Pension Transition Cost Myths

PensionDialog welcomes the following article from Gary Findlay

In a recent post on The American titled “Public-Sector Pensions: The Transition Costs Myth,” Andrew Biggs noted that public pension administrators and other subject matter experts have “an obligation to provide the public with solid facts.” I could not agree more.

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.

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.