Can a Pension Plan File for Bankruptcy?

The news on April 19 included the headline, “In apparent first, a public pension plan files for bankruptcy.” That got our attention.

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.

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.

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.