NEW CASTLE —
You probably hear a lot these days about struggling government pension funds.
There are two main reasons for that. And both deal with dubious management practices.
First, the political people who are ultimately responsible for government pension funds like to be popular. And an easy way to achieve that goal is to be generous with money.
So over the years, when the opportunity presented itself, pension benefits were increased. Often, this occurred during booming periods in the stock market, when pension funds were flush with cash. Payments were boosted without much consideration for the day pension fund investments would fall.
Second, these same political people — when pension funds were running short — would ignore the problem as long as possible. If a pension is technically underfunded in a given year, so what? Maybe the following year would be good on Wall Street and money would pour back in to the system.
Unfortunately, that didn’t always happen. Instead, many municipal pension funds have found themselves in serious holes. Pennsylvania state retirement funds are examples of that, as is the pension fund for the city of New Castle.
As retirement funds go, the one for Lawrence County government is in relatively good shape. However, even there, additional tax dollars must be put into the fund to maintain a proper balance.
Last year, for example, taxpayers had to contribute an extra $1.1 million to the fund. This is on top of what employees contribute to it on a regular basis.
Recently, the issue of giving raises to county retirees came up, and the decision was made not to. As county Controller David Gettings noted, the overall health of the pension fund didn’t permit it. According to Gettings, giving cost-of-living raises to retirees would require an additional $1.7 million in the coming year from taxpayers.
This decision undoubtedly is unpopular with pension fund recipients, but it was the right move. Government pension funds have a guaranteed protection system in place. Taxpayers inevitably must cover any shortfall. It doesn’t work that way in the private sector.
Beyond that, private-sector workers increasingly take much more responsibility with their retirements through 401(k) and similar plans. These are what are known as defined contribution systems, meaning a set amount is put in, but the payments depend on how well the investments do over time.
Government pension funds, on the other hand, are defined benefit systems: Money is paid out regardless of what’s actually in the fund.
We are now seeing government pension issues coming to a head. The structure needs to change to fit reality — even funds such as Lawrence County’s that are not in crisis. The system must evolve.
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Our Opinion: IRS probe may reveal multiple problems
