Recession Spurs Police and Fire Pension Reform Plan

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The pressure of revenue shortfalls and growing deficits has raised considerable discussion on the subject of considering police and fire pension reform plans across the United States. While public employee pension plans in general have become a front burner issue, retirement plans for cops and firefighters are under special scrutiny. Those retirement plans were designed to allow retirement at a relatively young age for emergency personnel due to lower life expectancies linked to job stress, shift work, and job-related injuries and illnesses.

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Large states like California, Illinois, and New York have been particularly singled out for their generous retirement plans and their impact on state government economies. All have extremely strong public employee unions and all have produced examples of individuals who have manipulated pension plan rules to give themselves high pension payments for life and large “golden parachute” payments for accumulated sick time, vacation, and accumulated overtime built up over a career. The states in question also have extremely large deficits which have led to massive tax increases, public employee layoffs, and the reduction of public services.

Many proposals for reform of public pensions involve questioning the basic assumptions of their payout structures. Most private sector pensions are now based on a “defined contribution” plan in which the amount a retiree receives is determined in large part by how much they and their employer contribute during the worker’s career. Many public employee plans are based on a “defined benefit” scenario in which a retiree is guaranteed a fixed dollar amount of pension which is tied to their years of service and/or their average salaries during their peak earning years. Some argue that this protects public retirees from normal market risk for their retirement savings. Others say that public employees do not have the career flexibility of a private sector worker, and thus cannot enjoy the rapid wage increases that a private worker can get for superior performance. Public officials also point to the fact that strong fringe benefits in the form of medical plans and retirement packages are a major recruiting point for attracting employees to public service in lieu of the possibility of higher private sector compensation and career mobility overall.

Regardless of the merits of various arguments pro and con, there is little question that public sector pensions are heading for a change. While the existing pensions of those already retired cannot be significantly modified, younger workers or those just entering public service will undoubtedly feel the effects of proposals to create police and fire pension reform plans in the near future.

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Recession Spurs Police and Fire Pension Reform Plan, Seekyt
General Contributor
Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.