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.
Rhetoric topic #1: Pensions are an economic drain.
According to 2009 U.S. Census Bureau data, pension benefit expenditures provide critical economic stimulus to the economy, including more than $1 trillion in total economic output in the United States and $134 billion in federal, state, and local tax revenue.
In other words, pensions are not a tax sinkhole but a generator—a major contributor. The NIRS analysis shows that
For each dollar paid out in pension benefits, $2.37 in total economic output was supported. For every dollar contributed by taxpayers to state and local pension funds, $8.72 in total output was supported nationally.
As deferred compensation, monthly pension checks sustain retirees and, as the report author Ilana Boivie states, support the economy as “an automatic stabilizer.”
Rhetoric topic #2: Pension run-out dates.
Telling public workers that the trust fund they have contributed to with every paycheck will soon be out of money is alarming—or that taxpayers (or the federal government) will be on the hook for billions of dollars of bailout.
It’s also unfounded. The GAO report states:
Despite the recent economic downturn, most large state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more.
The reason some studies have projected faulty exhaustion dates is that the data used are not substantiated. Specifically mentioned in this regard is a study by Joshua Rauh (Are State Public Pensions Sustainable? Why the Federal Government Should Worry About State Pension Liabilities, May 15, 2010), which projected some funds running out of money as early as this decade. GAO says,
The study was based on the assumption that benefits earned to date would only be financed out of current plan assets and not from any future contributions. The projected exhaustion dates are thus not realistic estimates.
We have not hidden our disagreement with Mr. Rauh’s analysis (see Faulty Analysis is Unhelpful to State and Local Pension Sustainability Efforts and More Faulty Pension Analysis Unhelpful to State and Local Recovery Efforts) and have stated that the rhetoric serves only to distract from the issues, so unsurprisingly it was gratifying for the GAO to agree.
The point, however, is not whether a report is favorable or unfavorable to the public retirement industry at large. It is whether the analysis and projections are fair and accurate – meaning reasonable and based on reality, whether historically or in law – and present practical (not theoretical) information pertinent to strengthening the sustainability of public retirement systems.
At the NIRS retirement policy conference on Tuesday in Washington, DC, where its “Pensionomics” report was released, Josh Gotbaum, director of the Pension Benefit Guaranty Corporation, captured it succinctly:
A lot of what people say about pensions just isn’t real, but retirement security is a real issue…We cannot stop talking about the benefits of better retirement plans.