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A History Lesson in Public Pensions

Whether you love them or hate them, pensions have given employers a way to put money aside for their employees’ retirement for ages.  With so much media attention on the negative consequences of public pensions, it’s important to be educated on the history of pensions to keep an open mind about the pros and cons.  Pension reform is happening across the country, but how did we get to this point in the first place?

There is evidence that the earliest retirement plans can be found in the public sector, dating as far back as the early Roman Empire. Fast forward to the 18th century in the United States of America.  The Army and Navy began their pension plans as disability and severance pay, but by the 1800’s these turned into more formal retirement plans with Congress approved criteria. The Civil War had a major impact on military pensions with the imminent need of officers, soldiers, and other personnel to support the battles.

By the 1900’s states and local government began adopting defined benefit plans to offer to its employees.  What began primarily with just public school teachers, police, and fire quickly spread into state government.  Federal Government came into the picture with the Civil Service Retirement Act of 1920 after the end of World War I.  And the private sector was also getting into the mix at this time. Companies like General Electric, Goodyear Tire, and Eastman Kodak were offering pensions to their workforce.

As we reached the end of the twentieth century, the funding of pensions began creating a major drain on public budgets and resources.  Though in theory, these plans were supposed to be pre-funded to avoid any pay-out issues, it just wasn’t feasible.  Our government, in the early 1900’s, did not predict the mass exodus of baby boomers, people actually living longer, and the volatility of the market/economy.

States and localities are taking serious measures to reform pensions, but many employees are still grandfathered into very lucrative pensions so we won’t begin seeing the real benefits of reform for some time.  Employers are responsible to incorporate visibility measures into overtime, and other accepted compensation that increases pension pay-outs, to ensure there isn’t misconduct on the part of the employee.  Too much overtime is not only costly, but can result in fatigue issues which poses its own set of problems in itself.

The landscape of pensions has certainly changed since the inception of our country.  Pensions provided employers with a way to recruit and retain workers and for a while that made sense.  But longevity at one organization is becoming scarce as employees want to move up the career ladder and realize moving to another organization is the only way to accomplish that.  This is an opportunity for public sector to rethink benefits and look for ways to make good use of the limited time an employee will be there as pensions are no longer a lure.

 

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