The Diane Rehm Show

Thanks for joining us. I'm Diane Rehm. The future does not look bright for some state and local employee pension plans. But some say, although a few public plans are in trouble, the bigger issue is the large and growing gap between what people have in the private and public sector for retirement versus what they'll need. Joining me to talk about what's happening with pension plans, Leigh Snell of the National Council on Teacher Retirement. Good morning to you, sir.

Good morning, Diane.

Nice to have you here. David John at The Heritage Foundation, welcome.

Thank you very much. Thanks.

Norman Stein, he's professor of law at Drexel University. Good to have you here.

It's good to be here.

And Tom Shoop of Government Executive Magazine. Thanks for joining us.

Thank you.

And throughout the hour, we'll take your calls, 800-433-8850. Send us your e-mail to drshow@wamu.org. Feel free to join us on Facebook or Twitter. Leigh, let me start with you. Tell us what's going on with these pension programs that have actually been in the news. What are the problems generally?

Well, Diane, as you know, the last couple of years have been a real challenging time for everyone and that's no exception for public pension plans. All investors have faced some really serious problems. But the good news is that public pension plans, as we have in the past, are weathering the storm quite well. We have now about $2.7 trillion in real dollars, not paper IOUs, in hand in our trust funds. And we are making benefit payments as promised.

We're keeping the promises that have been made to our public retirees. And we are working together with our shareholder groups, employees, employers, taxpayers and others to make sure that, where needed, the changes are being made so that we can continue to be sustainable. That's the history of public plans evolution.

How did these plans get in trouble in the first place?

Well, not all of them are in trouble, Diane. I think...

(unintelligible)

...that's a misconception. But for those who are, and there are a few that do have some significant challenges, I think, quite frankly, the problem has been that the employers have not lived up to their part of their promise. Public employees have been making their contributions because it is a shared responsibility in the public sector. Employees, as well as employers, contribute to their plans.

And public employees have not been able to take holidays, in terms of contributions, have not been able to avoid those commitments. So where we have problems, quite honestly, the problem has been that not everybody has played by the rules.

Leigh Snell, he is federal relations director for the National Council on Teacher Retirement. Turning to you, David John. You argue the problem is much worse than what we've just heard.

I do. The Pew Charitable Trust did a study earlier this year, which suggested that the problem was in the neighborhood of $450 billion underfunding. And it -- when you figure out the underfunding of the pension plan, it depends on what assumptions you make. The assumptions typically are that pension fund assets will grow at 8 percent a year, which might have been reasonable at one time, but sadly no longer.

If you actually use more reasonable estimates, it's probably in the neighborhood of, oh, $3 trillion, $4 trillion, which is very serious. Now, as Leigh said, it's not uniform. There are -- let's see. The Pew study identified 19 states where they had serious concerns, one of them being Maryland in the D.C. area. And there are also a myriad of state and local pension plans. Some cities have done excellent jobs with managing them, but a lot of them have not.

David John, he's senior research fellow at The Heritage Foundation. Tom Shoop, explain how the federal employee pension plans differ from the state and local ones.

Sure. There's a very different situation at the federal level. The state -- there are -- certainly at least some of the states are facing some very severe financial difficulties relative to these plans. The federal plan differs in one fundamental way, at least the newer federal plan. There are two distinct types of federal retirement systems, the Civil Service Retirement System, which is the traditional one, and the Federal Employees Retirement System, which essentially covers employees hired after 1984.

And that plan is much closer to your typical private sector plan in that it is largely a defined contribution plan, based heavily on the thrift savings plan, which is the federal equivalent of a 401k plan. So the defined benefit portion, while there is one, is much smaller than in your typical saving local plan.

I see. I see. Tom Shoop, he is editor in chief of Government Executive Magazine. And turning to you, Norman Stein. You say that concern over state and public plans really hides a much bigger problem overall.

Yeah. America's really severely under-saved right now for retirement. I'm part of -- I've been working with a group called Retirement USA, which is an initiative to focus on this problem. And last month, the Center for Retirement Research at Boston College had developed a number for us which shows that the gap between what Americans aged 32 to 64 have now is $6.6 trillion short of what they need if they continue saving for retirement.

Based on a population of 32 to 64.

Yeah, so -- and this uses conservative assumptions and it doesn't include a lot of working Americans. It doesn't include people under 32 and it doesn't focus at all on the problems of people who already are retired.

