Friday, May 28, 2010

WSJ & US News Editorials Not Supported by Numbers

May 25, 2010 -- The recent editorials in U.S. News & World Report and The Wall Street Journal regarding the compensation levels of state and local employees and the fiscal status of public pensions simply are not supported by the numbers.

I hope you’ll review the findings of a joint report we released last month with the Center for State and Local Government Excellence authored by two well-regarded national economists. The analysis finds that even after accounting for the value of benefits, state and local government employees earn an average of 6.8% and 7.4% less, respectively, than comparable private sector employees. The Center for Economic and Policy Research also looked at this issue and arrived at a similar conclusion.

Next, let’s look at the numbers with respect to the funding of public pensions. Prior to the market decline, the nation’s public pensions systems held more than 86% of assets needed to pay all benefits due for decades into the future.

Like all investors, pension funds experienced investment losses during the market downturn. A careful examination of the data also tells us that most states have funded their promised benefits in a fiscally responsible manner. An average of 88% of the annual required contribution was paid by the largest state and local retirement systems in the country in 2008. Yes, some elected officials for decades acted irresponsibly by chronically skipping their payments while employees contributed to the pension fund out of each paycheck. Indeed, the financial meltdown has created a far more complicated situation for these states.

As the market recovers, we find that pension funds are recovering losses and that filling the gap will be manageable. Officials across the country are not sitting still. They are implementing adjustments to ensure long-term sustainability of the pensions by increasing employee contributions and adjusting retirement ages and other plan provisions.

But even without changes, the gap can be closed with modest effort. Researchers at Boston College project that if, on average, total contributions increase by just 2.2 percent of payroll, state and local governments can close the gap in 30 years. Because funding of public pensions typically is a shared responsibility, just a one percent increase in contributions from employers and employees would fill the gap. If only all the fiscal challenges facing the nation were so manageable.

Beth Almeida

Executive Director, National Institute on Retirement Security

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