The other avenue is to restructure the pension payouts. That is typically forced by bankruptcy proceedings. There are reasons to restructure sooner than the 11th hour. It is better to restructure when the pension is 80% funded rather than when it is 50% funded.
A lot of assumptions must be made to make this topic understandable.
For the purposes of this essay, we will assume that every public employee works until age 56 and then gets a $3000/month pension. Further, we will assume that the pension payout grew by 3% every year before our 56 year old retired. We will assume that the pensions are NOT indexed to inflation. Finally, we will assume that the morality rate of state workers follows the mortality data published by the CDC for the year 2007.
Equality of outcome
This scenario seems as likely as any. It is equally distasteful for nearly all parties.
Equality of outcome creates a ceiling on the maximum pension benefits any retiree can receive per month. This seems to disproportionately impact the younger retirees because they lose a larger percentage of the pension they are expecting.
|This curve assumes an annual 3% pay raise very year and no inflation indexing for past retirees..|
|Based on the CDC link listed earlier.|
$3000 a month may sound like a big pension, but these are aggregate numbers. That $3000/month also includes the executives and the people who were able to "game" their pensions higher via cashed in sick-days and overtime.
Don't play chicken
One of organized labor's favorite tools is to play "chicken" and make the other guy blink first. There are some good reasons to abandon that strategy when talking about pensions.
Unless something significant is done to bolster an underfunded pension, it slowly drifts downward as pay-outs are made. The pay-outs are made out of capital, not earnings. The pension that is 80% funded drifts down to 70% funded, then 60% funded. The downward drift becomes a steep dive as there is less and less capital to create income/growth. The pension that could have been reorganize at 80% funding would have impacted nobody over age 73 and those who were younger than 73 would still be getting checks for $1800 per month.
Playing chicken and waiting for the pension funding to drop below 50% means that virtually everybody will take a hit and they will be receiving checks for $1000 a month, not $1800 per month.
People, being what they are, will not be able to see this except in hindsight. Pity.