Private-Sector Anger Builds as Public Pension Costs Rise

Times Staff Writer

For insurance agent Steve Adams, 51, the resentment began two years ago.

As he worried whether his stagnant 401(k) account would be adequate for retirement, his wife’s employer ended her pension plan, forcing her to rely on a 401(k) as well. Then New Jersey lawmakers raised his property taxes to maintain state workers’ pensions.

Last spring Adams joined a taxpayer group called Americans for Prosperity that is seeking limits on government employee pensions.


In June he attended a rally in Seaside Heights, N.J., where about 200 people urged state legislators to make cuts in such things as pensions rather than raise taxes again -- this time, a proposal to raise the state sales tax.

“We don’t get anything nearly as generous in the private sector” as public pensions, Adams said.

Public employee pensions, one of the last bastions of guaranteed retirement plans in America, are under assault as cash-strapped state and local governments struggle to cover rising costs and as resentful taxpayers refuse to pay more to cover them.

The development has led to “pension envy” among people like Adams, as baby boomers struggling to make it to retirement see state workers retire early to reap rewards they may never enjoy. The tension has crept into relationships between friends, neighbors, parents and teachers.

The struggle to fund public employee pension plans is a familiar topic in California, where last year Gov. Arnold Schwarzenegger unsuccessfully sought to replace state workers’ pensions with 401(k)s.

The California Public Employee Retirement System and California State Teachers Retirement System cover more than 2 million workers. CalPERS is 88% funded and CalSTRS 82% funded, according to their financial records -- levels that researchers at the conservative Pacific Research Institute say are high compared with states such as Illinois and New Jersey.

Alaska and Colorado have made changes to state pensions, and Illinois, Oklahoma, Montana, New Jersey, Pennsylvania and Providence, R.I., are contemplating similar steps.

About 90% of state and local workers in the U.S. have pensions, compared with about 20% of private-sector workers, said Keith Brainard, research director at the National Assn. of State Retirement Administrators.

Instead of company-paid pensions with guaranteed payments, most private-sector workers now are offered 401(k) plans, investment accounts that employees pay into and manage while they’re working, then tap when they retire. Some employers contribute to 401(k) plans.

With state pensions, investment management is up to the state, but taxpayers are often called on to cover costs. As of last year, 84% of state pension plans were underfunded, meaning their assets don’t cover projected payments, according to Santa Monica-based Wilshire Associates. Some lawmakers plan to make up the difference by raising taxes.

The tension between public employees and taxpayers is playing out across the country, but nowhere more sharply than in New Jersey.

Several of New Jersey’s major private employers recently eliminated pensions. Telecom giants Sprint Nextel Corp. and Verizon Communications partially froze pensions last year, affecting some 18,000 workers in New Jersey. DuPont Co., which employs about 1,300 in New Jersey, announced plans this summer to freeze pensions, meaning the company intends to drastically reduce its pension fund for current employees and deny any coverage to new hires.

“More and more New Jerseyans find themselves without pensions and become resentful of the double whammy that they face: fewer benefits for themselves and higher taxes so that the public-sector workers can receive generous benefits,” said David Rebovich, managing director of the Institute for New Jersey Politics at Rider University in Lawrenceville.

Nancy Burwell, 52, of Morristown, N.J., is one of them. She’s been attending and organizing meetings of Americans for Prosperity -- seven were scheduled in September across the state, seven this month -- where organizers explain the public pension system and how it contributes to local tax increases.

Burwell, who works in sales, said she and her husband, a computer programmer, were saving for retirement without a pension or 401(k) because their jobs didn’t offer them.

“We don’t expect anybody else to help us out; we take care of it ourselves,” Burwell said. “I really resent these public workers. Why should I pay for their retirement?”

State Assemblyman Paul D. Moriarty is pushing pension changes. “In New Jersey, life is still about keeping up with Mr. and Mrs. Jones. And the Joneses have state pensions and health care coverage,” the Democrat said.