Of course, I don't even understand how you can make -- how anybody can make such a calculation for the future considering that day by day, it seems it costs more to retire.

Yeah, well, they've -- their model -- yeah, they're economists. I can (word?) do this -- their model tries to take that into account and there is -- there was a similar study that came out last year by a consulting firm which -- there were some differences in methodology, which suggested the shortfall was 27 trillion rather than 6.6 trillion.

Good grief.

One of the differences was the Center for Retirement Research assumed that you would use your housing wealth and retirement, that you would take reverse mortgages.

Really just extraordinary when you think about how difficult it is for people, many people in this country, just to get by today and then you're thinking -- you've got to think ahead about retirement. Norman Stein is professor of law at Drexel University and a consultant to the Pension Rights Center. Do join us, 800-433-8850. Send us your e-mail to drshow@wamu.org. You can join us on Facebook or send us a tweet. Don't I understand correctly that states have to balance their budgets, unlike the federal government? How does that play into this whole question of pension funds? Leigh.

Well, clearly, with state revenues down, it is a serious challenge. But I think, Diane, too often people are confusing whether or not pension benefits are being paid out of current cash flow of the states, in other words, on a pay-as-you-go basis. In fact, they're coming out of this $2.7 trillion that I mentioned we have in our trust funds. So when you talk about balancing the budgets and you talk about the amount that states have to pay to fund their pensions, it's important to remember that right now, those pension payments going out, and that's about $170 billion going back into the economy to our public retirees, are paid out of these trust funds that we have pre-funded. So I think in terms of the challenges that states face, it's not so much funding their pension benefits. It’s the fact that their revenues are down and they have very many competing demands.

David John.

Well, one problem also is that in trying to balance from year to year, there's a temptation to borrow from the pension fund. So, for instance, in California, Governor Schwarzenegger wanted to borrow from the California fund and actually in the state of Illinois a couple of years ago, they actually did that. And of course, what that does is balance the books for today, but it makes tomorrow's problem much worse.

And, Diane, I'm glad to hear David say that because that really is an important problem when you asked earlier about why are we in the situation we are in in certain states. It's that very kind of problem where people have not lived up to those commitments. You have to pay in to be able to get out.

However, Leigh, you cited a very small number of states, whereas David says they are really quite a few who are in this kind of situation.

Well, again, the situation -- it depends on how you measure the problem, Diane, and if you wanna measure it as the glass half empty or the glass half full. In my mind, looking at $2.7 trillion and about an 80 to 82 percent funding level right now -- we were almost at 100 percent at the beginning of this decade and we were well on our way back to that after that downturn we had in the early years of the 2000s. It's important to remember that we are building back to those levels and that by having those pre-funded dollars in hand, the investment returns on those are gonna be able to help us achieve those goals over time.

Leigh Snell, he is federal relations director for the National Council on Teacher Retirement. I see that our lines are filled. When we come back, we'll try to take as many of your calls as possible. Stay with us.

Welcome back as we talk about retirement pension plans around the country, both public and private. Four guests are with me, Tom Shoop of Government Executive Magazine, Norman Stein of Drexel University, David John of The Heritage Foundation and Leigh Snell of the National Council on Teacher Retirement. We are going to open the phones shortly, 800-433-8850. David John, what states are trying to make changes so that their pension programs will live up to their promises?

A number of states are working fairly hard on this. The State of New Jersey, for instance, just announced some changes. We've got several states, Minnesota, Colorado, South Dakota, that have made some changes to the cost of living adjustment under the theory that if the plan is not funded properly, we can't increase your benefits, even if they'd like to. Where you start to run into some interesting problems is, that we've got about nine states that have state constitutions that ban changing these types of benefits. And we have a number of others which have laws which make it very clear that this is a contractual relationship. And if you have a contractual relationship, it becomes much more difficult to change these benefits going forward.

The contractual relationship between employee and employer?

Yes, between the state and the state employees.

Tom Shoop.

And even if you can change these benefits, even if states are allowed legally to do so, the federal experience suggests that you can have a problem on your hands with your employees because it is much less popular when you start adjusting benefits. Even the new federal plan, which, by private sector standards, is fairly generous, is -- was highly unpopular, remains unpopular with a lot of people who would much prefer to have the defined benefit plan that the old system had.

Norman.

