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January 2012 Policy Study, Number 12-1

   

Iowa's Privileged Class: Time for a Change!

    Executive Summary
   

 

As documented in the March 2011 Public Interest Institute (PII) Policy Study, “Iowa’s Privileged Class: State Government Employees,” we have the largest government/private- sector pay gap in the nation.


Amy Frantz, Vice President for Research at PII, stated, “Iowa has held that status not only since 1996, but has held the top spot among states for the largest Pay Gap between government workers and private-sector workers for over two decades.


“In 2008, Iowa’s state- government workers received an average wage that was 148.07 percent of what the average private-sector worker in Iowa was paid. That means that for every $1.00 an average private-sector worker earns in Iowa, an average state- government employee in Iowa earns $1.48. Iowa’s Pay Gap was larger than in any other state.”[1]


One reason offered for the continuing pay gap is that in 1975 the Public Employment Relations Act, or collective bargaining law, took effect.


This law, signed by then-Governor Robert Ray, “grants employees of the State and its political subdivisions, including cities, counties, and school districts, the right to join and participate in employee organizations, and the right to bargain collectively through such employee organizations.”[2] It allowed unions such as the American Federation of State, County, and Municipal Employees (AFSCME) and the National Education Association (NEA) an entry to government workers.


An important part of collective bargaining negotiations are retirement benefits. The benefits negotiated by these unions and the resulting impact on state government budgets and long-term liabilities are significant.
Though the Legislature made changes to the state pension system, called IPERS – the Iowa Public Employees’ Retirement System – in 2011, the changes do not take full effect until 2012.


These changes include increasing the employment time required for full vesting, a longer period of time for figuring average pay, and higher contribution amounts for both the government and the employee. The changes are expected to increase the overall viability of the IPERS system, but problems remain.


For example, the changes only apply to forward hires, not those currently in the system. Thus any improvements to the overall financial health of the system will only be seen in the long term.


The most recent report on IPERS shows current funding for payable benefits at less than 80 percent of the long-term pay-out requirements. Another issue is that a significant number of retired employees, almost 6,000 or 6 percent of the total, are drawing benefits of over $3,000 per month. Of these, many are receiving over $5,000 per month. This is in addition to amounts they may be drawing from Social Security and other pension or retirement amounts.


The Occupy Wall Street (OWS) movement has been concerned about a wide variety of issues. One is the lack of jobs for younger workers.


PII would not support many of the issues and goals advocated by the OWS groups. However, the fact that retirement plans and health-care liabilities of government workers in Iowa, as well as other states, are at significant financial risk of under-funding and are overly generous is of concern.


If additional reforms are not implemented, the amounts owed to both current and future beneficiaries must be paid by future taxpayers — the younger workers of today. And many of these future taxpayers are already finding their financial future constrained because of a lack of jobs.


Recent reports show one of five people under the age of 35 with incomes under the federal poverty level. This is a significant change from 24 years ago, when only one of ten was in poverty. There are many factors impacting these numbers, including more people over 65 continuing to work, and many younger workers assuming significant educational debt, housing liabilities, and remaining unmarried even as they have children.
In contrast, the number of retirees over 65 years of age whose income places them in a “poverty” status is only one of every ten, dropping from one of three in 1967.[3] Certainly many of the IPERS retirees, even if they have not saved another penny for their retirement, are not at risk for poverty.


As the economy continues in a “jobless” recovery, the pension plans paying out income to retirees – especially to government workers – must have significant reforms, so that the burden on future workers and taxpayers will not be onerous.

   

 

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