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By Martin Wolk Executive business editor
msnbc.com
updated 6/20/2006 8:25:43 PM ET 2006-06-21T00:25:43

Unions representing Colorado state and municipal workers won a victory last month when Gov. Bill Owens signed into law a bill aimed at fixing the state's public pension system and averting a ballot initiative that could have scrapped it.

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The battle was just one of many being fought nationwide as government workers defend the traditional pension plan, which is rapidly disappearing from the corporate landscape.

Legislators, business leaders and political activists debated the future of the pension system  for more than a year after it was revealed that the pension plan's asset base had shrunk from 105 percent of projected liabilities to 70 percent, with no apparent prospects for ever returning to full funding. That threatened the retirement security of some 68,000 retirees and 175,000 active workers dependent on the system.

A libertarian-leaning group launched a campaign to put an initiative on the ballot that would have declared an "actuarial emergency" and scrapped the state's traditional pension plan, replacing it with a "defined-contribution" plan under which employees and employers would contribute into accounts under the control of each individual. The new plans would end the promise of a lifetime monthly checks for the employees, who, like government workers in some other states, do not participate in Social Security.

Barry Poulson, a University of Colorado economics professor who helped draw up the initiative proposal, said he was motivated in part by his belief that the pensions offered to the state's workers are "much more generous than anything available in the private sector." (As a college professor, he is covered by a separate system and pays into Social Security.)

"Our taxpayers our asking the obvious question: Why are my tax dollars being used to subsidize something that is so much more generous than anything available in the private sector?" he said.

The average state employee who retired last year was 57 years old, had put in 26 years of service and gets a benefit of just under $3,000 month, according to figures from the state retirement plan, known as Colorado PERA.

Overall PERA pays out an average benefit of $2,400 a month to workers who put in an average of 23 years, during which they did not earn Social Security benefits. Judges, among the highest-paid state officials, get an average $3,400 a month.

Meredith Williams, director of Colorado's Public Employees' Retirement Association, which manages the $34 billion pension fund, argues that the system offers significant benefits, including death and disability benefits, for a competitive cost that he put at about 10.6 percent of compensation.

"I think you have to come back to what the employer is looking for," Williams said. "Some of those jobs aren't available elsewhere — like the guy who drives the plow truck on Vail Pass in the middle of the night in a blizzard. What that worth? … The traditional  equation has been that as public-service employee, your pay may not be that great, but you've got some significant security in your pension plan."

As the legislature grappled with the issue this past spring, public-sector unions mobilized and helped engineer a compromise solution under which employees will contribute an additional 3 percent of their salaries to the pension fund, phased in over six years. The funds will come from money that otherwise would have been used for pay increases.

"The unions took a real responsible position — they didn’t stick their heels in the sand and say, 'Absolutely no changes,'" said Edie Sonn, a consultant who worked with the unions. But union members were "adamant" about keeping a defined-benefit plan, she said.

As a result of the legislative compromise, the group seeking to implement a defined-contribution plan for state employees, Americans for Prosperity Foundation, reluctantly withdrew its initiative, saying there was no longer any political momentum behind it.

“All they have done is put a Band-Aid on this problem for short-term political expediency,” Poulson said in a news release announcing the decision. “Future generations of public employees, agencies and taxpayers are still looking at an unrealistic level of retiree benefits, higher taxes and an eventually bankrupt system.”

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