Yeah. I think it's also important to keep in mind that these plans are good plans, but they're not catalogue plans. You know, these are the kind of plans all Americans need. And when we talk about substantially reducing benefits, we're, in a sense, saying the right approach to retirement plans is to give people not enough to live on. And I think that -- you know, I think the real problem is most Americans don't have good plans. It's not that these plans are extravagant or, you know, incredibly generous. There are, you know, some examples, which the press sometimes report, which suggests that people are getting really gold-plated pensions. But that's the rare exception.

David.

Well, he's right, in general. But in many of the state plans, you have the ability to retire much earlier than you would, say, in the private sector. And you have...

Give me an example.

Well, for instance, even in some of the federal cases, you can retire after 30 years. And that may well be that you're retiring in your mid 50s.

Mmm.

And that means then, reasonably, you've got 25 to 30 years that you're gonna be living in retirement, which is a very high proportion of your lifespan when it comes right down to it. And you retire with a guaranteed percentage of your pre-retirement income in most cases, and then you have cost of living increase on top of that. So you can easily end up, over time, with a very, very generous portion.

Go ahead, Leigh.

Diane, that is -- as David points out, states are addressing these kinds of issues. And we have had about a dozen states in just this past year, which is really an unprecedented number, making significant changes to the kinds of things that David is talking about. Some states have actually increased their normal retirement age to 67. So states are looking at these kinds of questions, but I'm happy that Norman points out that we're really not talking about excessive benefits. On average, public employee benefits are about $21,000 a year. I know that's not small potatoes to people, but it's certainly not a Cadillac plan.

On the other hand, should an employee retire after 50 years, say in his or her mid 50s, there's still a lot of living there and a lot of work potential so one could be collecting that retirement, finding other work to supplement that retirement. To what extent is that going on, David?

A great extent that, in many cases, people retire with their state pensions or their federal pensions and they then go on to become consultants or start completely different businesses and move in different directions.

But they have to because these pensions are not Cadillac pensions.

Oh, absolutely. They're not Cadillac pensions.

Yeah.

I mean, there are examples that all of us can point to in the press. One small town in California, for example, had hundreds of thousands of dollars put into pension plans for people who couldn't afford it, essentially. The taxpayers, that is, couldn't afford it. But for the most part, yes, you're talking about 21,000. You may be talking about that on top of Social Security benefits, which average right now about 13,000 or so, 11 to 13,000.

13,150.

(laugh) Tom.

There are also incentives in many of the plans to -- countervailing to keep people into the -- staying in their government jobs longer.

Longer.

For instance, in the federal plan, it's partly based on your high-three average salary. So the longer you work, the more it goes up. So there are some incentives to stay in for some extended period of time, too.

Now, not to open a whole can of worms, but I'll go ahead and do it anyhow. What about Social Security? Is that under the same kind of scrutiny, examination? What do you see happening there, David?

Well, if you look at Social Security's future, Social Security is running a $41 billion deficit this year and that's mainly due to the recession. We have an awful lot of people, aged 62 and up, who suddenly lost their jobs and couldn't find a new one. Going forward, the Social Security Actuaries say that the program will start to run permanent cash flow deficits in 2015. There is a trust fund, which is basically a call on non-Social Security tax revenue, but that runs out about 25 years from now. And that means that anyone who is born after 1970 can, under current law, be guaranteed that they'll have a 22 percent budget or a benefit cut, based on what they were promised.

Norm.

Well, I wanna -- there are two points I wanna make. One is, if we go back to private plans for a moment, in a number of states the private plan -- the state plan is the only plan that people have. A lot of states don't participate in Social Security. So when we're looking at some of these plans, we have to keep in mind that some of these people are not gonna get Social Security.

How many states do not participate in Social Security?

Well, you probably know that.

Well, Diane, actually, in every state, there are certain sectors of the public workforce who are not covered by Social Security.

I see.

About half of all teachers across the country are not covered by Social Security.

They have other plans.

Well, they have the public plan and that's why, in some cases, the public plan benefits may look a little more generous.

Mmm.

But what they're doing is they're adjusting for the fact that they don't have Social Security.

Yeah.

But to go -- if we can go back, for a moment, to the question you asked on -- Social Security's problems are easily correctable. And, as David said, we don't really have a serious problem until the year 2037, which is when the trust fund would be exhausted. And it's that -- at that point, benefits will be -- would have to be reduced by 20 or so percent. But if some of the discussions about Social Security now, about raising the retirement age, changing the way benefits are indexed to inflation, if those changes are made, the retirement deficit that I mentioned, the $6.6 trillion goes up because people are depending on Social Security.

