The pension time bomb.

To judge by the last election, most Americans can only smile at the thought of an unemployed congressman pounding the pavement in search of work. Others might feel a slight twinge of empathy for the suddenly jobless. But few suspect what every congressman knows: Thanks to an extremely generous pension program, many retiring members can live very well, at taxpayer expense, without lifting a finger.

Consider fallen House Speaker Tom Foley. According to the National Taxpayers Union Foundation, his lifetime pension will start this year at $123,804. Multi-millionaire Dennis DeConcini, retiring under the cloud of the Keating Five S&L scandal, will take in $55,669 this year. And Dan Rostenkowski, longtime chairman of the powerful House Ways and Means Committee, can expect his checks to start at $96,468 per year--and they will continue uninterrupted even if he is convicted of all the corruption charges on which he was indicted last year.

But the real surprise is that these are not examples of congressional perks gone mad. Many federal employees--and some state and local workers--are treated to pensions far more lavish than those of their counterparts in the private sector. So generous are government pensions, in fact, and so poorly are they financed for the future, that, absent serious reforms, the eventual price tag could trigger a financial crash that will make the S&L crisis look like a Big Wheels pile-up at the local playground.

Already, ballooning retirement payments are squeezing the very programs for which the government was established in the first place. Last year, for instance, pension checks for retired federal workers and military personnel ate up $65 billion. That's enough to fund the entire 1994 budget for welfare, education, and the National Endowment for the Humanities. Add to that the total cost, over five years, of the crime bill. And then add everything we spend on foreign aid and highways. You'd still have a ways to go.

It is the future, though, that is truly worrisome. In the good old days, a pension plan meant solemn accountants carefully putting aside and investing money so there will be enough when all the retirement checks start coming due. Put in the language of the green-eyeshade set: Without prudent investments, made with every pay period, public and private plans accumulate substantial "unfunded liabilities." And the government does not come close to investing each year what it needs to, and its unfunded liability--the bill that future taxpayers will get for today's public servants--is frighteningly large.

For federal employees, according to the Employee Benefit Research Institute (EBRI), unfunded liabilities have already hit $870 billion dollars. If you also include military retirees, total unfunded liabilities of the federal retirment system--money that has been promised but is not there--are now $1,497,000,000,000. If the federal government used the same accounting conventions as private businesses, the entire federal debt would jump, overnight, by a full third.

Though it is by far the worst offender, the federal government, unfortunately, does not have a monopoly on pension problems. According to a 1993 study by Wilshire Associates Inc., 28 states suffer from underfunding. More than 10 states are in serious trouble with less than 80 percent funding of their liabilities. Massachusetts has a $6.3 billion shortfall. West Virginia holds top unfunded honors with only 33 percent funding. According to a comprehensive survey conducted by Paul Zorn of the Government Financial Officers Association, states and localities have quietly put together unfunded liabilities of $164 billion.

Taken together, then, politicians have already indebted the next generation of taxpayers to today's government workers for nearly $1.7 trillion. But you would be hard-pressed to find a voter outside a few elite consulting firms who has any idea. "The public is ignorant," agrees Sylvester Sheiber, a former deputy director at the Social Security Administration and now research director of Wyatt, Co., a Washington, D.C. consulting firm. "And there's a reason for that: The people who've made these promises don't want the public to know."

The public will figure it out, though, as poorly run pension plans start to threaten critical services. In the Lilliputian District of Columbia, for example, the last few decades of generous pension promises have pushed unfunded liabilities to a giant-sized $5.5 billion, even as its operating budget has plunged deeper into the red. Along the streets, uncollected trash is a feast for rats and squirrels, but for the District's denizens, sad to say, it is a sign of things to come. As taxes have gone up, people have fled, leaving the pension burden on those who stay. Paying off D.C.'s pension liabilities would now require more than $9,000 from everyone still living in its borders.

With the government's own pension programs careening toward disaster, it is ironic how much energy is spent blaming private plans. Every fall, the federal government's Pension Benefit Guaranty Corporation releases a list of the 50 worst corporate offenders, outlining the billions for which they have not provided. Total private-sector underfunding, the PGBC reported last month, has now hit $71 billion. That is certainly a problem. Taxpayers should not be asked to bail out pension programs that have failed to plan for the future. But the potential bill from the federal government alone is 20 times larger.

