2011 Fire Fighters Issues Book.pmd - IAFF

KEY POINTS
PUBLIC SECTOR PENSIONS
• Contrary to media reports, most public sector pension systems are on sound financial footing. While the downturn
in the stock market has posed challenges, most plans will be able to recoup their losses without making changes in
benefits or contributions. Those plans that need to make changes are already doing so.
• Underfunding of plans is due largely to the failure of state and local governments to make their required annual
contributions during good times. It is wrong to punish beneficiaries of pension plans for the failure of their
employer to live up to their obligations.
• Many states are facing severe budget shortfalls, but this has nothing to do with their pension system. Only 3% of
state expenditures are related to employee pensions.
• Defined benefit pension plans are a fair and cost-effective system of providing retirement security to workers.
More than 70% of pension funds come from employee contributions and earnings on prudent investments, with
tax dollars accounting for only about a quarter of the funds.
• Efforts to convert defined benefit (DB) plans to defined contribution (DC) plans are shortsighted. DB plans are
superior to DC plans in several important ways:
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DB plans have much greater return on investments than DC plans.
DB plans have lower administrative costs than DC plans.
DB plans include disability and survivor benefits, which provide retirement security for the families of
fire fighters who are injured or killed in the line of duty.
DB plans weather the ups and downs of the stock market better than DC plans, and do not penalize
workers who reach retirement age during a market downturn.
• Fire fighters would be especially hard hit if public sector DB plans were dismantled. Fire fighters have negotiated
unique pension systems that account for their early retirement ages and high rates of disability. Moreover, most
fire fighters are not covered by Social Security, and many are covered by mandatory retirement age requirements.
DB plans provide for retirement security in ways DC plans cannot.
• Fire fighter pensions are not overly generous, as some have claimed. The average pension received by a fire
fighter is less than $35,000. The anecdotes about huge pension benefits are anomalies that need to be addressed
in the context of that specific pension plan, and do not warrant changes in federal law.
• The shift in recent years from DB to DC plans in the private sector has undermined the retirement security of
millions of Americans. The gap between the amount of savings American workers need for retirement and the
amount they are currently projected to have is an astonishing $6.6 trillion. Impoverished retirees will harm our
economy and increase dependence on government assistance.
• Congressional proposals to require “transparency” are unnecessary since state laws already require disclosure.
The real intent behind such proposals is to exaggerate shortfalls and force states to dismantle their DB plans.
• Allowing states to declare bankruptcy to avoid paying retirees the pensions they have earned would be unfair to
workers, and could wreak havoc with state and municipal finances.
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