When it comes to retirement security, it pays to have something that is good enough for government work.
While private-sector workers can only hope their 401(k)s and IRAs recoup their big losses of the past year, government employees are at less financial risk because their pensions are generally guaranteed by law -- with taxpayers on the hook for benefits.
"Pensioners aren't going to be pained in the short run," said Steven Foresti, managing director with Wilshire Consulting and head of the investment research group.
That doesn't mean the financial crisis hasn't taken a toll on the pension plans of state and local government workers. Funding levels for public pension plans have dropped, and are expected to fall even further as more investment losses are recognized, experts said.
"What plans have working for them is they are long-term propositions, there's time to make up for losses. But it is naive to think that costs haven't increased because of the cycle we've been through -- there are long-run consequences," Foresti said.
A pension plan's funding ratio measures assets to liabilities. For fiscal 2008, Wilshire estimated that the funding ratio for state retirement systems fell to 84 percent from 96 percent in the prior year. For 2009, Foresti expects a level of less than 80 percent. But experts say retirees and already-vested workers can rely on plans to honor promises.
"Current employees are guaranteed benefits by contract law and many state constitutions mandate that benefits cannot be changed," said Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County, and Municipal Employees. "Current workers would challenge any attempt to illegally deny them benefits that they expect and deserve."
There are about 7.5 million beneficiaries receiving payouts from state and local retirement systems, another 14.4 million employees who are system members, and 4.2 million former employees and others who have retained retirement credits, according to 2007 census data. Among the two primary types of federal retirement -- the Civil Service Retirement System and the Federal Employees Retirement System -- there are about 1.86 million annuitants, and 610,000 survivor annuitants, as of Oct. 1, 2008, according to the U.S. Office of Personnel Management.
While those who have retired or are vested can feel reasonably secure, the news may be less optimistic for newer workers, experts said. Newer public workers face smaller benefits as more governments establish tiered benefits systems, said Keith Brainard, research director of the National Association of State Retirement Administrators.
According to a report from the National Conference of State Legislatures, this year's "principal theme" in pension legislation "was the need to make future pension costs manageable in the light of states' straitened fiscal circumstances and the enormous losses most retirement trust funds have experienced."
Beth Almeida, executive director of the National Institute on Retirement Security, said public pensions were "in really good shape" before the crisis hit, but some administrators are reviewing plans.
"They had plenty of money to pay for benefits for decades," Almeida said. "That said, there is a process going on where states and localities are taking a look at their pension programs, and making sure that the plans are sustainable for the next 50 years."
That could mean higher taxes.
"The bad news for stakeholders, like taxpayers, are the costs of meeting benefits in the future," Foresti said. "You'd expect those to be higher now. The shortfall needs to be filled in in the form of higher contributions. It's not reasonable to assume that investment returns are going to take care of everything."