One of the most compelling reason that talented individuals stay in government is the benefits and the stability. And in envy, I have attended a flurry of retirement parties this year. My colleagues have put in their time and are blissfully able to move on to second careers under the support of a state pension.
But these pensions are expensive and risky - and troubled. The City of Austin is no longer offering pensions to new hires, but instead is offering them a self-managed retirement savings plan. The State of Alaska moved from a defined benefit plan (which promises a stable monthly payment each month after retirement based on the last few years of wages) to a defined contribution plan (which promises to pay out only what you and your employer put in, plus earnings).
What happens when the financial markets take a hit as it did in 2008? The pension plans take a hit. And the governments who fund them must make up the difference.
The FASB has been pushing corporations to disclose pension obligations since the 1980s. The FASB requires corporations to own up to the true liability the pensions posed to their organizations. When confronted with the resulting terrible looking balance sheet, most corporations decided to do away with their pension plans. The GASB is also pushing goverments to recognize their true obligation when it comes to pensions and other post-employment benefits. The State of Texas disliked GASB 45 (subject matter: other post-employment benefits such as health care) so much, it passed a law allowing Texas governments to blow it off. See http://www.window.state.tx.us/newsinfo/columns/070611gasb.html for the Texas Comptroller's take on this issue.
California Public Employees Retirement System, or Calpers, is suing bond rating agencies for inaccurate ratings, causing the pension fund to at least a $1 billion. See http://www.nytimes.com/2009/07/15/business/15calpers.html
The PEW Center on the States issued a sobering report earlier this year - stating "at the end of fiscal year 2008, there was a $1 trillion gap between the $2.35 trillion states and participating localities had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises." Trillions - not billions! http://downloads.pewcenteronthestates.org/
And this pressure to continue to meet those enormous pension obligations appears to have driven one state - New Jersy - to fraudulent activities and they are now under investigation by the SEC. http://www.sec.gov/news/press/2010/2010-152.htm
So how long are pensions going to be part of the government compensation package? I wouldn't be surprised to see them disappear in the next decade. How about you?