Think Tank Lies About Pension Crisis

The public pension crisis is getting a lot of attention but unfortunately some of it is from those using it to push their predetermined agendas. For example, Alicia Munnell at the Center for State & Local Government Excellence came out with an issue brief posing the questions:

Are City Fiscal Woes Widespread?
Are Pensions the Cause?

and concluding:

In short, troubled cities do exist but not as wide-spread as some commentators suggest.  And pensions do play a role, but they are not the major factor

The story line had been that Prichard, AL and Central Falls, RI were aberrations and if some public plans were in trouble governments were doing something (however comically otiose).  But the Detroit situation (i.e. plans reformed in 2011 and reported to be 91.4% funded  in 2012) calls for subtler arguments – though still easily deflected – to becalm the populace.

1. California was hamstrung by Proposition 13 and, “unlike Illinois and New Jersey, it is not guilty of deliberately underfunding its pensions.”

Any government that hires Segal or GRS or Buck or Milliman or any of the other public plan actuaries who accept their assignment on the condition they will also also accept the politicians’ actuarial assumptions is guilty of deliberately underfunding its pensions.

2. Empirical Analysis….probit regression…..and 8 factors that wind up laying 32.2% of the blame on Management, 27.6% on the Economy and 9.3% on Pension factors after studying localities “identified in the press as facing serious financial problems”.

What about those places who might be misappropriating Open Space trust funds to balance budgets and the press doesn’t give a damn?  Where are they in this regression analysis?  Shortchanging pensions is an easy tactic to mask structural deficits that the press does not have the wherewithal (or inclination) to expose.

3. The question is whether cities across the country are about to topple like dominoes.  And whether pensions are the problem.  The answer appears to be “no” on both fronts.

In one sense they are right.  Pensions may be more an outcome than the problem.  Mismanagement and economic malaise would have resulted in underfund pensions since nothing (federal regulation, actuarial discipline, public outcry) existed to stop the raids and to force politicians to fund their promises.  It still doesn’t.

7 responses to this post.

  1. Posted by Tough Love on December 13, 2013 at 2:13 am

    Alicia Munnell’s study indicates that population decline and “Carrying Deficit” are much larger problems than Public Sector pensions. While I do not know if that is accurate, the problem with Ms. Munnell’s conclusion that Pensions do not materially contributed to the problem is that she makes that determination by using the inappropriate measures:
    (a) Pension costs as a percent of revenues,and
    (b) Pension protections

    Here’s WHY her choice of measures is wrong…..

    Suppose that the economy is BOOMING, STEAMING right along, and Public Sector pension Plan assets are 500% “funded”, so the elected officials TRIPLE promise pensions (retroactively as usual).

    Under Ms. Munnell’s 2 measures, with huge revenue continuing to come in and protections unchanged, her conclusion might be that everything is fine and dandy and pensions are not a problem.

    But is that conclusion correct? With Public Sector Pensions likely 3-4 times greater in value than those of their Private Sector counterparts BEFORE the increase, they might now be 15-20 times greater. And while a booming economy MIGHT have lead to a MODEST boost in Private sector pensions (Private Sector Plan sponsors being MUCH smarter, and more cautious because they are spending THEIR money, not the Taxpayers’ money) bringing that 15-20 times multiple down a bit, it still leads us to to the absurd situation of not seeing a problem with Public Sector workers being FAR FAR FAR better compensated (via these extraordinarily more generous pensions) than their Private Sector counterparts.

    The PROPER measure of the appropriate level of pensions and benefits is that when added to “cash pay”, the resultant “Total Compensation” is very close in comparable Public and Private Sector jobs. Or, saying it a bit differently (vis my above example)…even if we could AFFORD to do so (meaning paying greater than necessary pensions) that is NOT a rational or appropriate use of excess available funds.

    Reply

  2. Speaking of actuarial analysis, should a responsible local government be putting aside extra money to account for future retroactive pension increases? Because in NYC, retroactive pension increases that were not pre-funded is a big reason the pension funds are underfunded today.

    Reply

    • Posted by Tough Love on December 14, 2013 at 10:55 am

      Larry, glad you posed that question ……pondering it makes me think of just how irresponsible our elected officials are………………………NOT because they don’t pre-fund such irresponsible actions, but because they approve such unquestionably unnecessary and unfair (to Taxpayers) changes in the first place.

      Reply

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