States’ pension woes split democrats and union allies

A $1 trillion U.S. pension gap is dividing two longtime allies: Democrats and unions.

Left-leaning politicians from Rhode Island to California are increasingly supporting more aggressive overhauls of government pension benefits despite opposition from labor officials, traditionally one of the Democratic Party’s biggest policy and electoral supporters.

The erosion of Democratic backing for conventional retirement benefits prized by teachers, firefighters and police officers is a sign of how strained government budgets are as obligations for 24 million public workers and retirees continue to mount.

The latest clash is unfolding in Pennsylvania, where Democratic Gov. Tom Wolf has been seeking to end a six-month budget impasse with a Republican-controlled Legislature by agreeing to approve retirement cuts for new state hires and current workers. The Keystone State has $50 billion in unfunded pension obligations, one of the deepest retirement holes in the country.

“I know you’re not going to be happy,” Mr. Wolf told union leaders in private phone calls during recent weeks, those labor officials said. Union officials said the cuts aimed at current workers violate state laws.

A spokesman for Mr. Wolf said the governor understands that some people would be upset with the pension cuts, but his priority has been boosting education spending. “The governor absolutely wants to make sure state workers have a secure retirement, but this was a compromise budget and he’s dealing with an overwhelmingly Republican-led Legislature,” the spokesman said.

Since 2009, 25 out of 34 states that had Democratic governors in office have rolled back retirement benefits for public workers, a result that is proportionally in line with states run by Republicans, according to a Wall Street Journal analysis of National Association of State Retirement Administrators data. Most of those governors also have survived attempts by union interests to remove them from office. At present, 17 states have Democratic governors.

Pension-cutting Democrats can come off as the lesser of two evils for union officials, because they have curtailed some benefits in an effort to make retirement plans more sustainable. Republicans often pursue more drastic steps such as ditching traditional pensions altogether in favor of the 401(k)-like plans common in the private sector.

The amount states and local governments are paying each year to fund retirement systems has risen to 4% of annual spending, up from 2.3% in 2002, according to U.S. Census data. Meanwhile, large retirement systems now have just three-quarters of the assets they need to fund future obligations, according to consultant Milliman Inc., leaving a gap of $1 trillion.

Democrats rarely tried to roll back pensions before 2008, according to politicians and pension officials. But as deficits surged because of deep investment losses in the wake of the financial crisis and chronic underfunding of retirement plans, Democrats said they had little choice but to revamp benefits, leading to conflicts with what has usually been a large and loyal bloc of voters.