Home > Thinking Right > Archives > 2008 > June > 03
Tuesday, June 3, 2008
Staving off the employee-compensation train wreck
The Atlanta Journal-Constitution
While Congress dawdles in finding solutions to the worsening Social Security crisis —- the baby boomers will bust it, and Medicare, too —- the governor of Georgia is taking the small steps that should help avert the collision of the generations.
With Social Security and Medicare, of course, the problem is that fewer workers are supporting more retirees —- from 16-1 in 1950 to just over 3-1 now and down to 2-1 when today’s young workers reach retirement age. Spending is expected to basically double in the next 20 years, with health care benefits going from 23 percent of total employee compensation to 41 percent. The federal share of spending that pays for Medicare will increase from 13 percent to more than 23.
Failing therefore to get a handle on the built-in future costs of retiree services is shortsighted. The end result will be that one generation will suck up the quality of life of another, of the struggling young families trying to get started.
Gov. Sonny Perdue raised the ire of judges and their supporters last month for vetoing a pay raise. His view is, though, that governments get themselves and their taxpayers in trouble by rolling over small problems. That’s what Congress did with Social Security and Medicare. “Our choices about social investment —- in infrastructure, education, national defense —- are being reduced as mandatory spending crowds out discretionary spending,” said U.S. Secretary of Health and Human Services Mike Leavitt recently in talking about Medicare. “In the last two decades, we’ve gone from half of our national spending being discretionary to only 38 percent. In four years, it is projected to be down to less than one-third.”
Perdue has begun to examine where Georgia is headed, state government in particular. In generations past, workers were hired young and stayed on the job throughout their working years. Now, though, they job-hop.
Under the compensation system that exists now, public employees are paid less than the average of top 20 employers while working, but they make it up after they retire. Young workers want the money upfront, and they want retirement benefits to be portable, something they can carry to their next employer.
A compensation plan created now would take some of that money from the back end and move it forward with higher salaries earlier. Legislation approved this year by the General Assembly would begin that process, creating a new retirement system for employees hired after Jan. 1, 2009. Under it, employees would be eligible for both a defined-benefit plan and a defined-contribution 401(k) plan, too. Benefits in the standard defined-benefit plan would be less, but the 401(k) would give new employees a nest egg they own and can take with them whenever they leave.
Everybody wins —- though future governors and legislators will necessarily have to avoid the temptation to corrupt the plan that takes effect on Jan. 1, as they have done with every retirement system the state has created.
When Perdue vetoed the proposed judicial pay increase bill last month because of the generous backloaded benefits that judges enjoy, he said it was because a study he commissioned revealed that “the judiciary’s retirement benefits are far above market average.” Furthermore, he said, “I have seen no compelling data to the contrary.”
Superior court judges with 16 years of service can retire with two-thirds of their salaries at age 60. That can increase up to 75 percent of state-paid salaries (counties supplement their pay by an average of $35,160 per judge in all but one circuit).
As an example of how backloaded benefits might be moved forward, Perdue had a bill before the General Assembly that would have reduced that for new judges from 66.66 percent to 60 percent at age 60. He made no attempt to move it. It is an example, however, of changes that could be made now that would not exacerbate the state’s financial problems in the future.
A rich salary, whether for judges or other public employees, is not a major concern —- unless it triggers a golden parachute.
Perdue is one of those rare governors who knows that —- and takes the heat today, as he’s done from judges, to avoid trouble tomorrow.
For that taxpayers should be grateful.
Permalink | Comments (52) | Post your comment | Categories: Column
Services »
