In order to make public pensions economically viable, provide jobs for the future, and ensure that taxpayer money is being spent wisely, we think there are 5 main issues that need to be addressed.
Problem: The formula in itself is not bad, but in many plans it is so costly it forces sacrifices for new employees and potential hires.
Solution: This problem could be solved be either lowering accrual rates, capping pensions at a certain percent, or some combination of the two. We estimate that most workers can maintain their standard of living with a pension of only 30% of their final wages.
Problem: The practice of including overtime, unused sick leave, and longevity pay--among other things--when calculating final average salary costs governments thousands of dollars per retiree each year.
Solution: A 5-10 year formula and only counting base salary when calculating final average compensation greatly limits the effect of pension spiking.
Problem: Many public employees get extremely generous health care benefits while employed and throughout retirement, resulting in costs that rival those of the pensions themselves. See an example on the Health Benefits page.
Solution: Health care benefits for public employees need to be brought more in line with those in the private sector in order for it to be affordable for the state and local governments.
Problem: Early retirement means public employees are working for fewer years than in the past but are drawing a pension longer than ever. The Retirement Age shows how expensive this really is.
Solution: A retiree's benefits should be brought in line with their contributions, and raising the retirement age, limiting early and deferred retirement options, and eliminating the purchasing of service credits will help accomplish this.
Problem: Retirees in the State of Michigan do not have to pay any state income taxes (which makes Michigan's senior tax structure the most generous in the nation). This means a retired police chief does not have to pay any taxes on his pension, but his peer working at a grocery store just to get by must pay taxes on his income.
Solution: Start taxing Michigan's retirees on all forms of retirement income just like the US Government does, and create a tax that will help fund struggling pension plans.