Commentary

Pension Time Bomb

If there is one thing that most governments have in common, it is that they are all struggling under the weight of skyrocketing costs for their bulky defined-benefit pension systems. Unlike the 401k that is increasingly the retirement investment of choice, defined-benefit pension plans offer a “guaranteed check for life” based on formula’s using years of service, and highest salary earned. While the private sector has moved away from these costly and risky plans, no such move can be seen in the pension plans for government employees. Today, the city of Bakersfield, California adds its name to this list of governments that are watching their pension costs explode. In this article city officials report that since 2002, Bakersfield’s pension costs have nearly tripled. In 2002-2003, pension costs amounted to 4.9 percent of the city’s general fund. This year, it is projected to consumer 14 percent. And don’t forget this about the exploding costs of taxpayer-funded government pensions–the money comes from somewhere. In the case of Bakersfield, it looks as though it will come from police, fire, and streets. If ever there was a reason for taxpayers to be worried about tax hikes, this is it.