Governors target employee benefits

PROVIDENCE -- A number of governors around the nation are taking aim at the benefits paid to public employees -- which, in many cases, are far richer than those offered to workers in private industry.

Warning that his state is heading for a pension crisis, Rhode Island Governor Donald L. Carcieri wants to boost the age at which teachers and state workers can draw pensions and trim the cost-of-living adjustment retirees get annually. ''Our benefits are extraordinarily generous," Carcieri said in an interview.

In Alaska, Illinois, and California, governors are coming to the same conclusion. Their main motivation is financial. Last year Rhode Island contributed $184 million to its pension fund. This year it will be $278 million, and by 2010 the total will reach $400 million. In Massachusetts, state government will spend $1.2 billion on pensions for the year beginning in July -- more than it will spend on higher education.

Like the current debate on Social Security, the fight over pensions revolves around a basic question: How much does society want to spend to support retirees? But some governors insist there is a fairness issue involved, too. At a time when fewer employees in the private sector have traditional pensions and retiree health insurance, most workers in the public sector have both. ''We are asking taxpayers to pay for benefits that are far in excess of what the average Rhode Islander is getting," Carcieri said.

Compensation has not changed much in government. Workers get the same benefits they have always had. In private industry, benefits have grown stingier. In the private sector, traditional pensions, with guaranteed benefits for a given length of service, have largely been replaced by 401(k) plans, which come with no promise of future payouts. Each year more companies stop paying the bill for retiree health.

The result: The benefits gap between the two worlds has widened dramatically.

According to the Employee Benefit Research Institute, a nonprofit that tracks compensation, 90 percent of state and local employees have access to a traditional pension plan, compared with 24 percent of private-sector workers. Forty-five percent of those government pensions come with annual cost-of-living adjustments -- a rarity in private industry.

About 77 percent of state and local government workers receive healthcare benefits when they retire. Only 36 percent of private workers at large firms get similar help, according to the Kaiser Family Foundation, a Washington, D.C., research group. Nationally, about 110 million people work in private-sector jobs; 19 million work for state and local government. In Massachusetts, the numbers are 2.8 million and 356,000.

Rhode Island got into pension trouble the way many states did. It cut its contribution to the pension fund at various points, hoping the stock market would take care of the problem. The market slump since 2000 has created a big shortfall that can only be made up with more state money.

Like Governor Mitt Romney, Carcieri came out of the business world. He was chief executive of Cookson America, part of a London-based conglomerate. He can list all the ways in which Rhode Island's benefits are out of line with those in the private sector: Workers can collect a full pension after 28 years, regardless of age; they can earn a maximum pension of 80 percent of their salary; and they get an automatic 3 percent cost-of-living adjustment each year.

The governor wants to set the minimum retirement age at 60. He proposes tying the cost-of-living changes to the consumer price index. ''This is not a Draconian plan," he said.

Public employees don't agree.

''We're appalled by his proposal. It gouges retirees," said Marcia Reback, president of the Rhode Island Federation of Teachers and Health Professionals. Reback says comparisons between public and private employees are unfair because her members contribute heavily -- more than 9 percent of pay -- toward their own pensions.

In California, public employees launched a full-scale attack on Governor Arnold Schwarzenegger when he endorsed a ballot initiative that would have put new hires into a 401(k)-style plan. Schwarzenegger branded his opponents ''special interests," but he was forced to retreat when polls indicated he was coming across as the bad guy in the fight.

When he was first elected, Romney floated the idea of putting new employees in a 401(k) plan. ''The reaction was so negative, the idea never went anywhere," said Michael Widmer, president of the Massachusetts Taxpayers Foundation.

The pension struggle may be a warm-up for an equally big fight brewing over retiree health benefits. Starting in 2007, states and cities will have to treat those benefits the way they treat pensions -- by recognizing their future cost on financial statements. The accounting change sounds highly technical, but the implications are significant. In the early 1990s, when a similar rule went into effect for corporations, employers responded by cutting benefits, rather than setting aside money to meet the obligation.

Public-employee unions recognize the threat and lobbied the Governmental Accounting Standards Board unsuccessfully to get the rule changed.

In Rhode Island, Carcieri's campaign on pensions resembles President Bush's efforts to rein in Social Security spending. Like the president, the governor has gone on the road to sell his message in a series of town meetings. But Rhode Island has strong unions, and both houses of the Legislature are controlled by Democrats. Carcieri is a Republican.

''We can't sweep this thing under the rug," said Carcieri. ''If we don't do something now, the pain later will only be worse."

Charles Stein can be reached at stein@globe.com.