Tuesday, July 26, 2011

Is cutting existing pensions morally wrong?

Well it’s finally happened. Central Falls retired police and firefighters are being “asked” (at least at this point) to have their pensions cut by one-half!! The Treasurer of the State of Rhode Island and the Mayors of its three largest cities are also stating that the pension problem cannot be straightened out without current retirees doing their part by giving substantial concessions.

I’m not talking about exorbitant pensions or fraudulent disability pensions, but rather fairly modest pensions that have been earned by employees via years of service and paid for by their own weekly contributions combined with the state or municipal mutually agreed upon contributions. The argument from the state and municipalities is simply that the unfunded liability in these systems is alarmingly high and the systems are in jeopardy of running out of money and therefore leaving everyone in those systems unpaid.

This catastrophic outcome is one which everyone involved (and we all are, at least as taxpayers) would hope to avert. The collapse of a single municipal pension system in this state would have dire financial consequences, not only for the recipients of this plan, but for all of the taxpayers of the state. Most of those citizens (and non-citizens) who pay no state income tax are recipients of some sort of federal, state or municipal social program(s), and as such would stand to lose at least some part of those handouts due to the increased strain on the system which would be necessitated by the loss of these pensions.

The reason these systems are in such financial disarray? The state and the municipalities have continually deferred their expected (and required) contributions so much that the systems are going broke. In other words, careless planning and budgeting by the politicians who control the purse-strings are the real reasons we’re now facing such a shortfall.

Most of the current employees in these retirement systems have already agreed to substantial reform in the structure and payments of their pension plans over the past couple of years. In all of these plans new hires are beginning their state or municipal careers under an entirely different set of rules regarding their pensions. These changes have been made in good faith by these employees and their unions in addition to contractual givebacks of benefits and pay raises in order to help share in the solution to our state’s financial woes. These things have been negotiated and agreed upon in order to construct a more sustainable system going forward. Even with these changes, however, if the state and municipalities neglect their financial obligations to properly fund these systems in the future we’ll be right back in the same position once again.

Much has been said and written about “broken promises” over the past year or so regarding this problem. Fiscal conservatives continue to point out that regardless of the promises made and our contractual obligations, that there’s “just no money” to keep these promises. In their minds it’s as simple as that. No money = cut current contractual benefits now or run the system dry and collect nothing.

As far as I’m concerned, neither is a reasonable solution. Do contracts between two parties hold any merit anymore?

All things, including accepted public moral behavior, are bound to repeat themselves over time. I believe it takes about four generations to complete a complete 360 degree turn-around to end up right back in the same position as one’s ancestors. Two generations ago our grandparents lived without contracts in their day-to-day dealings in most aspects of their personal lives – and even in small to mid-sized business transactions. About one generation ago, due in part to loosening public morals and character, our parents’ generation began to realize that they would need to have signed and notarized legal contracts in order to properly protect their interests – and they bemoaned the fact that the old-fashioned handshake that sealed deals in their parents’ day was no longer good enough between two parties to ensure that the deal would be honored by both.

At the present time we regret that things are not more like they were in the “good old days” when a man’s word was his bond. We complain that the kids presently have no understanding of the importance of moral values or good character, yet we seem to constantly teach them that somehow (via money or power or outright lying) they can dodge their responsibilities and walk away from their problems without dealing with the consequences. With all the public debate about walking away from the contractual obligations we’ve, as taxpayers via our government, agreed to, we are once again sending that message loud and clear to our children and teenagers – our future decision makers.

Can we continue down this path? I believe the answer is no. In the past two generations since our grandparents’ day we’ve wandered all the way from their accepted values of a handshake being the common way to seal an agreement with another person, to needing a signed contract in order to adequately protect one’s interests in inter-personal dealings and finally to disregarding contractual obligations altogether regardless of how many signatures and notary seals are on the paper – as long as it’s the best thing for us personally.

I predict that in the time that my grandchildren are making the decisions, the fourth generation after my grandparents, they’ll be back to the belief that a man’s word is his bond once again, sealing deals with a handshake. Unfortunately that will be much too late to be of any help in the situations we are struggling with at this time.