Retooling Public Pensions and the Future of Public Work

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The issues related to public pensions are tough to tackle. But for the long-term sustainability of our cities, these challenges must be met head on.

This was the theme of a workshop held at NLC’s annual Congress of Cities in Boston.

On hand to discuss the topic was Kathie Novak from the Center for Priority Based Budgeting; Elizabeth Keller from the Center for State and Local Government Excellence; and Councilmember Pete Constant of San Jose, Calif.

Continued budget constraints and poor investment returns have put cities in a tough spot regarding their pension funds, with many struggling with large unfunded liability balances. As of 2011, the average funded ratio for America’s cities was just 75%.

To make matters worse, the private sector has lacked sympathy for public sector plight, as defined benefit plans are just a relic for private employees while they continue to dominate the public sector.

These problems are serious, but they can be solved by using the right combination of tools.

First, city leaders must think long-term. Using (realistic) long-term financial modeling can help cities understand how short-term decisions can affect long-term financial sustainability. Second, training must be provided to elected officials and city employees so they can gain a deeper knowledge of the complex nature of pensions. Third, clear communication is important both internally and to the public to better understand the serious pension challenges cities are facing and cultivate a buy-in for realistic solutions.

What does this mean for the future workforce of cities?

Compensation packages will have to be more sophisticated, and more importantly, must be formulated to attract young and talented employees. The demographics of the workforce will soon be changing drastically as baby boomers will retire in droves.

Setting your city on the right path to fiscal health takes a heaping helping of guts and courage – pensions are a personal, and therefore emotional, issue. Short-term solutions cannot be expected. But solutions are necessary, and Councilmember Constant explained in the session (and has proven) that they are attainable even in the toughest of situations.