Changing the Message About Public Pensions

For the past two years, some in the media have perpetuated the message that public pensions are running out of money – a Bloomberg editorial said so just this week, and countless other media outlets have also repeated this projection. The source of this striking prediction is usually Joshua Rauh, assistant professor of finance at Northwestern University.

He also advocated that failing public pensions could necessitate federal intervention, not once recognizing that states and localities were already in the process of making reforms.

Now it seems that Dr. Rauh is changing his tune.

Response to a “Worse-Case” Pension Scenario with an Accurate One in Minnesota

The Minneapolis Star Tribune recently ran two editorials giving a point / counterpoint on the state’s public pension system.

On one side is the Mark Haveman, executive director of the Minnesota Taxpayers Association, challenging the state pension plans’ investment return assumptions and the plans’ overall sustainability. Mr. Haveman writes:

While public pensions lack certainty, there’s no shortage of risk. Risk to public services, when pensions need more government resources. Risk to future taxpayers, as courts have consistently ruled that benefits promised under these plans must be paid. Risk to current public employees, as higher contributions eat into take-home pay even as the long-term sustainability of today’s benefit levels becomes more doubtful.

On the other side are the board chairs of the three statewide systems: Thomas Marshall, Mary Benner, and Martha Lee Zins. Following is their response in its entirety, re-printed with permission from the authors.

Will Public Pensions Run Out of Money?

A recent issue brief published by the Center for Retirement Research (CRR) at Boston College, “How Would GASB Proposals Affect Public Pension Funding Levels?,” has created some stir – and is being cited – for its inclusion of the “run-out dates” for 126 public pension plans.

Back of the Envelope Reporting

Hang around economists, actuaries, or others who are neither but want to speak like they are, and you inevitably hear the phrase “back of the envelope” meaning quickly done, not perfect, but reasonable. Wikipedia (a rather back-of-the-envelope source) states: “The defining characteristic of back-of-the-envelope calculations is the use of simplified assumptions” (emphasis is mine).

Attacks Without the Facts in Missouri

On August 16, 2011, Taxpayers United of America (TUA) brought its message of shame and doom out of Illinois and Wisconsin and into Missouri. The St. Louis Post Dispatch was on hand to hear what they had to say, but the article does not mention if any others were.

The article also does not mention how TUA substantiated its claims such as: “If the system stays the way it is, it will collapse.”  Mind you, one of the systems highlighted – the Missouri State Employees’ Retirement System (MOSERS) – gets the majority of its funding (60 percent) from better than average long-term investment returns.

Nor does the article mention