A Pension for Trouble

Everyone agrees that public servants deserve fair and decent pensions. The thanks for a lifetime of public toil should not be dinners from an economy-sized can of tuna fish. And of course, back when civil servants were underpaid during their working lives, it made sense to send them off into the sunset with generous benefits. But over the last four decades, the salaries of federal workers have climbed a full 25 percent faster than private sector employees'. This makes the 24-karat federal retirment plans harder to justify.

To get an idea of how generous their pensions are, consider this. According to figures from the Bureau of Labor Statistics, an average worker "at a medium or large-size firm" making $35,000 and retiring at age 65 with 30 years service can expect about $10,800 a year in pension payments from his employer. That same worker, after 30 years with a state or local government, can expect a post-retirement take of $18,200. And, according to the Office of Personnel Management, a federal worker on the Civil Service Retirement System with the same profile gets $19,700.

To be sure, state and local government employees (but not the feds) often contribute more to their plans than private workers. And more private employees can participate in "defined contribution plans" like the 401K, where their retirement investments are matched by their employer. (Though, in fact, a recent federal plan, called the Federal Employee Retirement System, does allow for matched investment contributions.)

On the whole, however, governments end up paying a lot more for pensions than private employers do. According to EBRI's analysis, private companies need to set aside about 15 percent of payroll. For state and local plans, that figure is in the thirties. And for federal employees the same figure to cover the inordinately generous benefits is as high as 47 percent.

There's more: Federal workers enjoy luxuries not found in the marketplace. One of the best is early retirement. With 30 years of service, most civil servants can retire to the golf course at age 55 without penalty. For 93 percent of federal retirees in FY1993, the average age was 58. In the private sector, the typical person retires at age 63, five years later. If private employees want to retire at 55, their monthly checks are substantially docked.

But it is military retirees who truly enjoy the high ground. They can start collecting checks after only 20 years of service. Since many of them start out in the services while still in their teens, this means that taxpayers are writing substantial retirement checks to codgers in their late thirties. The average military man or woman retires at age 44. When he does, his father could well still be working--unless, of course, he works for the government, too. The unfunded liability of the Military Retirement System is now $627 billion.

Employees of local and state governments can also "spike"--vastly increase--their pensions. Almost all private pensions are calculated from a five-year salary average. But most public employee plans use a three-year average or less, and many also consider other forms of compensation, like overtime and, in some cases, even unused vacation time and the department car. This makes it easier for clever workers to spike their lifetime pensions by saving vacation days and jacking up their overtime as they approach retirement.

Although by no means a problem everywhere, there are still striking--and for local taxpayers, infuriating--examples of this across the country. In December 1993, for instance, Los Angeles County's Thomas Tidemanson was able to retire from his $158,000 a year job as director of public works with an annual pension of $190,000.

Of all the public sector perks, though, the most enviable is known by a modest sounding acronym: the yearly COLA, or Cost of Living Adjustment. COLAs are extra payments, added on to match inflation. One hundred percent of federal retirees and roughly 50 percent of state and local retirees get them every year, automatically, while only about 1 percent of private retirees do. Over time, the small boosts compound to substantial sums. EBRI's Salisbury likes to give the example of a retiring Secret Service officer with an average background. Without COLAs, the pension would be worth $389,000. With COLAs, though, its value jumps to $697,000.

Just ask former Congressman Hastings Keith. Although he paid only $50,000 toward his congressional pension, his monthly check is now $9,410, and, since he retired in 1973, he has collected more than $1.2 million--all because of COLAs and a rule that allows him to "double dip," counting his military service for both his civil service and military pensions. But Keith is begging to be cut off. "I should not be getting all this money," he declares. He directs the rag-tag "National Committee on Public Employee Pension Systems," which is fighting to turn off the COLA spigots. He estimates that of the $65 billion the government paid in retirement benefits last year, half is due to COLAs.

