from 24% of all workers in 1973 to 12% at present, unionized government workers have increased from 23% to 36% over the same time period. Even the progressive President Franklin Roosevelt, who vehemently supported industrial unionization, felt there were profound conflicts of interest when unionization extended into the public sector.

With the exception of members of the armed forces whose constant relocation during their careers makes it difficult to generate retirement savings through home equity, public and private employers should not be in the business of offering defined benefit retirement plans. Currently 20% of workers in the private sector have these plans compared to 90% of those employed by the public sector. In 2008 the Pew Research Center found state pension funds were $731 billion short of their $2.7 trillion potential obligation. This has deteriorated since the recession. Only last month the Pew Center on the States reevaluated the condition of state pensions and found the shortfall to be $1 trillion. If one examines the industries and government agencies which have failed or are in financial jeopardy, a large share are in this position due to retirement benefits offered to their employees. The American automotive and airline industries, states such as Illinois, Massachusetts, California, and New Jersey, and numerous county and municipal governments are financially crippled due to the accumulation of retirement obligations. The plans are too expensive to fund and promote inefficiencies in the economy by making it virtually impossible for employees to switch jobs during their working careers without losing retirement benefits. Unusually generous retirement plans increase tax burdens for younger workers who may never see these rewards but are forced to pay for retirees who receive compensation for decades after retirement.

The financial health of private and public institutions would be improved if employees were paid an actuarially determined higher salary during their working years and owned their individual 401K plans. This option insures portability of benefits and protects employees if either the company fails or underfunded government pension accounts cannot meet their obligations. Public and private employees no longer are constrained to work for a single employer simply for fear of losing their pension plan benefits. Employers, on the other hand, are more competitive in the market place, since portable retirement plans encourage better access to the labor market and relieve the company of the burden of funding defined benefit pensions years after the employee leaves the organization.

Interestingly enough, teachers are the most highly unionized profession in America, comprising 4.6 million members or 80% of all teachers. Their pension fund is in trouble in California with over $22 billion in unfunded liabilities. Now this large sector of public employees faces reduction of retirement benefits or delayed retirement unless taxpayers make up the difference.

Teaching arguably provides the most important service to society and is comprised of some of the most selfless and dedicated professionals to be found, but it is increasing more difficult to attract high quality applicants and provide the quality of education the public demands. Hardly a day goes by without a headline bemoaning underachieving student performance and the need for more money to correct the problem.

Unions reward seniority, and once a teacher is vested retirement benefits are guaranteed. This discourages the movement of teachers to other districts and promotes animosity on the part of young teachers who must financially support their older vested colleagues. The rigidity of the system discourages innovation and without competition offers the student few suitable alternatives. Unions proclaim to be the salvation of public education, but their nemesis, school vouchers are the solution for putting the needs of children first. They allow parents to choose the best schools for their children, reward the most capable teachers, and force public schools to make prudent financial choices. (Portability of K-12 Education http://flies-beentherereadthat.blogspot.com/2009/11/portability-of-k-12-education.html). Once parents have control of the financial resources to educate their children, they are free to choose between public or private education. The public school system will either provide a competitive product or lose its market share – unless, of course, it receives a bail out from the government.

ADDENDUM:

Even with rules in place, waste and incompetence pervade the public sector. The following case illustrates the corruption and lack of financial accountability inherent in government: Two weeks ago the Fresno Bee published an article produced by California Watch, a non profit investigative reporting project. The author Chase Davis detailed the abuses in payments to employees terminating their services with the State of California for non used vacation and leave times. From 2006 to 2009 fifty-two thousand employees collected nearly a half billion dollars in benefits. Although many state workers are able to legally amass a generous 80 days of vacation time, most abusers illegally exceed this limit. A particularly egregious instance occurred when one high ranking official was fired for serious indiscretions but then was reimbursed $550,000 for six times the legal accrued vacation limit. The grand prize goes to a physician who worked at the Corcoran State Prison who was given $815,000 cash severance pay largely due to credits for twice the legal vacation time and ten times the limit of compensation time – all paid at the employee's highest salary while working for the state. Not surprisingly, the state employees' union sprung to their defense and found nothing amiss.