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By Charlie Eisenhood
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Wednesday, 17 June 2009 11:50 |
 Dan Boyd reported yesterday about the public employees and teachers unions' decision to sue in order to block a 1.5% increase in pension contributions from state employees, calling the change a "wage tax."
The adjustment, which coincides with a matching reduction in contributions from the state, was passed by the legislature and signed into law to help balance the state budget, which is $450 million in the red. The 1.5% hike will last two years and save the state over $80 million.
Here's more from Dan's piece:
"We believe it's not right that the employees of the state of New Mexico should have to bear the burden of a general budget shortfall," said Shane Youtz, an attorney representing the unions.
The lawsuit claims employee pension contribution increases - which apply to state workers earning more than $20,000 annually - are illegal because they single out public employees and threaten the fiscal soundness of retirement funds overseen by the Public Employees Retirement Association and the Educational Retirement Board.
Lawmakers, who approved the measure during this year's legislative session, have said most state government workers are faring better than their private sector counterparts.
"State employees and educators have to realize the Legislature is trying to save (them from) layoffs," said Rep. Henry "Kiki" Saavedra, D-Albuquerque, the measure's sponsor and the chairman of the House Appropriations and Finance Committee.
At first look, it could seem unfair for state employees to help with the budget shortfall. But when we look at the state of the economy and the actual economic impact on workers, it becomes clear that this is a fair, harm-minimizing way to cut costs.
First, it is important to understand what a 1.5% reduction in take-home pay means for workers. The average state salary is close to $42,000 a year - a 1.5% decrease is $630, or a little over $24 per paycheck. And, workers with a base salary of $20,000 or less will be exempt as will those earning $9.579 or less an hour.
Next, the money that isn't going into their pocket isn't disappearing - it's being put towards their pension. So when the unions claim that the "fiscal soundness of retirement funds" is under siege, it's hard to believe.
And those pensions? They're an amazing deal. Looking at the Public Employees Retirement Association's (PERA) handbook, you can get a sense of the benefits. There are a lot of plans (state, hazardous duty, police, fire) so I'll focus on the state plans as an example. Here's a chart of the the contributions by both the employees and the state for the three state workers' plans (before the contribution adjustment):
| Plan | Employee Contribution
| State Contribution
| State Plan 1
| 3.83% | 11.48% | State Plan 2
| 6.18% | 13.83% | State Plan 3
| 7.42% | 16.59% |
That's a good deal! The state matching more than 200% of employees' contributions is far better than most private sector plans. And when it comes time to retire, it's a really good deal. Here is a chart of normal payouts under the plans:
| Plan | Pension Factor
| Maximum Pension As A Percent of Final Salary | | State Plan 1 | 2.0% | 60% (2.0% X 30 years) | State Plan 2
| 2.5% | 75% (2.5% X 30 years)
| State Plan 3
| 3.0% | 80% (3.0% X 26 years, 8 months) |
The final salary is the average of the highest 36 consecutive months of salary reported by your employer.
Currently, employees of any age are able to retire with full benefits after 25 years of service (next year, new hires will have to work for 30 years). So, for example, someone contributing under state plan 3 could retire after 25 years of service and receive 75% of their final salary (3.0% X 25 years) for the rest of their life, paid monthly. Or they could hold out for the extra year and 8 months and receive the maximum 80%. (There are also plans that pay out less each month in order to provide money to a survivor).
So what am I getting at?
I think state employees being asked to give up a little bit of take-home pay to put it towards their retirement is very fair in light of this incredibly generous pension plan. The other option, as Henry Saavedra noted, is layoffs. I would think that state employees, who, according to the President of the AFSCME, overwhelmingly supported the unions' lawsuit, could agree that a small pay cut for all is better than layoffs for some.
When you work for the government, you aren't signing up for a particularly lucrative job. In exchange, you enjoy excellent job security and benefits. So, please, unions, accept the legislature's fair plan to help plug the state's budget gap.
Photo courtesy of Flickr user AMagill - used under CC license.
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Last Updated ( Wednesday, 17 June 2009 12:19 )
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