The Manhattan Institute released a report by Richard C. Dreyfuss titled Twenty Myths About Public-Sector Pension Plans that brilliantly coalesced about 90% of the arguments I have been making in this blog over the last five years. But they missed what might be the three most important (and uncomfortable to believe) myths…..
1) Interest rate choice need not consider funded ratio: Explained in a prior blog but basically it is a flaw in actuarial theory that presupposes 100% funding and provides ever more distorted results as funded ratios distance themselves from that 100% presumption.
2) Politicians have all the facts and know what they are doing*: Politics for many is a part-time avocation and for others it is a career path to benefits now and in the future. It is not a job where issues need to be understood before actions are taken as long as any blowback is confined to some distant future.
3) Actuaries are independent: 7-year asset smoothing; open amortization; 8% interest rate for a 30% funded plan – these are not choices made by an independent professional looking for honest numbers but rather machinations thought up by professional dissemblers manipulating their craft to serve the purposes of their patrons.
* Based on personal experience primarily in New Jersey and Union County where reliance on ‘experts’ (both inside and outside official government employ) is the accepted norm regardless of how often those ‘experts’ seem to always (a) get it wrong and (b) benefit personally from decisions taken by these politicians they purchase access to. Your experience may be different.