Aging

What Do Americans Think About the Pension Crisis?

Most realize the problems, but they don't want tax increases or spending cuts to fix them.

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There is as much as a $4 trillion gap between what states have promised their public workers in retirement pensions and what they've actually set aside and invested in order to pay for them. There are enough reasons this has happened to count as a survey question on the most boring episode of Family Feud ever—states and cities didn't set aside enough money, employees didn't contribute enough, and guaranteed investment returns are overestimated, among many other problems.

But what does the average American think about the pension crisis and what would they do? A small number of communities like Phoenix, Arizona, and San Jose, California, have put pension reform in the voters' hands, with mixed results. In our latest Reason-Rupe poll, we decided to focus almost entirely on the pension crisis, asking Americans how seriously they view the problem and what sort of trade-offs they would accept to fix it.

Yes, Americans Are Concerned About the Pension Crisis

Pension worriers will be pleased to hear that Americans are at least paying attention. A full 72 percent of those polled are either "very" or "somewhat" concerned about state and local governments' ability to fund the pensions they've promised to public employees. A similar number (74 percent) are concerned that state or local governments will raise taxes in the future in order to meet these pension obligations. When asked to prioritize dealing with the pension crisis, 35 percent said pension reform should be a top priority, while 41 percent said pension reform should be an important but lower priority.

Actually tackling the pension crisis is a much more complicated affair. The poll asked participants to consider a host of different possibilities—raising taxes, reducing services, capping maximum pension payments, requiring workers to pay more, and transferring public employees to 401(k)-style defined contribution plans, rather than guaranteed pensions.

The most consistent response is probably also the most obvious: Americans want pension reform solutions that push public employees to play a greater role in their own retirements rather than relying on taxpayers to bail them out. Those surveyed were significantly opposed to raising taxes (74 percent) or cutting government services (77 percent) in order to fix funding problems with public employee pensions. Instead, when given a list of choices, participants strongly supported (82 percent) requiring public employees to contribute more to their own retirement funds. When asked to rank potential solutions, "Require current employees to contribute more toward their own pensions and benefits" blew every other option out of the water with 63 percent of the vote as the first choice. No other option even hit double digits.

But that list of solutions assumed states and cities would keep the existing pension systems and salvage them. The Reason-Rupe poll also asked whether participants would like to switch public employees from pension funds to 401(k)-style defined contribution retirement funds. The answer was yes. The poll asked participants whether they would favor such funds for current public employees and a separate question for just future hires. In both cases, the majority said yes, but support for shifting over future employees was notably higher (67 percent) than for current employees (59 percent).

But when comparing the two types of retirement systems in different ways, differences in responses were notable. The poll asked participants a question where the benefits of switching to a 401(k)-style plan were described ("401k style programs give employees the flexibility to take the plan with them from job to job and are less costly to the taxpayer") as well as the concerns about switching to a such a plan ("benefits would not be guar

anteed and would depend on how well the employees saved and how the market performed"). When those descriptions were used to ask whether they supported or opposed a shift to 401(k)-style programs, 66 percent still supported the shift. But when asked to consider a shift to 401(k)-style programs given only the concerns, support dropped to 50 percent. And when people polled are asked if they'd support shifting to 401(k)-style programs if it meant "breaking a contract made with public employees when they first accepted their jobs," support plummets down to 38 percent. When asked to trade off a shift to 401(k)-style programs with either raising taxes or reducing services to pay for retirement, support for 401(k) programs climbed back up (66 percent and 59 percent). Those polled even opposed increasing taxes or reducing government services in order to pay the current pension benefits for already retired employees.

The lesson here: Americans don't necessarily want to break an agreement with public employees or push them into retirement plans where the future benefits are not guaranteed, but they are willing to do so in order to avoid additional tax increases or reductions in government services.

