The Rule of Ostrich on Pensions

I was skeptical when I started reading The Rule of Nobody: Saving America from Dead Laws and Broken Government by Philip K. Howard.  My experience (especially in Union County where laws about not raiding Open Space Trust Funds don’t seem to apply) has not been that there are too many or too precise laws but rather that these laws are being broken, generally by another government,  and there is no procedure to turn anybody in.

But after reading more than half the book, which mines New Jersey for examples of bad practice (a Franklin Township tree, the Bayonne Bridge mess, a Morristown soup kitchen) I am convinced Mr. Howard is right as regards the running of nursing homes and day care centers but when the object is not to fix a problem but to avoid actions so you can continue getting paid, as in the current situation with multiemployer pension plans that the New York Times profiled last Sunday, no action is possible because any action will damage, even to extinction, whoever takes it.

The Times focused on the Central States Pension Fund which is paying out about $3 billion annually to 210,00 retirees with what is probably about $14 billion left in the fund now and very little hope that the remaining 70,000 active participants and their employers will make up any shortfall.  These union plans are a perfect example of Mr. Howard’s proposal that judgment trump rules.  The Pension Benefit Guarantee Corporation (PBGC) allows these union plans in ‘critical’ condition to use their own judgment by coming up with a rehabilitation plan that includes allowing benefit reductions and contribution increases with practically everything up for negotiation.  This allows the PBGC to put off the day of reckoning as they await a miracle that is unlikely to occur.

For the plan itself, one only has to look at the Schedule C from the latest 5500 filing and see, starting on page 11 and going to page 161, $80 million of fees going out to investment advisers, actuaries, and even hundreds of fund employees, many making 6-figure salaries, to realize that practically everybody involved in running this plan has an incentive to not see a problem, much less attempt to fix it.

There are solutions to the multiemployer pension plan problem but all of them threaten the livelihoods of the decision makers.  It is not that there are too many rules or too little room for judgment in this area but that inaction is in the best interest of all parties for the next couple of years.

Below are some noteworthy excerpts from the first 100 pages of Mr. Howard’s book with the last hitting close to home ASPPA?

Political debate is so predictable that it’s barely worth listening to, offering ideology without practicality (page 1)

Government regulators feel under pressure for more rules – from politicians to “do something,” from the public to avoid last year’s scandal, from special interests to accommodate all kinds of hidden agendas, and from fellow bureaucrats to outdo each other….Law that aspires to completeness doesn’t leave room for questions of priority and practicality. (page 33)

By replacing official discretion with detailed r4ules, the theory goes, no abuse of state power is possible.  The reality, paradoxically, is that detailed laws create an open season for arbitrary officials….Legal complexity puts people in a position of involuntary noncompliance, where government sanctions are largely up to the discretion of the particular inspector.  (page 36)

rigid dictates prevent people from dealing with the infinitely complex circumstances of real like. (page 40)

Giving officials responsibility to use their judgment is not particularly scary or remarkable.  Many high-level important public choices – including decisions on monetary policy by the Federal Reserve Bank – are given to responsible individuals without much pretense of legal control.  (page 51)

Rigid regulation, by contrast, casts minimum standards in stone, promoting stagnant mediocrity. (page 58)

The solution to regulatory failure is regulatory agility, not more legal Maginot Lines. (page 61)

one of the paradoxes of precise regulation is that it can act as a safe harbor for bad conduct. (page 67)

in democracy, whether legislators are setting priorities to meet current needs, or just keeping the faucet open for those already at the trough. (page 75)

American culture is fraying not just because law empowers certain people to be jerks, but because the rest of us are disempowered from doing anything about it. (page 82)

America is losing its soul.  Instead of creating legal structures that support our values, Americans are abandoning our values in deference to the bureaucratic structures. (page 87)

Professionals aren’t what they used to be, but that’s because they, too, have been degraded by legal orthodoxy into being self-interested guilds, advancing selfish agendas at the expense of their founding values.  Most professional societies have all but given up enforcing subjective standards. (page 92)


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