Rather than layoffs, why not streamline benefits
The steady "whosh-whosh-whosh" we began to hear all the way from Hartford Tuesday was the sound of pink slips flying off of high-speed printers at the Capitol. By the time the whooshing stops in a few weeks, nearly 5,000 state employees -- 10 percent of the workforce -- will be holding them.
Gov. Dannel P. Malloy ordered layoff notices to go out because concession talks with state employee unions were going nowhere. Malloy had been looking for $2 billion worth of union givebacks over the next two years as a way to save state jobs while feverishly trying cut costs in a budget nightmare.
The pink slips signal that the governor has switched to his "Plan B" budget, one that in addition to layoffs calls for an another $1.2 billion in spending cuts -- cuts that would be sure to draw blood in Fairfield.
There was a time in American labor relations when givebacks meant deferring or forgoing pay raises. But the engine driving employee costs in the 21st Century is benefits. And when it comes to benefits, the gold standard is set in the public sector -- federal, state and, yes Fairfield, municipal government.
Among concessions Malloy has asked of the unions are pension and health care changes -- including creation of a retirement program similar to a 401(k) for all state employees hired after July 1. Currently, all state employees are eligible for a traditional pension plan.
The initial sting Fairfield would feel from the Plan B budget would be reductions in state aid. The state's largest organization of municipal leaders warned this week that the proposed cuts would decimate municipal services, raise property taxes and cause municipal worker and teacher layoffs.
In Fairfield -- which just finished a bruising town-budget battle and will move tentatively to the end of the year with an interim first selectman -- the news could not come at a worse time.
But the state's employee benefits dilemma should not be lost on the town. How more lucrative are government benefits than private sector plans?
The federal Bureau of Labor Statistics recently reported that civil servants earn an average of $12.38 an hour in benefits, about $5 an hour more than private-sector workers. The difference was just $2.70 an hour in 1995.
A study by the Congressional Research Service in 2005 concluded retired government workers were twice as likely to get a pension as their private sector counterparts. It said the nation's six million retired civil servants received a median annual payment of $17,640 that year while 11 million private-sector pensioners got $7,692 -- 56 percent less.
In Fairfield, local taxpayers are funding that gap. While teacher pensions are funded by the state, contributions to pension plans for the town's public safety and other municipal workers are funded locally and are rising fast. Consultants project those contributions -- $5.5 million in the coming fiscal year -- will more than triple in five years to more than $17 million. Town finance officials say those projections are high, and costs are unlikely to hit that level. Still, the direction is clear. Fairfield at least had the courage to stick its toe into the reform pool earlier this year when it decided new employees would not get the fixed-payment pension plan town workers have long enjoyed. Instead, a new hire will get the public sector equivalent of a 401(k) savings plan -- with the town matching a certain percentage of the employee's own contributions.
So the governor in his negotiations with unions was following Fairfield's lead.
In the private sector, guaranteed, fixed-payment pension plans are going the way of the typewriter. The reason: companies can't afford to fund them. And it's becoming increasingly clear that governments can't either.
The 401(k) method favored by the governor and teased in Fairfield not only is more affordable and more predictable for governments but can be a better deal for a mobile workforce, too.
Depending on your age, it was either your father's company or your grandfather's company where workers didn't have to distinguish themselves to be rewarded with lifetime employment, capped at retirement by a monthly check you could set your clock by.
A generation of technology-driven efficiencies, consolidations, cheap foreign labor and outsourcing -- plus a couple of whopper Wall Street collapses -- have combined to make that notion about as quaint as a two-dollar bill.
The emerging force in the labor pool, Generation Y, is mobile and sometimes impatient.
Five-year vesting periods for fixed-benefit pensions? The median time the 25-34 age group spent in a job was 2.7 years in 2008, the Bureau of Labor Statistics reported. Switch jobs before you're vested, and you lose money. Sticking around unhappily for a couple of more years to secure a small pension before you bolt can cause two more negatives: you let a better opportunity slip away and your employer gets only a half-hearted effort.
If you had a 401(k) in the first place, you'd change jobs when you wanted and every penny could go with you.
By eliminating fixed-benefit pensions for new hires, Fairfield has made a good first step toward reeling benefits costs back into the realm of reality. But it should be just that -- a first step. Statewide, teacher pensions must be examined, too. With a talented and dedicated municipal workforce, nobody wants to hear that whooshing sound of pink slips being spit out of a printer here.