Turns out that what Governor Walker is asking public sector workers to do in Wisconsin isn’t contribute more toward their pension–he wants them to take a pay cut.
See, the pension system in Wisconsin–like most pension systems nationwide–is funded by deferring a percentage of each employee’s salary and then investing it as part of a massive fund. They do this for a couple of reasons. One, it’s unreasonable to expect everyone to be good at choosing investments for their retirement (and remember, most of these people are not paying into Social Security, so this is all they get when they retire), so a pension system allows workers to turn over their investments to experts, which is what most people who have 401(k) accounts do anyway. Second, by pooling all this money, the state is able to, in essence, buy wholesale, when it comes to management fees, thus saving everyone money.
Rick Ungar, at the link above, points out that the easiest way to understand this is to think of it as the deferred compensation that professional athletes often receive. He writes:
As a means of allowing their ball club to have enough money to operate, lowering their own tax obligations and for other benefits, ball players often defer payment of money they are to be paid to a later date. In the meantime, that money is invested for the ball player’s benefit and then paid over at the time and in the manner agreed to in the contract between the parties.
Does anyone believe that, in the case of the ball player, the deferred money belongs to the club owner rather than the ball player? Is the owner simply providing this money to the athlete as some sort of gift? Of course not. The money is salary to be paid to the ball player, deferred for receipt at a later date.
A review of the state’s collective bargaining agreements – many of which are available for review at the Wisconsin Office of State Employees web site – bears out that it is no different for state employees. The numbers are just lower.
Why does this matter? Because it’s important to put in perspective just how much the union in Wisconsin is willing to concede in this fight over collective bargaining. When they say they’re willing to contribute more toward their pensions, they’re saying they’ll take a pay cut, so long as they retain the right to bargain collectively in the future. The narrative that Governor Walker has tried to push is that public employees are overpaid leeches on the state taxpayer (as though public employees aren’t also taxpayers), but the fact is that public employees are giving up a lot more in this negotiation than most people realize.
