IAFF LEGISLATIVE FACT SHEET                                   Click Here for Key Points

PUBLIC SECTOR PENSIONS

The IAFF opposes efforts to force states to dismantle fire fighter pension plans or enable states to avoid their responsibilities to their employees and retirees by declaring bankruptcy.

BACKGROUND

In recent months, there has been a great deal of discussion about the solvency of public employee pension plans. Some elected officials have called for dismantling defined benefit pension plans, and replacing them with 401(k)-style defined contribution plans. Others have suggested allowing states to declare bankruptcy to avoid their financial obligations to their employees and retirees.

While the current economic downturn has placed many states in dire fiscal straits, public employee pensions are not the cause. Misleading media reports have created a false impression that public employees have been promised overly generous benefits paid for by tax dollars.

A realistic assessment of state and local pension systems shows a very different picture. Most pension plans are in sound financial shape, even after the stock market collapse of 2008-2009. While there are some instances in which plans are dangerously underfunded, these states have been moving aggressively to change their systems and return to solid financial footing.

Moreover, the vast majority of funding in pension plans does not come from taxpayers. More than 70% of funds in pensions have been contributed by workers or earned by making prudent investments. Contrary to the claims about pensions bankrupting states, only about 3% of state budgets are devoted to pension contributions.

The primary cause of pension plan underfunding has been the failure of states to make their required annual contributions. When the stock market was rising and plans were showing a surplus, states simply opted to forgo contributing their share. Rather than acknowledge that their failures caused the shortfalls, some government officials are now using fire fighters as scapegoats and are proposing slashing the benefits that fire fighters earned over their years of service to the community.

Dismantling pensions in favor of 401(k)-style defined contribution plans would be catastrophic for the retirement security of fire fighters and other public employees, and would not save state governments money. States would still contribute to employees’ retirement, but the benefits received by employees would be significantly less. Wall Street firms, which are behind much of the misinformation campaign, are the only ones who stand to benefit from such a change.

CONGRESSIONAL ACTION

Representative Devin Nunes (R-CA) and Senator Richard Burr (R-NC) introduced the Public Pension Transparency Act. H.R. 567 and S. 347 would require states to calculate their long-term obligations using unrealistically low rates of return on investments, and create a false picture of the plans funded status.

Representative Jason Chaffetz (R-UT) introduced H. Res 23, a resolution expressing the sense of Congress that defined benefit plans should be replaced with defined contribution plans.

On May 5, 2011, the House Ways and Means Subcommittee on Oversight held a hearing on H.R. 567.  Read More...