Pensions for Public Employees Present Nationwide Problems

The historical growth of public pensions reveals that the early public pensions were an instrument of personnel policy, and they still are utilized for this reason. Other rationales were also developed to promote pensions, and they included the early concept of human depreciation, the deferred wage theory in the 1940s and 1950s, and after the Social Security Act of 1935, the increasing justification of retirement, disability, and survivorship benefits as necessary provisions for economic security in an interdependent, industrialized society. Wage replacement has been emerging as a more recent theory. Public pension programs face some serious problems which include: 1. rapid growth, 2. uncontrollable budgetary impacts, 3. a non-system of programs, 4. deficient actuarial and financial management practices, and 5. excessively costly benefit provisions. In order to protect the economic, financial, and social integrity of the pension in difficult times, it is important to broaden the range of advisers to the pension plan to include economists and futurists. In addition, it should be insisted that actuaries use a dynamic model, and the practice of using one set of ''conservative'' assumptions on the basis of which only one actuarial valuation is prepared needs to be discarded. Actuarial valuations should include year-by-year projections of outlays, receipts, and fund balances. Cost analyses should be made of doubtful features in the plan, and net income wage replacement rates for all sources should be analyzed.