"Pension reform": A bipartisan myth

[YoungDemCA]

There has been a lot of talk lately, in cities, counties, and states nationwide, about the perceived need to "do something" about the allegedly unsustainable public employee pensions that are a big part of the retirement benefits of public employees throughout America.

However, does the conventional wisdom stand up to critical scrutiny? An article by Harold Schaitberger from the Huffington Post takes a look at some common public employee pension myths (a few months old now, but still quite relevant).

1. Pensions are going bankrupt.

snip:

Pew's "new" report relies on data from 2010, but that snapshot gives an inaccurate portrayal of the current fiscal health of pensions. In 2010, when the recovery was not as far along as it is today, 16 states were above the threshold that Pew says is necessary to qualify for good fiscal health. The number of states meeting that threshold today is probably much higher. For example, in Wisconsin the primary pension fund is 99.8 percent funded today. In the state of Washington, pensions are 119 percent funded today. In North Carolina, pensions are 100 percent funded today. Perhaps most important, pensions will continue to recover steadily as markets rebound.

snip:

2. States are facing an "unfunded liability" in excess of anywhere from $3 trillion to $757 billion.

The concept of an "unfunded liability" is misleading because pension benefits are paid out over decades. A mortgage represents a good analogy. Imagine newlyweds, both of whom work, buying a $300,000 home and putting $20,000 down. The $280,000 they owe represents an "unfunded liability," but like pensions, that money is not due all at once. It is due over 30 years, under the terms of a typical loan agreement.

snip:

3. States can no longer afford to pay benefits.

Payments to pension systems account for less than three percent of state budgets. Most of the funds in pension plans are not even provided by taxpayers -- two-thirds of all pension assets are contributed by employees or earned on investments.

Where pensions are underfunded, it's overwhelmingly because of the recession and because states took "pension holidays," which means politicians declined to make their state or locality's annual contribution -- breaking a promise to the public servants of that state and in a bad faith effort as the fiscal stewards of taxpayer dollars. Had they simply honored their commitments when times were good, virtually no state pension system would have unfunded pension liabilities that raise concerns.

snip:

4. Public employee benefits are overly generous.

Since pensions are now virtually non-existent in the private sector, and because the recession decimated the nest eggs of everyone with money in the stock market, opponents of defined benefit pensions have gained traction with this argument by creating and fostering pension envy.

The story that isn't told is that the pensions public employees receive, in most cases, are the only source of income those workers receive in retirement since most are not allowed to collect Social Security. And the median benefit of those receiving a pension paid by a public employer is $23,407, according to the National Institute for Retirement Security.

The real retirement crisis is not in the public sector. It is in the private sector. The average 401(k) balance today is just $71,500, according to Fidelity Investments. Americans whose retirement security relies on Social Security supplemented by such small balances in 401(k)s must consider how they will avoid falling into poverty in their retirement years and states will need to figure out how they will provide welfare to those who do.

401(k)s were always intended to supplement -- not replace -- one's retirement income. About 10,000 Americans a day are turning 65 years old, according to the Pew Center for the States. While Wall Street's 401(k) plans have done nothing to help retirees enjoy their golden years, defined benefit plans are the best way to support retirees and allow them to continue to contribute to their local economies.

http://www.huffingtonpost.com/harold-schaitberger/public-employee-pensions_b_1665029.html

The "crisis" in the public sector is a red herring to distract the public from the real crisis in the private sector. But more than that-it is also an opportunity to destroy public sector unions and cut social services. And of course, Wall Street stands to gain huge profits from everybody in America becoming totally reliant on 401(k)s and such.

Follow the money...

[leftstreet]

1. 'destroy public sector unions and cut social services.'

Yep, that's what it's all about

DURec

[Gidney N Cloyd]

2. Good article. The 1% is ginning up pension envy among the 99%.