ARUN RATH, HOST:
And if you're just joining us, it's ALL THINGS CONSIDERED from NPR West. I'm Arun Rath.
It used to be that getting a job working for the government at any level meant relative job security and great retirement benefits. This week, legislators in Washington chipped away at that notion. The new budget agreement includes a provision that federal workers hired after December 31st will have to contribute more to their own retirement accounts. But these kind of changes to public pensions, getting workers to contribute more or changing the calculation for cost of living adjustments, have been happening at the state and local level for some time.
NPR's Alan Greenblatt joined us to explain.
ALAN GREENBLATT, BYLINE: The big news lately is not what they're putting in, but what they're able to take out. There are more states and more cities that are changing expectations for pensions for people who've already been on the job. In Illinois, they passed a new law earlier this month that is going to change how much both current workers and people who are already retired can expect in terms of cost of living increases. And in Detroit, as part of the city's bankruptcy, a federal judge ruled that the city could basically renege on some of the pension promises it had made, not pay people as much as they expected.
RATH: Obviously, the big strain that was put on the pensions came from the recession, but there's a recovery, you know, however strong it is that's going on. So are these cuts really necessary now?
GREENBLATT: Well, there is a confluence of things. With the recession, the stock markets went down and so the investments that pension funds had went down as well. And so that caught them up short. But the reality is also that states and cities have underfunded their pensions. That is they were going to have to put in, say - let's say, just pick a number, $5 billion a year toward future costs. And then that money could accrue interest or be invested.
But they would often skip those payments. They would put in two billion instead or one billion or nothing. And so it all caught up with them. The confluence of not paying what they needed to for years and the stock market taking a dive.
RATH: Now, younger workers, you imagine, might be able to adapt more easily, but what about the people who, you know, expected to be taken care of, that they're already done working? How will they adapt to this?
GREENBLATT: That's the big argument. You know, pensions have always been sacrosanct. And many states have constitutional provisions that say you cannot change the pension amounts that people have already earned. And that's what the Detroit bankruptcy judge said the city could do. It said what was in effect a contract with pensioners was no more sacred than any other contract, or maybe only a little more sacred.
So that's going to be the big legal argument going ahead. Can they change the rules for people who not only expect it, but earned that money and say don't have time to readjust their financial plans or their lives?
RATH: Private pensions, they've all but disappeared. Is this just the case of the public sector catching up with the realities of today's world economically?
GREENBLATT: Well, I'd say people who are in government and thinking about cutting pensions, that's the argument they make. What is maybe most pressing here is not the economic reality, but the political reality. When people who are working the private sector don't have pensions, they don't have a lot of sympathy for people in government who almost all do have pensions.
RATH: So what do you think happens next? Are things just going to continue in this direction?
GREENBLATT: Yeah, definitely the trend has been toward cutting pensions, cutting benefits. A great number of governments have cut the amounts people could expect. Certainly, like I said, for new hires, more and more employees are being put not into traditional pensions, which pay you a set amount per month once you retire, but rather 401(k)-style plans where you save money, and then whatever is accrued when you retire, that's all you get. You might run out at some point.
RATH: NPR's Allan Greenblatt. Thank you, Alan.
GREENBLATT: Thanks so much for having me on.
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RATH: This is ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.