What do states owe workers?

We’re going to be asking what states owe workers a lot as the former wrestle with growing pension obligations.

Illinois courts have just ruled that the state’s attempt to curtail its pension benefits cannot go forward. The Chicago Tribune boils it down: “In its ruling, the court restated that state-worker retirement benefits that are promised on the first day of work cannot be later reduced during their term of employment, only increased.”

Private employers are not allowed to take back benefits you already earned, and governments shouldn’t do this either. But private employers can tell you that the pension fund is closed and you won’t accrue any further benefits, or that benefits accrued in the future will be smaller. Should governments be able to do this too?

There are a few issues that we need to unpack here. The first is what, exactly, we owe to workers who have been at it a long time.

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It’s fair enough to say that workers aren’t entitled to a certain benefit when they haven’t done the work yet. But many of those workers took those jobs decades ago in the expectation that they would accrue those benefits in the future. This is especially true for state and local workers, who frequently seek the job expressly for the purpose of obtaining that lifetime security. Once they have essentially invested their work lives for the payoff of future benefits, it does seem unfair to go to them at age 48, when they can’t realistically get a whole new career, and say “Guess what?”

On the other hand, one could point out that this sort of unfairness is not exactly unknown in the world of work. People that age lose businesses that go south because the economy changed, or they get downsized by a company that’s hit a rocky patch, or see their future benefits cut when the company replaces the pension plan with a 401(k). Why are government workers special? And why should new workers have to bear all the burden of pension cuts, as frequently happens when benefits are kept for older workers? Or taxpayers have to give up on needed services now because politicians 30 years ago were grossly irresponsible?

If governments cannot adjust their benefits in a more gradual manner, we are going to end up with more catastrophic defaults on pension obligations. And that doesn’t seem fair to anyone. •

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