So here we are in an economy where we're told that the American people do not save enough. And yet at the same time, the economy is not recovering because people are not spending enough. So how do we get out of this dilemma? This truly is something that's gonna be with us, I would think, for quite a while, Norman.

Yeah. Well, I think one of the things that we should be focusing on now, because these are long-term problems, is to start thinking about the retirement system that we have in place for younger Americans. So when they reach retirement's doorstep, they're not at the same problem. And one of the things Retirement USA is doing is saying the retirement system we have, which is so much based on do-it-yourself savings, personal discipline, that's not really the way to shape the retirement system.

What's the alternative?

Well, the Retirement USA has 12 principles which -- and the different types of plans could meet these principles. But the three basic principles is that we should have a retirement system that covers everyone, we should have a retirement system that provides adequate benefits, that is benefits that allow you to keep your standard of living in retirement, and a retirement system that provides secure benefits. You don't have to worry about running out of money before you finish your retirement.

Doesn't that take a brand-new government system that would presumably replace Social Security?

No, not necessarily. And I -- Social Security is the backbone of retirement. This would be -- most nations have what they consider three tiers. They have a Social Security type system, they have a mandatory private sector system, which will be sort of like our voluntary system for private workforce, and then an additional tier of sort of voluntary optional savings. And we sort of don't really have the second tier.

Leigh.

It's interesting, Diane. Norman just described really, when he said what we need in terms of a future retirement system, the very critical elements that we find in the public sector. We have mandatory participation. Our employees cannot opt out of participating in their pension plan. It is a cost-sharing program where the employee has to contribute, along with the employer to the plan. The investments are pooled together so you have a lot of strength because of that pooling. It's like pooled insurance.

Investments are professionally managed so the costs are kept down. And at the end of the day, it's a guaranteed annuity type payment that you cannot outlive. So I commend Retirement USA in the efforts they're making to address those kinds of issues that we are dealing with effectively, and I think public sector claims could provide a model.

David John.

And I agree, actually, that these goals are very good goals. I think that you can also get them by tweaking the private retirement system at the moment. In addition, or actually as part of my Heritage work, I'm also the deputy director of Brookings' Retirement Security Project, which is aimed at increasing automatic enrollment, automatic escalation. We're looking at annuitization. One of my colleagues at Brookings, Mark Avery, (sp?) who's now in the Treasury Department, and I developed something called the automatic IRA, which is a small business savings technique. So we can fix this system, but the goals that Norm suggests are absolutely right.

Yeah. And it's my turn to agree with David. People who are participating in Retirement USA think we need to make incremental changes to the current system in the interim and while we don't think things such as automatic enrollment or a panacea and will make the system work for everyone, it will certainly improve the system.

Norman Stein, he's a consultant to the Pension Rights Center. He is professor of law at Drexel University. And you're listening to "The Diane Rehm Show." Here is our first e-mail. It's from Ron who says, "I'm a public employee-retiree in Oregon. Just a reminder that for 34 years, 12 percent of my salary went into my PERS, I guess, personal retirement account…

Public Employee Retirement System.

Thank you. Public Employee Retirement. "Over these years, the account earned an average of 8 percent interest. Some people believe my retirement benefit is paid only by the taxpayer. How do you figure the difference between that 12 percent and the 8 percent interest that comes back?"

Yeah. It is -- some people are unaware that public employees at both the state, local and the federal level do make contributions to their own retirement systems. At the federal level, there was, for many years, under the old system, it was a 7 percent contribution that employees made and they got a defined benefit out of that. Now, they've switched to a system where it is much lower. It's 0.8 percent of salary now. And there's a much bigger portion of it that's in the defined contribution 401k style plan.

Hasn't there been some criticism that companies with -- and even states with these personal private accounts have used the money that goes into those accounts to make a fair amount of money, but that that money does not necessarily come back to the employee, Leigh?

No, absolutely not, Diane. In the public sector -- I won't speak for the private sector. But in the public sector, these trust funds are protected and can solely be used for the benefit of the plan participants. So that money is not the state's revenues. It's the plan participants' revenues. And it's an important point that has been brought out. And that is that if you look at a pension benefit payment, about 70 percent -- 60 or 70 percent of that, every dollar going out is paid for by investment returns and about another 15 -- 13 to 15 percent is by the employees' contribution.