Retired construction contractor Charles Reveliotty, 67, of Cherry Hill, N.J., complains about public pensions but doesn’t talk about them with his neighbor, a town engineer.

“It’s a little bit like talking to somebody about religion,” Reveliotty said. “If you say to somebody, ‘You have to give back half your pension,’ you can imagine what the results are going to be.”

Public employees say resentful taxpayers should instead defend private-sector benefits, which continue to erode.

“Private-sector workers, who should be angry as hell at their employers for walking away from pensions, are angry at public employees,” said Jon Shure, president of New Jersey Policy Perspective, a nonpartisan Trenton think tank.

He said eliminating state pensions would feed further cuts in the private sector, leaving all workers with less for retirement. “If the people who are fomenting this have their way, public benefits will stink too and we’ll have dumbed it down to the way it is in the private sector,” Shure said. “If anything, the public sector should set an example for how benefits should be.”

If anyone in New Jersey would be expected to defend workers’ pension benefits, it would be state Sen. Stephen M. Sweeney. A Democrat, longtime ironworker and union official from a blue-collar South Jersey family, Sweeney heads the state Senate’s labor committee. But Sweeney has become an unexpected ally of the anti-pension crowd.

When Gov. Jon Corzine proposed raising the sales tax to fund state pensions this summer, Sweeney and two other lawmakers proposed cutting state retirement plans instead.

Their announcement split the state AFL-CIO, which includes both public- and private-sector unions. Public workers’ unions dogged Sweeney, shouting him down at Trenton meetings, mailing him a pink slip, and showing up at his events with an inflatable rat usually reserved for union-busters.

Some in the AFL-CIO say pension changes are driven less by pension envy than by conservative groups such as Americans for Prosperity, Americans for Tax Reform and the Heritage Foundation. Union officials say Wall Street money managers are also pushing the changes so they can earn a windfall of fees once public pension plans are converted to 401(k)s.

But Sweeney says he received praise from private-sector union workers -- refinery shop stewards, pipe fitters and ironworkers thanked him on the streets. “The private side is looking at the public side and realizing pensions are luxuries they cannot afford,” Sweeney said.

In a recent interview at the Ironworkers Union Local 399 in Westville, N.J., where he still serves as business representative, Sweeney noted that ironworkers contribute 14% of their pay to their pensions, and members of Local 399 went without a raise this year to cover rising pension costs, paying 3% more into the fund.

State workers, by contrast, received a 4.65% raise, even as their pension costs rose. State workers in New Jersey receive an average pension of $24,317 annually, compared with the national average of $19,856, according to the American Federation of State, County and Municipal Employees.

State workers have long defended their pension benefits as compensation for lower pay, but New Jersey state workers earn an average $54,742, compared with $43,970 in the private sector, according to the New Jersey labor department.

A New Jersey legislative committee now is considering state pension changes including a pension freeze, increasing public workers’ contributions and raising the minimum retirement age.

Beyond New Jersey, the debate over public pensions has become an election issue.

In Massachusetts, Illinois, New York and Oregon, Republican candidates for governor proposed new 401(k)-style plans for state workers, as did Republican candidates for comptroller in Maryland and New York.

In April, Colorado began offering state workers a defined contribution plan such as 401(k)s. The mayor of Providence, R.I. plans to switch all new hires from pensions to 401(k)s in July. In Alaska, legislators voted last year to close the public pension system to new employees in an effort to stem a $6.9-billion deficit in the retirement fund.

Alaska state Sen. Bert Stedman, a Republican, warns that if states like California and New Jersey don’t change public retirement benefits, they may soon face angry taxpayers.

“When the private sector has to pay for the public-sector benefit packages they can’t get themselves, you’re going to have a lot of political and social unrest,” Stedman said. “The average homeowner, when he gets his property tax jacked up to pay his neighbor’s benefit package, he’s going to get upset about it. And that’s what we don’t want to happen in Alaska.”