Of course, not every federal retiree is drawing in the big bucks. Ruth Hall retired in 1970 at age 55, after 28 years as a government clerk. Despite her long years, her modest salary means that her yearly pension--$10,543--is also quite modest. Inflation has boosted the 78-year-old Hall's rent from $117.50 a month when she retired to $605 now. "I've been so grateful for the COLAs," she says.

Retirees like Hall deserve protection, but the federal retirement plan gives COLAs to everyone--former clerks and millionaires alike. That is very expensive. Indeed, according to a recent estimate by Money magazine, if all government pensions were cut back to private sector standards, the average person's tax bill, including federal, state, and local taxes, would drop by about 8 percent. The more important point is not our current bills but the prospect of what our taxes will be like if all of these pensions are paid out. That's the real danger.

A number of states have, in fact, been trying to reform. In Illinois, long among the worst funded state retirement systems, the legislature passed a law last August which will make state contributions a continuing appropriation, removing the yearly temptation to avoid paying for pension promises.

But the federal government suffers from a serious case of denial, aided and abetted by powerful lobbies. One of the strongest is the 500,000-member National Association of Retired Federal Employees (NARFE). In the first 18 months of 1993-94, reports the Center for Responsive Politics, NARFE gave more than $350,000 to candidates for national office, placing this obscure-sounding PAC 54th on the list of 3,000 that the Center tracks. The main power of retirees, however, is their voting strength--both their own and that of civil servants who are looking forward to their own pensions. That's why when a vote on benefits comes up, the employees' unions know to remind members of Congress how many feds live in their districts. Retirement Life, NARFE's monthly magazine, for instance, recently listed the number of retirees by state and their combined retirement income. Bob Dole, for example, could go down the list and see that 39,903 retirees live, and presumably vote, in Kansas. He could run his finger across the chart and see that they brought $47,060,786 in government retirement payments to his state just last year. In case the point wasn't clear, the magazine dryly notes that "The numbers of retirees are useful to illustrate potential political impact, or clout."

Despite the feds' genetic resistance to change, there has been some reform. Starting in 1986, new federal employees are entered into the Federal Employee Retirement System, which requires more employee contributions and cuts back on the guaranteed pension. Around the same time, the military retirement system made 20-year retirements a little less lucrative.

One of the most obvious reforms for both civil servants and for the military--and one that has not been seriously addressed--is later retirement ages. When the current standards were set, people did not live as long. With modern medicine, we can no longer afford to let civil servants go at 55. The same is true for the military. In earlier eras, officers and enlisted men were justified in being let go at 44 after a dangerous and physically demanding career. Today, there are plenty of jobs in the services that don't require you to be in top physical shape (and in fact, virtually all of the 40-year-olds in the military now are in assignments that they could easily perform at age 55). It is time to raise the civil service retirement age to 65, the military's to 55, and, while we are at it, the Social Security age to 70, as the Bipartisan Commission on Entitlement and Tax Reform recommended in December.

The government can also not afford to keep paying out across-the-board COLAs regardless of the recipient's financial status. $50,000-a-year pensions do not need the same protection that $10,000-a-year pensions do. Right now, the bill for federal COLAs falls on the shoulders of a middle class that, broadly speaking, will have to make ends meet without inflation bonuses.

Above all, whatever the details of reform, the principle must be full financing. The bill for all governmental pension promises--local, state, and federal--must be paid as they are made, just as prudent private companies do. Otherwise, the average citizen does not have a say in deciding where the line between fair and luxurious is crossed. The work is done and then the younger generation is left to pay for the contract.

Now the budget shortfall stands at about $1 billion for every word in this article. Either retirement payments have to be docked, or, notes EBRI's Salisbury, "we'll have to raise $1.5 trillion in taxes, borrow the money, or cut back federal benefits to other sectors of society." In December, President Clinton foolishly appeared to rule out reform of federal pension benefits, including the establishment of a later retirement age for civil servants. (This despite the fact that, in 1993, raising the civil service age to 65 came within six votes of passing the House.) But it is still possible for the Republicans now running Congress-and their Democratic colleagues-to demonstrate seriousness about pension reform. As a start, they could vow not to accept any COLAs on the already generous pensions that they will collect from Uncle Sam. Now that would be leadership.