Taxpayers are really, on average, only footing the bill for about 25 cents of every dollar in pension benefit payments going out there. And that's why things that David was talking about earlier, about investment return assumptions, over time, public pension plans over the last 25 years have actually had over a 9 percent return on those investments. So I don't think our investments are rosy assumptions. I think they're realistic over a long-term period, which we have in the public sector to make sure we have these benefits.

But, Tom, explain the arguments that have been going on about the benefit packages that government employees have had compared to the private sector.

Well, there had -- has been an ongoing debate and it has gotten heated up over the past year or so since the effects of the recession have really hit. And I think there are people in the private sector who see their plans and say, I don't get a pension at all anymore and these government people, they get their gold-plated pensions. I think they're -- many of these pensions are not, in fact, gold plated. And at the federal level, in fact, for newer employees, the pension is a very small portion...

Yeah.

...of the benefit that they get so they're in pretty much the same boat. But it is, on the whole, compared to many private sector plans, a fairly generous retirement system. So I think there's a certain amount of looking at it and saying, how come they have a good system...

Yeah.

...and I don't have a good system?

Well -- and when you look at a company like GM, for example, who had to downsize, and then what happened to their employees' pension plans, David?

Well, actually, GM, at one point, was -- the joke was that it was a pension plan that make cars on the side. So out of every GM car that you bought prior to their bankruptcy, you paid about $800 which went to the GM pension plan. And as part of the bankruptcy procedure, they spun some of that off. They reduced certain of the benefits, but this is an ongoing problem.

An ongoing problem for each and every one of us unless we're gazillionaires who are financing our own pension plans. David John is at the Heritage Foundation. When we come back, time to open the phones. Stay with us.

And it's time to open the phones, 800-433-8850. First to Fort Myers, Fla. Good morning, Wes. You're on the air. Let's see.

Hi.

West, are you there?

Yes, ma'am. Can you hear me now?

Good. I certainly can. Go right ahead.

Okay. I just wanted to start out with a quotation from Henry Ford. He said, it's a good thing that people don't understand our monetary system because if 10 percent did, there'd be a revolution before tomorrow morning. And I wanna congratulate you on the people you get in there who have kept the public completely ignorant about the fact that we -- the system is designed for bankruptcy.

Bank...

We can't -- it's a mathematical impossibility to keep on the way we are.

You're talking about the whole system of...

Well, of course. I mean, every dollar we got out there is borrowed. There's interest generating on it and the interest has not been (sounds like) created. How in the world can you pay your debt when the interest is on there and we don't have it?

David John, do you wanna comment?

Well, the overall national economy is in trouble, as we all know.

No question.

And the federal government has been rather grossly out -- overspending. And as a matter of fact, the fastest growing portion of the federal budget is likely to be interest. So our kids are likely to pay a substantial amount in interest if we don't start to get our spending under control. But the actual retirement system itself can be structured properly as long as you make the proper investments and as long as those investments are placed in a sound mixture of different investment possibilities.

All right. To Londonderry, N.H. Good morning, Rue (sp?).

Good morning, Diane. First of all, just let me say that even when I don't agree with any position of your guests or you, you are the (word?) of hostesses...

Thank you.

...and class. So thank you for your show.

Thanks.

I see the problem with the retirement system, public and private, based on one assumption, that retirement is a right instead of something that one should plan for, a goal to achieve. We're supposed to put away our own assets to take care of ourselves in our less capable and less productive years. But I don't see people doing that, even people of all ages with whom I come across.

Norman.

The point is actually, I think, an interesting one. People should be saving for retirement, but it's very hard to deal with without the right structures in place and that's where we fallen short. You know, the -- we can't simply say this is a major problem and the answer is everybody is on their own and just has to save a lot. People do need to save a lot, but they need help. They need the structure of a system that is geared to retirement, that is automatic, something that you don't have to spend your entire working lives worrying about.

But ,you know, people are saving for college. People are saving for a rainy day. People are saving for all kinds of things and barely getting by right now.

Yes.

So the idea of throwing in, well, I've also got a plan for 40 years from now, doesn't resonate as clearly as putting food on the table top.

Yeah. We're not -- oh, I should say, we're not really -- you know, people didn't live to be 75, 85, 90 years of age...

