Does the Public Support Pension Reform?

Often some of the most important and necessary policy reforms to be made are the most politically sensitive and difficult to maneuver. Pension reform is no different.

Conventional wisdom suggests that while pension problems are likely to be a serious discussion in fiscal and budget committees in city halls and statehouses, substantive pension reform efforts will be given short-shrift, in part due to a lack of interest among the public on such a complex issue, as well as misinformation about the effects and political repercussions of reform. But what if the conventional wisdom is wrong? New polling suggests that it may indeed be. Not only does the public understand the importance of the issue, but there is also widespread support for reforms.

In an effort to better understand what the public thinks about government employee pensions-and the politicians that dare to reform them-a recent Reason-Rupe poll surveyed 1,003 Americans about their views on state and local government pensions and found that large majorities have strong feelings about the condition of public pensions and need for reform. Among the findings:

• 72% of Americans are concerned that their local and state governments will not be able to fund public pension systems.
• 35% of respondents believe that pension reform should be a top priority for governments, while another 41% believe it should be an important, but not top, priority. Only 7% believe that nothing needs to be done.
• A 54% majority of respondents have a favorable view of government employees, compared to only 14% with an unfavorable view. At the same time, a 52% majority believe that public employees receive better retirement benefits than workers with similar jobs in the private sector. In fact, 65% of the poll’s respondents do not feel they are saving enough or have saved enough money to live a comfortable life during retirement.

Collectively, this suggests a high level of public awareness that there is a problem with the fiscal condition of their governmental budgets and that pensions, while not necessarily the primary problem-governments have been profligate spenders for many decades-nonetheless pose a significant threat to state and local budgets. But how does the public perceive potential solutions? Again, the poll contains some very interesting findings that should inform policymakers as they consider reforms:

• There is strong majority support for transitioning government workers to 401(k)-style defined contribution plans.
  • 59% of respondents support shifting current workers to 401(k)-style accounts.
  • 67% support shifting future employees to 401(k)-style plans.
• 66% believe that shifting government employees to 401(k)-style plans is a good idea because it would give employees flexibility to take the plan with them from job to job and be less costly to taxpayers.
• Strong majorities favored shifting government workers from pensions to 401(k)-style plans if it meant that taxes would not have to be raised (66%) or government services would not have to be cut (59%).
  • However, 58% opposed shifting workers from pensions to 401(k)-style plans if it meant breaking a contract made with public employees when they first accepted their jobs.
• Perhaps most importantly from the politician’s perspective, voters are not inclined to punish pension reformers at the ballot box-quite the opposite, in fact.
  • 27% said that they would be more likely to vote for an elected official if they voted in favor of shifting public employees from guaranteed pensions to 401(k)-style accounts.
  • Another 50% said the issue would not affect their vote.

Overall, the findings suggest that the least controversial pension reforms are going to be those that close defined-benefit (DB) pensions to new entrants and instead offer new hires (and potentially even current workers) 401(k)-style defined-contribution (DC) or hybrid DB/DC plans that reduce financial risks to governments (and thus taxpayers) over time as current workers retire and new workers replace them.

And what about the question of how to cover the costs of existing benefits for those workers already in the system?

• The public is very supportive of the idea of requiring current public employees to contribute more towards their own pensions and benefits (82%), but strong majorities oppose making any cuts to pension benefits for current workers (53%) or retirees (71%).
  • However, when push comes to shove, if a state or local government did not have enough money to pay the pension benefits of already retired workers, 66% of respondents would oppose raising taxes to maintain benefits at current levels, and 54% would oppose cutting government services to maintain current benefit levels.
• Overwhelming majorities oppose raising taxes (74%) or reducing government services (77%) to cover shortfalls in funding for pensions and healthcare benefits for government workers.
• 53% of respondents favor requiring government employees to contribute at least 50% of the cost of their retirement benefits.
• 58% favor setting a cap on the annual pension payments that retired government employees can receive, and the poll showed a mean of $57,121 as the desired level of that cap.
  • For many states and communities, this would be consistent with their benefit ranges, though places like California and Illinois have a large number of public pensioners receiving much more than that.
• 78% believe that the public should get to vote on pension benefits. This is not a radical idea; in fact, it happens regularly in progressive San Francisco.

Overall, the public believes that pensions are an important issue to address, and there appears to be strong support for prospective reforms that would place new government workers in 401(k)-style plans (and even moving current workers to such plans so long as already promised pension benefits are not impacted). In short, the public supports moves to stop digging the pension hole deeper.

Things become more complex when it comes to current workers and retirees, and while the public generally does not support reducing already promised benefits for those groups, they also strongly oppose moves to raise taxes or cut services to pay for those benefits. And there is clear support for current workers to share the costs of retirement benefits by contributing more to their own future pensions and benefits.

These results are consistent with the nature of the successful reforms we’ve seen in places like Utah, Michigan and Oklahoma that were largely prospective in nature. They are also consistent with the anecdotal research we’ve done in the past on places like San Diego and San Jose, California, where the voting base is more left of center in nature, but repeatedly voted for prudent fiscal reforms at the ballot box and elected officials that stood for reform on principle and voted down tax increases to pay for intractable pension systems.

This is not to say that everywhere pension reform has been tried, it has succeeded. Indeed, places like Cincinnati in 2012 and Phoenix in 2014 saw voters defeat pension reform measures in the face of strong opposition from unions and elected officials-the same officials that have failed to enact viable reforms to address the increasing costs of pensions and unfunded liabilities on their balance sheets. But the problems aren’t going away, and while bankruptcy may not be an option for various reasons, service insolvency is a reality in many jurisdictions where the costs of pensions crowd out the ability to pay for other needs often provided by the government. At that point, the poll suggests that politicians might have been better off in the public’s eye by making meaningful reforms instead of ignoring the problem.

Looking over the next legislative year and forward to 2016 elections, there are a number of jurisdictions that are likely to take on pension reform. They need to know that the public is behind them in their efforts. Hopefully, these polling results will give them the courage to move forward on a cause that will give both public employees and the taxpayers a fair and affordable retirement system that is fiscally sound, puts retirees on the path to security in their post-employment years and pays off the growing pension debt as quickly as possible.

Leonard Gilroy is director of government reform at Reason Foundation, and Lance Christensen is director of Reason Foundation’s Pension Reform Project.