FEDERAL PROTECTION FOR PUBLIC EMPLOYEE PENSIONS

In 1974, the Employees Retirement Income Security Act was enacted into law providing minimum standards for private pension plans, regulation of pension funds and investments, and termination insurance to protect pensions.

Congress considered but rejected proposals to cover retirement systems of state and local governments under this legislation. A major objection was that the financial stability and strength of state and local governments, as contrasted to private employers, made such protection unnecessary. Recent developments have made readily apparent the fallacy of this argument.

Pension plans of state and local governmental bodies are badly in need of reform. A major reason their costs have increased in recent years is past under funding and the use of "pay-as-you-go" financing of public pension plans. State and local governments sometimes agree to improve pension plans for public employees in lieu of wage increases and then postpone payments for these improvements to future administrations and future generations of taxpayers. Obviously this does not serve the best interests of state and local governments, their employees or the taxpayers. State and local governments have too often tolerated flagrant abuses of fiduciary responsibility and unauthorized use of pension funds.

There are many similarities between public and private pension plans, but there are also many differences.  Though the basic principles of ERISA could serve as a model, many modifications would have to be made in legislation applying to public pension plans. Careful study of the vast, complex public employee pension system is essential before enactment of a law. Fortunately, Congress, in passing the pension reform bill, requested a study of public employee pension plans to prepare for their possible coverage by a new pension law. That study has been completed, and we urge that its recommendations be thoroughly examined and that action proceed on a much needed bill.

Public employees have been made the scapegoat for the financial crisis of state and local governments. Contrary to a widespread myth, most public employee pension plans are not generous in benefits vesting and other provisions and have not contributed to the financial crisis of state and local governments.

The truth is:

• The average monthly benefit for all state and local government employees was only $223 in 1972, according to a U.S. Census Bureau survey.

• Only about 10 percent of private pension plans are contributory, according to a recent survey. More than 90 percent of public employees make pension contributions and pay for a large portion of their retirement benefits.

• Public employee fringe benefits lag behind private industry. Though public employees have made significant wage gains in recent years, their wages still lag behind those in the private sector.

Blaming public employees for financial troubles is a frequent cop-out for public administrators. Public employees did not create the often inefficient, costly, fragmented structure of state and local governments; nor are they responsible for the under funding of pension systems.

Public employees give dedicated service, all too often at lower wages and fringe benefits than their counterparts in private industry. Like all workers, they are entitled to protection for their earned pension rights. They need protection and minimum standards in:

• Reporting and disclosure. Public employees are entitled to information on the major provisions of their pension plans in clear and understandable language. All other information pertinent to the operation of the plan should be available to them and the public.

• Fiduciary responsibility. Mismanagement and improper investment of public pension funds have jeopardized workers' pension rights. Both employees and taxpayers are entitled to protection against such abuses.

• Participation and vesting. Many public bodies have vesting standards that fall far short of those legally required for private pension plans.

• Funding. The taxing power of government is not a sufficient guarantee to allow the lax funding methods that have been applied to many public employee pension funds.

• Plan termination insurance. Public employees should have their earned pension rights guaranteed in the event their plan terminates.

• Portability. Provision should be made so that teachers and other public employees can move and carry with them their pension rights.

Therefore, the AFT urges the Congress to enact legislation as soon as possible to provide effective and appropriate protection for the pension rights of teachers and other public employees. We insist teachers have the same rights as all other workers.