"But what do the millennials think?" You may ask. Do they understand the crisis they're getting themselves into as they take up a larger and larger chunk of the workforce? Yes and no. Those polled under the age of 30 do have concerns, but the numbers are more muted than for older generations. The number of millennials who say they're concerned about pension funds drops down to 59 percent, and they're less likely to see dealing with pension problems as a top priority (only 25 percent). Nevertheless, millennials also supported shifting public employees to 401(k) plans and requiring employees to contribute more into their retirement plans. Variations in responses by millennials may indicate more that they have less experience in these workplace issues or with dealing with taxation impacts rather than any sort of generational differences. For example, millennials were more likely to believe (34 percent) that public employee and private employees received fundamentally the same retirement benefits, something older workers know is untrue (public employees are widely understood to generally get better retirement benefits). They were also the only age group where a majority (59 percent) believed that pension calculations for retiring employees should be increased by using unused sick time, vacation pay, and specialty pay, a system that has led to the abuse known as "pension spiking," with public employees getting six-figure annual pension guarantees. When we break down the millennial age demographic further, millennials' attitudes start to shift toward the overall average the older they are, more closely aligning with the over-30 crowd.

Public Employees Are Not in Complete Denial

The poll asked respondents whether they worked in the public or private sector (or if they were retired from the public or private sector) so their responses could be compared. Public employees accounted for 17 percent of the working respondents and 36 percent of the retired respondents. Public employees are certainly paying attention to the impacts of bankruptcy in cities like Detroit and Stockton, California. Public employees are more concerned (80 percent) about the state of pensions than private employees (67 percent). It's understandable they're concerned, since they are the most directly affected should their cities or states fail to address underfunding.

Let's look at the bigger, important differences first: Public employees don't believe their maximum pensions should be capped (only 39 percent support, compared to 63 percent among private sector employees). In addition, 56 percent want to be able to pad their pensions with bonuses and unspent vacation and sick time, while 57 percent of private sector employees say no. And they oppose shifting current public sector employees (themselves) into 401(k)-style plans by a slim margin, 52 percent against it. The prospect of having to raise taxes or reduce government services in order to fund pensions is not enough of a trade-off to convince public sector employees to support a shift to a 401(k)-style plan.

But public employees do support putting future government employees into 401(k)-style programs (54 percent), and when the benefits of a 401(k) program are included in the question, public employee support for a shift jumps up to 61 percent. When the risks are invoked, support, of course, plunges.

Public employees are just as concerned as private sector employees that taxes will have to be raised in order to pay pension obligations. When asked to consider solutions to the pension crisis, public employees actually have largely similar responses to private sector employees, though the numbers may be different. Public employees say they don't want to raise taxes (64 percent against), and they don't want to reduce spending for services (75 percent against).  But they are willing to contribute more toward their own pensions (64 percent). Their support is much lower than the private sector (where it's 88 percent), but it is notable that public employees, just like private employees, see increasing their own responsibility as the first response to fixing underfunded pensions.  And this agreement remains when respondents are asked to choose between either raising taxes and reducing services or renegotiating employee contracts to make employees contribute more. The public employees would prefer to renegotiate and pay more by a solid vote of 70 percent. Almost a third of public sector employees think one of the "major reasons" pensions are underfunded is because their own benefits are too high. The number is lower than for private sector employees (48 percent there think they're too high), but that still means one out of three public employees recognize what they're getting from the system.

Public employees also agree with private sector employees that the public should get to vote on whether to grant increases to public employees' pensions and benefits. The numbers, again, are lower for public employees (61 percent support compared to 83 percent) but still solid.

Finally, what should probably be the biggest concern to pension reformers out there were the responses to a question that asked, "If your elected representative voted in favor of shifting employees from guaranteed pensions to 401(k)-style accounts, would this make you more likely to vote for him or her, less likely, or would this not affect your vote?" Among the respondents, 27 percent said they'd be more likely, 22 percent said they'd be less likely, and a full 50 percent said it wouldn't affect their vote either way. But among public employees, 42 percent said such a shift would make them less likely to vote for the representative. So while the public may largely agree that there's a pension crisis, those who are not direct beneficiaries of the program may not see decisions about pensions especially affecting their ballot choices. This may be a concern to elected reformers in states and municipalities where organized labor representing public employees works hard to get the vote out for their interests. But then again Democratic pension reformer Gina Raimondo beat back union opposition in 2014 to win election as governor of Rhode Island. 

All this analysis is just the tip of the iceberg of the Reason-Rupe 64-question poll. Read through all the results here.

The Reason-Rupe national telephone poll, executed by Princeton Survey Research Associates International, conducted live interviews with 1003 adults on cell phones (501) and landlines (502) January 29-February 2, 2015. The poll's margin of error is +/-3.8%. Full poll results and methodology can be found here, including poll toplines (pdf) and crosstabs (xls).