Pensions Become a Heated Issue in 2010 Politics

By: - October 1, 2010 12:00 am

The movement to rein in public employee retirement benefits has spread to the fall campaign, with candidates for governor, treasurer and state legislatures split over the best way to manage spiraling costs that threaten the financial condition of public pension systems in nearly every state.

Pensions aren’t exactly a staple of election year politics in America. But after three years of heightened attention to the underfunding of public pension systems, candidates across the country are offering a variety of proposals to strengthen financing. The debate is certain to carry over to the 2011 legislative sessions that begin in January.

The sharpest divide is between advocates of the defined benefit system, which has stood for decades as the preferred way to provide retirement security for thousands of state employees, and the 401-(k) system, in which workers do most of their own retirement planning and risk investment losses in the market. Many Republican candidates for state office argue that a 401(k)- style plan would be much cheaper; their Democratic opponents generally prefer keeping the current system but trimming costs through higher employee contributions, raising the retirement age and freezing or postponing cost-of-living adjustments for those newly hired.

California is the place where pension politics is surfacing almost everywhere. At the local level, voters in at least 10 cities, including San Francisco, San Diego and San Jose, will consider ballot initiatives Nov. 2 aimed at reducing benefits for newly hired city employees with a higher retirement age and increased worker contributions.

On the state level, public pensions are a key issue in the race to succeed Governor Arnold Schwarzenegger, a Republican who was one of the first elected officials nationally to recognize the depth of the pension funding problem. His proposed reforms, which included rescinding a benefit increase, failed in part because of opposition from California’s strong public employee unions.

GOP candidate Meg Whitman is tapping into polls that show a majority of Californians endorse switching to a 401 (k)- style plan for newly hired state workers and raising the retirement age for most others. If she cannot force those changes on her own, she says , she might ask voters to decide the issue in a ballot measure. Her Democratic opponent, state Attorney General Jerry Brown, supports the current defined benefit pension system, but says he too would cut benefits for new hires and increase contributions for current and future workers.

Nearly three thousand miles away, in Florida, candidates also are arguing over public pension funding, at times angrily. In the Florida governor’s race, the state Republican Party is spending more than million on TV commercials accusing Democratic nominee Alex Sink, who is the state’s chief financial officer, of losing billion in investments in the public pension fund. Sink has purchased TV time to air a commercial defending her stewardship of the billion pension fund and blaming the investment losses on the national recession instead of mismanagement, as the GOP challenger, Rick Scott, claims in his ad. News organizations independently checking the accuracy of Scott’s commercials have found several discrepancies and at least two top state Republicans have defended Sink.

In Iowa, the GOP challenger for state treasurer similarly is blaming the incumbent Democrat for a million loss in the public employee pension fund. In Kentucky, a Republican candidate for state senate says in his campaign advertising that he would end taxpayer-financed pensions for legislators that the Democratic incumbent has supported.

But in most of the country, it is the conflict between types of pension plans that is generating the most controversy. GOP candidates for governor in California, Minnesota, Illinois, Oregon, New York, Rhode Island, Michigan, Maine and Nevada have embraced the change from defined benefits, with their promise of a guaranteed monthly retirement check, to defined contributions, in which workers and (to a lesser extent) the state government pay into a non-guaranteed savings account that the employee draws from upon retiring.

The contrast between Republicans and Democrats reflects a fundamental political reality: Public employee labor unions, which want to preserve defined benefit plans, usually provide money and campaign workers to Democrats.

 “Public employees tend to get more from defined benefit plans than from defined contribution plans,” says Jack Pitney, a government professor at Claremont McKenna College in California. “Their unions are a mainstay of the Democratic Party, so it is no surprise that Democrats tend to take their side.  Conversely, when Republicans are looking for budget savings, they are more likely to go after constituencies that don’t support (those benefits). ”

Some Democrats are seeking to walk a fine line. In New York, state Attorney General Andrew Cuomo tells voters that they should elect him governor because he initiated investigations into public pension corruption that led to indictments and guilty pleas . Cuomo has been willing to criticize public employee unions, calling on them to contribute more money to their plans. But he has not taken a position on defined contribution plans. Cuomo’s Republican and Tea Party challenger, Carl Paladino, has pledged to “take on the public employee unions to cut the rich pension and benefit packages taxpayers can no longer afford,” including a switch to a defined contribution plan for new employees.

Like Cuomo, the Democrat running for Oregon governor, John Kitzhaber, has gained from strong union support in past campaigns. Kitzhaber, a former two-term governor, says unions need to help lower pension costs but has been vague about whether to endorse defined contribution plans because unions are working to elect him again. His GOP opponent, Chris Dudley, has no such union backing and can afford to be more specific: He calls for higher employee contributions to pension and health care plans, and a 401 (k)- style plan for future workers.

Some Democrats have been a little more willing to take on the public employee unions more directly. One is Frank Caprio, the Rhode Island treasurer who is in a three-way race for governor. In advocating a combination 401 (k)-style and defined benefit plan, Caprio says what Democrats in other states do not acknowledge for fear of angering labor leaders. “The old way is choking the state,” Caprio says .

Caprio’s GOP challenger, John Robitaille, has taken perhaps the boldest stand on public pension reform: In addition to switching to a defined contribution system, Robitaille says he would raise the retirement age to 68 for new hires, with no annual cost of living adjustment to stay ahead of inflation. “We need to take corrective action now or everyone risks losing public pensions,” he says . The third candidate, independent Lincoln Chafee, also supports a hybrid 401(k) and defined benefit plan similar to what the federal government offers.

There are a few Democratic candidates willing to stick to the traditional party position in favor of defined benefits. In Minnesota, Democratic gubernatorial nominee Mark Dayton chastised his Republican opponent Tom Emmer for saying public employees get a guaranteed benefit while “the rest of us” are delaying retirement or “wondering if we’re ever going to be able to retire.” Dayton responded that “people who work all their careers in the public sector, they don’t make a lot of money in total and they don’t have a lot of retirement income, but they have secure income… To denigrate people because they want retirement security is really misguided.” 

Illinois Governor Pat Quinn, a Democrat seeking his first full term, also has defended the traditional defined benefit approach even though his state has the most underfunded public pension system in the nation. Quinn’s support of defined benefits was blunted by his promotion earlier this year for a pension reform package approved by the Legislature that, among other things, raises the retirement age for new hires from 60 to 67, highest in the country. Quinn makes the distinction that the reform plan would affect only new employees. His GOP opponent, Bill Brady, favors the defined contribution approach.

Even in campaigns that usually are inconspicuous, such as those for state treasurer and controller, candidates are playing up pension politics. That is especially true in the New York comptroller’s race between Democratic incumbent Thomas DiNapoli, and GOP nominee Harry Wilson, who says the public employee pension fund managed by DiNapoli has a hidden shortfall, which the comptroller denies . “The coming public pension crisis is the largest financial problem our nation faces at the state level,” Wilson says.

Whether differences over public pensions will turn an election is an open question, analysts say. ” The economy is the center of this election, and so any issue like this that radiates from it can be a political winner,” says Larry Sabato, director of the Center for Politics at the University of Virginia. “Voters feel insecure and far less wealthy after the market crash and bank failures of 2008. People are looking for a way to get back on their feet and plan for a decent retirement, now more than ever. Every contest is different. If the outcome is close enough, I suppose the votes a candidate could get with a popular stand on pensions could make the difference on election day.”

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.