Wednesday, January 24, 2007

Systematic abuse: Rethink state retiree pay

There are simple answers to the pension problem if legislators would only open their minds instead of pandering to the unions. Some solutions include, increasing the age of retirement to 67 as it is with social security or privatize the system to a 401K system as many companies in the private sector have. Companies over 20 years ago switched to 401K programs because it was long realized that pensions only destroy companies. One only need to look at the airlines and the car industry to see that this is true.

New Hampshire and Governor Lynch took New Hampshire a step backward when it allowed the State employees to unionize in the "Summer of 2006. We will only see the pension problem get worse. It is time to reverse that decision and no longer allow unions in our school systems either. Parents should not be forced to have their children taught by unionized employees, they should have a choice.

The following article appeared in the Union Leader.

Systematic abuse: Rethink state retiree pay

THE STATE'S $2 billion shortfall in employee retirement funding could be as high as $6 billion when all benefits are tallied. For comparison, the total state general fund budget is $1.4 billion. If the system is not fixed, a financial train wreck like the state has never seen is on the way.

The situation is so dire that the head of the State Employees Association has said publicly that his organization would be open to hiking employee contributions to the retirement plan. When the head of a public employees union starts negotiations by saying that an employee pay cut is on the table, you know things are bad.

In the past, most of the discussion about the retirement system has focused on who pays more: employees or employers. Employees pay a fixed percentage of their income. Employers -- the state and municipal governments -- pay varying rates, adjusted every two years.

Starting this summer, the rates employers pay will rise dramatically. The new rates are expected to add $1.5 million to Manchester's budget and $240,000 to Londonderry's, sending already burdensome tax rates even higher. And still the system will remain dreadfully underfunded.

One reason is a drop in the system's investment income. But the most important reason is the system itself. Not only are contributions set improperly, but it is designed so that employees can boost their retirement benefits well beyond what the normal pay throughout their careers would provide.

In Dover, Police Chief William Fenniman is set to retire this Friday. Though his current salary is $114,000 a year, he stands to make more than $125,000 a year in retirement. How? The system calculates retirement benefits based on the three highest-paid years in an employee's career. Fenniman gamed the system, taking huge cash payouts for unpaid leave and severance (totalling more than $200,000) in his last three years of employment.

None of this would have come to light had Dover councilor David Scott and the Union Leader not challenged the city to obtain employee compensation information the city manager did not want to reveal. If this is going on in Dover, it's a sure bet it's going on statewide at every level of government.

This type of abuse has to end if the state is to have any hope of bringing its retirement spending down to a manageable level. The only way to do that is to fix the system so that contributions are fair and sensible and employees cannot artificially inflate their benefits.

Quote of the day.

The weapon of the trade union is the strike. It must be borne in mind that every strike is an act of coercion, a form of extortion, a measure of violence directed against all who might act in opposition to the strikers intentions. Ludwig von Mises on Labor Unions.

1 comment:

WMOTD said...

Please check Coalition of NH Taxpayers to find a taxpayer group such as this one, near you.