Quite true.

...and I don't think there's anything in most of our natural make-up that really emphasizes the need to do this...

Exactly.

...which is one reason we have problems.

Tom.

I think this is an area where the federal model could be a model that we would wanna look at more broadly. Because under the federal model, there is -- you are, in some sense, forced into the system. There is a small defined benefit that takes close to 1 percent of your salary. And then, you're strongly encouraged to save and what amounts to a 401k plan. And so there are elements -- there are strong elements of personal responsibility for it, but there are those elements of a definement, that it adds up to a package that I think strongly encourages people to be responsible about their own savings.

David -- I mean, Norm, what's wrong with the current federal system?

Well, I think the current federal system is actually a pretty good model. You know, the problem in the private sector, and what people are saying the public sector should move to, is that we're so dependent on these 401k plans. And 401k plans are a good way to save, but as a retirement plan, they have some problems. You don't have the...

Such as?

Well, you have to decide to participate. You have to choose your investments. And we know from experience that Americans who participate in these plans are often very bad at doing that. They have very high fees. The money could generally be accessed before retirement. And right now...

That's a problem.

...44 percent of Americans are drawing down their retirement savings, in large part because of the recession, but the numbers are frightening. And then, when you reach retirement age, you get a lump sum of money that you have to figure out how to make last for the rest of your life. And that's, you know, it's a good saving system. It's not such a good retirement system.

David.

Well, it's true. And that's one the reasons why we've developed automatic enrollment, automatic escalation. And the federal government, for instance, has just gone to automatic enrollment. Under automatic enrolment, you are part of the system unless you say no. You're saving a certain percentage of your income unless you decide you wanna save more or less. And you're in a certain investment choice unless you choose something else. So you've got complete control over it, but it gives you defaults that basically guide you to the right decision. And through that and a couple of other automatic things, we can actually fix a lot of what the -- of the problems that Norm just mentioned.

Here's an e-mail from John who says, "I'm in my mid-50s. I've worked for small to midsize family businesses my entire life. These companies did not offer company pensions, only 401k plans. At the beginning of the recent economic collapse, I lost my job, was forced to use my entire 401k saving to live on until I found another job. Retirement, I'll never see it, and I know I'm not alone." That's really right on the mark for an awful lot of people, Tom.

Yeah, absolutely. There -- in the current economic situation, there are a lot of people struggling and having to make this kind of very difficult choice about what to do with whatever -- even if they have been responsible about saving money, a lot of them are being put in a very tough position in making choices about what to do with it.

All right. To St. Louis, Mo. Good morning, Tracy.

Hello.

Hi.

My question is that I'm not sure why everybody is up in arms about the state and federal plans when -- and it makes such big news, when everybody else's plan -- when corporations are bought and sold and people lose their pensions and -- it's not that big a deal for anybody else. It's happening every day out here.

Happening every day.

Well, it is a problem in the private sector. I agree. And I certainly echo a lot of the comments that some of our other panels have mentioned, Diane, and that is, what's critically important is people have to participate and they have to make a personal commitment. And we have that in the public sector. We think, again, that's a critical component, is personal responsibility to contribute mandatory contributions to your pension plan. And in addition, we also have supplemental savings plan. In some cases, public employees also have 401k plans.

In cases where they are not allowed to have them, they have other types of plans, like 457 plans. These are tax code references. But they are supplemental savings plan. But that's the point. They're supplemental to a guaranteed retirement, which used to be the way it worked in the private sector. When you had the employer providing your pension, individuals were saving on their own as well through their supplemental plans, which was what a 401k was initially designed to be, not to be a primary retirement vehicle.

But, you know, the stock market plays a big role in all this. Here's an e-mail from Rob who says, "My wife and I feel we've done a good job so far in saving for retirement. We're in our early 40s, saved around $275,000. I managed to miss the big stock crash by getting out six months in advance. But we are now so uncertain about Wall Street and the financial future of this country that we're afraid to go back to the market. Is it possible to save for a comfortable retirement without playing with stock markets? Is it likely that Social Security will be able to supplement the savings of people our age?" Norman.

I think Social Security will be there. The element of risk, though -- when you think about retirement, the question is where should the risk be? And we have moved from a period where the risk, generally, was taken by people who had the ability, the employer, to bear the risk and it's been shifted almost entirely on the employees, who -- whose retirements now are subject to the caprice of the stock market. There was a recent poll, 60 percent of people close to retirement said because of the recession, they're probably going to have to delay their retirement. And, you know, I think the person who sent that e-mail makes a really, really good point.

