Employee Benefits

Is It Ethical to Break Pension Promises?

A middle ground must be found between conflicting obligations.

Q: My county government is in terrible shape because of soaring spending and payrolls during the boom and plunging revenues in the bust (from lower property and sales taxes). We seem to have promised very generous pensions to county workers—for some, retirement at 55 with a high percentage of their final salary, plus cost-of-living hikes forever. With COLAs, some longtime retirees now receive more per month than they ever earned working.

But apparently, way too little money was set aside to fund present and future pensions—even if the anticipated investment returns had held up, which they didn’t. So now the commissioners are planning to cut benefits for future retirees. County employees say that a promise is a promise and it would be unethical to renege. How do you see this?

This is a dilemma of dueling ethics if ever I saw one. On the one hand, county employees were led to expect a certain level of retirement security. Whether the promises were legally binding on future county commissioners will probably be decided in court, as is now occurring all over the U.S. In any event, county workers made personal decisions based on these expectations, such as how much additional money to save over the years to supplement their pension. This argues for fulfilling their expectations.

On the other hand, it was unethical of past officials to make pension promises that depended on forever-booming revenues and not set aside enough current revenue. (Hadn’t they ever heard of recessions?) In effect, they put an unknown burden on future taxpayers, including young people not even in the workforce yet.

It’s a tough call, but I believe it is ethically permissible—indeed, imperative—for current officials to find a middle ground between these conflicting obligations, even if it means reducing future benefits. With enough notice, civil servants can adjust their plans (such as their retirement date) accordingly.

Have a money-and-ethics question you'd like me to answer in this column? Write to me at ethics@kiplinger.com.

Most Popular

What Are the Income Tax Brackets for 2022 vs. 2021?
tax brackets

What Are the Income Tax Brackets for 2022 vs. 2021?

Depending on your taxable income, you can end up in one of seven different federal income tax brackets – each with its own marginal tax rate.
September 20, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
65 Best Dividend Stocks You Can Count On in 2022
dividend stocks

65 Best Dividend Stocks You Can Count On in 2022

Yield isn't everything when it comes to finding the best dividend stocks. Income investors know there's no substitute for regular dividend increases o…
September 22, 2022

Recommended

Is Relief from Shipping Woes Finally in Sight?
business

Is Relief from Shipping Woes Finally in Sight?

After years of supply chain snags, freight shipping is finally returning to something more like normal.
September 23, 2022
Most-Overlooked Tax Deductions and Credits for the Self-Employed
Tax Breaks

Most-Overlooked Tax Deductions and Credits for the Self-Employed

If you've recently gone into business for yourself, don't miss these tax breaks for the self-employed.
June 11, 2022
25 Best College Majors for a Lucrative Career
college

25 Best College Majors for a Lucrative Career

One way to increase your chances of earning a good living is to pick a college major that prepares you to work in a field that pays well. Here are som…
May 31, 2022
40 Ways to Earn Extra Cash in 2022
business

40 Ways to Earn Extra Cash in 2022

We flag a wide variety of cool side hustles to earn bonus bucks for expenses both expected and unexpected as we begin to emerge from the pandemic.
March 2, 2022