Politics & Policy

Public-Employee Unions Gone Wild

Their excesssive demands squeeze local governments.

Terry List, a teacher in Saginaw Township, Mich., has a depressing lesson for her students: “I would not recommend to my pupils to become a teacher in Michigan.”

What’s discouraging her? A proposed pension-reform bill in Michigan would derail her plans to retire — at age 47.

After these rapacious reforms, List would have to work another 16 years, to age 63, in order to earn her retiree health-care benefits. “I understand we have to tighten our belts,” she laments, “but we don’t have to use a tourniquet and cut off the blood supply entirely.” Under the reforms, such a tourniquet means she could still retire now and have a guaranteed income for the rest of her life, but she’d have to pay for her own health care until age 65 — like, you know, most Americans.

Ninety percent of public employees in the United States enjoy defined-benefit pension plans, meaning they will receive a guaranteed income, and usually health insurance, until death. These benefits are prohibitively expensive, and more so when they are tied to retirement ages that are atypically low. Given rising life expectancies, we could see a raft of public pensioners spending more years collecting retirement benefits than they spent working their government jobs, and in fact this isn’t uncommon already.

Thanks to the strength of teachers’ unions, the average retirement age for a public-school teacher in America is 59. In California, the oldest age at which some categories of state and local employees can retire is 60, though for most the age is significantly lower. It’s hard to generalize, because some unions have pillaged far more than others. For a sense of how extreme the demands of some can be, one more example will have to suffice.

Until recently, employees of the Massachusetts Bay Transportation Authority enjoyed “23 and out” pensions. No matter when they began their careers, they could collect nearly full pensions after 23 years on the job. (That has been raised to the a punishing figure of 25 years, and now with a minimum age of 55 before they can collect.) Perhaps the most famous member of the organization that negotiated these benefits, the Boston Carmen’s Union, is Patrick Bulger, son of longtime Massachusetts state-senate president Billy Bulger. The younger Bulger retired from the Carmen’s Union at 43 and began collecting an annual pension of $41,000. Plus cost-of-living adjustments. For the rest of his life.

It’s hard to justify such benefits when the rest of America relies on 401(k)s, Social Security, and Medicare, making their effective retirement age, on average,  63 — and soon to rise. Public employees retire still very much in their working years. Even though they’re guaranteed financial security for life, some of them in “retirement” go on to lucrative jobs in the private sector — or, more disturbingly, back in the public sector. Take retired MBTA manager Michael Mulhern, age 48, who now enjoys a $130,000-a-year pension — and earns $225,000 a year as executive director of the MBTA’s retirement fund.  

Of course, the case can be made that some public employees — police and firefighters — need and deserve to retire at a relatively earlier age. Public-safety employees were often the first to win generous pensions and lower retirement ages.

The largesse has quickly spread to the unions of other government employees. In Illinois and California, almost one in three state employees are now on “public safety” retirement schedules. Public-safety rules often extend, for instance, to any “law enforcement” employee — including, say, all employees of public defenders’ offices. In New York City, the level of benefits for public-safety workers was soon enough extended to all uniformed employees of the city, so that sanitation workers fall under the same “20 and out” policy as do officers of the NYPD.

This absurdity of extending so-called hazard schedules to professions that just aren’t hazardous has grown to Hellenic proportions.Greece’s hairdressers retire from their work with dangerous chemicals at age 53. Is it any less ridiculous that New York’s sanitation workers receive their pensions after all of 20 years?

But rock-bottom retirement ages aren’t just huge burdens on the state and wasteful privileges for certain workers. They also epitomize the perverse nature of public-sector collective bargaining, which tends to be exacerbated by a lot of optimistic projections, back-loaded spending, and ill-conceived promises.

Imagine the basic bargaining game. A public union goes to the table, asking for increased compensation. The government usually realizes that pay increases are unaffordable or fiscally irresponsible, and does not want to provide them.

So the two parties reach a compromise: Instead of increasing current pay, increase future compensation by a present value roughly equivalent to what the union wanted now. But because governments (though they have improved in recent years) operate by optimistic standards or none at all, they don’t fairly evaluate the costs of what they’ve just promised. The more unfairly they evaluate the compensation, the more the union gets.

Agreement on early retirement works for both sides. It’s psychologically less costly. For state and local government officials, increasing salaries, retirement benefits, or health-care benefits involves very obvious financial commitments, whether present or future. Lowering the retirement age, especially for new employees, does not, though it does no less to immanentize the fiscal equivalent of doomsday. Furthermore, lax accounting standards allow a government to ignore or distort just how big the burdens are that youthful retirees will impose — something it couldn’t do if it promised benefits in the here and now rather than deferring them.

Moreover, much of the cost that governments incur when they grant early retirement comes from health-care benefits,  which are easy to promise but costly to deliver. Insuring the elderly can mean that a retiree already receiving a pension that amounts to 80 percent of his peak earnings in wages could easily be costing his public employer more than he ever did as a full-time worker.  

In a nation where everyone must rely on Medicare, there’s no good reason for retirees to be provided health-insurance benefits, which shift the burden of an undersized risk pool and inflated tax-exempt benefits onto local governments and taxpayers. But these benefits are important for the unions, because otherwise employees couldn’t afford to retire before 65, when they become eligible for Medicare. And so public-safety employees whose retirement ages have always been much lower than 65 require extremely expensive health-care benefits in order to make their early-age pensions worthwhile. This practice spread as hazard schedules were applied to other professions until, eventually, it became a common retirement benefit.  

As a 2007 GAO report explains, rising health-care costs make these promises extremely difficult, almost impossible, to account for — when state and local governments even bother. They usually don’t. Few still rely on pay-as-you-go budgeting for pensions, though it remains common for health care.  

By almost every measure, public-sector unions have managed to extract excessive levels of retirement benefits from governments, whose obligations have been vastly increased by the early ages at which the benefits can be claimed. That the benefits enjoyed by public employees already are more generous than anything the average American knows, and that they can enjoy them at an age when the average American is still working, isn’t just adding insult to injury. It’s adding kerosene to tinder.

— Patrick Brennan is the 2011 William F. Buckley Fellow at National Review.

Patrick Brennan was a senior communications official at the Department of Health and Human Services during the Trump administration and is former opinion editor of National Review Online.


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