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.

Grading the Integrity Report

When states buy goods and services, invest their employees’ pensions, hire and fire civil servants, appoint people to regulatory positions, and enforce laws, a system of policies and practices with high integrity is key to serving the interests of people.

It’s a strong and worthy premise, and the State Integrity Investigation’s goal to “inspire policy changes to promote good government practices” is worthy of endorsement.

The investigation is coherent, and as a whole substantial with its analysis of some 16,000 data points. But in the public pension category, the investigation itself didn’t make the grade.

Facts and Data That Tell the Pension Story

Two notable reports on public pensions were published this past week: the National Institute on Retirement Security (NIRS) released an updated economic impact study: “Pensionomics 2012: Measuring the Economic Impact of DB Pension Expenditures,” and the U.S. Government Accountability Office (GAO) issued “State and Local Government Pension Plans:  Economic Downturn Spurs Efforts to Address Costs and Sustainability.”

These studies offer significant data and insight on public pensions and are recommended reading in their entirety. They are also a reminder of how facts and data, not rhetoric, are needed to shape policy decisions and potential reforms. While there are several items to focus on in these reports, here are the two which have gotten the most play.

Disclosing Pensions: Public Rights, Privacy, and Financial Fraud

There is no question that it makes for good headlines to declare who is making what dollar amount in pension payments. Certainly, watchdog groups have taken advantage of doing so, or conjectured pay-out amounts to stir controversy, like Taxpayers United likes to do at press conferences.

Their position is that any funding taxpayers support should be transparent. As Dr. Tony Fargo, Indiana University Associate Professor of Journalism, told a news investigation team:  “From a public access standpoint, anything that involves the use of public money and the word secret is problematic.”

Australian Experience Shows Pitfalls of Ending Traditional Pensions

PensionDialog welcomes the following post from the Alliance for Retirement Income Adequacy, a network of Canadian organizations which are promoting an informed discussion about the importance of income adequacy in retirement.

These days, in Canada and around the world, headlines talk about switching public sector pension plans from traditional “defined benefit” plans to newer “defined contribution” models—such as 401(k)-type plans that are in the U.S.

Those who favour the DC plans argue that they cost less – typically the contributions made by plan members and employers are lower – and that the employer (or the taxpayer) does not have to worry about shortfalls when the plan is underfunded.

The private sector seems to have embraced DC, or so the argument goes, so why not the public sector?