How Pensions Work

“We have an old saying in journalism: If you don’t understand something, it must be important.”  ~ Columnist Dave Barry on the stock market

The Cost of Pensions

On a nationwide basis, pension costs for state and local governments are roughly three percent of total spending.  According to data from the U.S. Census Bureau, pension costs since 1980 have been reliably stable, averaging from around four to three percent.

Pensions and Retirement Plan Enactments in 2011 State Legislatures

The following report is cross-listed here by permission of its author, Ronald K. Snell of the National Council of State Legislatures:

FINDINGS. Even more state legislatures enacted significant retirement system changes in 2011 than did so in 2010: 29 in 2011, compared to 21 in 2010. Since some states revisited the topic, in all, 41 states enacted significant revisions to at least one state retirement plan in 2010 or 2011.

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.

Public Pension Investment Returns and Market Volatility

For fiscal year ending June 30, 2011, state and local government retirement systems had a median investment return of 21.6 percent.

That statement is often followed by “but…” as in “but look what’s happened to the markets since then!” 

With a slow economic recovery and ongoing global market volatility, the fact remains that taking a long-term focus is an overarching factor in public pension investment strategies and projections.