David.

Well, I think the -- that Rob makes a very good point also. The problem is that saving for retirement, in general, or dealing with retirement is risky. There's risk no matter what you do. I mean, with Social Security, if we don't fix the program, people born after 1970 have about a 22 percent risk of lost benefits. With corporations, if the corporations go out of business, then they go to the PBGC, and you can have reduced benefits.

If you look at the state and local pensions, we face the same thing. And then, of course, with the 401k type plan or retirement savings plan, you do have market risk. So this is a universal. And the question is really how we structure from this point forward. There are investment options that work better than others that we could move to and should. But this risk is gonna be there, no matter what.

Tom.

To Norman's point, I think at the federal level, unquestionably, the recession is already having an effect on people's decisions to retire. There were about 44,000 federal employees who retired last year, which was much, much less than the government...

Really?

…projected, and the lowest level since 2002. So there's no question that people are staying in because they're uncertain about their future.

Do you see government layoffs in the future because of this problem?

No. Because there's still a huge cohort of baby boomers in the federal government who are eligible to retire or becoming eligible to retire. In fact, the government's probably -- one of the number one personnel problems it's facing is whether or not huge numbers of those people will actually retire at once and leave big gaps in the workforce.

Tom Shoop, he is editor in chief of Government Executive Magazine. You're listening to "The Diane Rehm Show." And let's go to Detroit, Mich., one of the hardest-hit states in the country. Good morning, Ralph. You're on the air.

Good morning. I just had a comment based on -- I had two comments. One, no one has mentioned the issue of health care. And many public employee plans in Michigan have completely unfunded promises to retirees to provide them with health care. Secondly, there was an article in the Detroit Free Press last week about the City of Taylor retirement plan. And it talked about a patrolman who retired with a $98,000 pension in his early 50s, if my memory serves.

And the reason his pension was so high was pension is based on total earnings during his last year, which included overtime and unused sick pay. And that article in the Detroit Free Press has caused quite a bit of consternation among people in Michigan, especially people like myself who are GM retirees, whose pension plan provided nothing anywhere near comparable to the Taylor public employee retirement plan, which is causing severe financial problems for the city office.

Thanks, Ralph. David.

Well, I'm not a health care expert, but he is absolutely right about some of the problems with financing health care benefits, because they do not, for the most part, have trust funds. The Pew report trillion-dollar gap, which is on Pew's website, actually has a major section on federal employee health care benefit or actually state/local employee health care benefit. Now, the Taylor situation, we've seen bits and pieces of these pop up pretty much across the country and it is possible to game certain systems. This seems to be one of those cases. But it's definitely not the average.

All right. And finally, to Boston, Mass. Good morning, Sarah.

Hi, Diane. I have a question about state pension system.

Sure.

What happens -- Illinois or California system goes bankrupt? Can retirees' benefits just suddenly go away or are they too big to sell?

That is the question of the moment. Go ahead, Leigh.

Well, you know, I mean, first of all, states cannot go bankrupt. And I don't think we're going to see any state go bankrupt. Municipalities can file under Chapter 9 of the Bankruptcy Code for reorganization, but they don't go out of business. It's a reorganization. Their responsibilities are refigured and so the city isn't just virtually shut down, teachers sent off. So I think though, long term, these are significant challenges that communities are gonna be facing. And the solution to them, though, is not to destroy retirement security for public employees.

But the question is what if a state reaches a point where it says, we cannot pay these pensions as promised, just as GM did? David.

Well, the state can't declare bankruptcy, but it can declare a financial emergency. And at that point, then just about everything that would normally fit under bankruptcy happens also. So they could reopen contracts. They could redo benefits and things along that line.

Do you see the possibility of that happening?

I see the possibility in probably two, maybe three states.

Which three?

Well, the key one is Illinois at this point. Other ones, there's one in New England that -- actually there are a couple in New England that are in serious trouble. And of course, there's the ever State of California.

So we shall see if everything I gathered depends upon a government wide -- worldwide economic recovery. And if that happens, perhaps we'll then seriously take up this issue of pension reform. Thank you all so much. Leigh Snell, David John, Norman Stein and Tom Shoop, thanks. And thanks for listening, all. I'm Diane Rehm.