Opinion: Public Plans No Windfall for Workers

Written by Dennis Persica 
Original article in The Advocate
September 12, 2013

One of the more interesting philosophical flip-flops in the debate over public-employee pensions is how willing people are to use a level-the-field argument against government workers.

But first, a disclosure: As the surviving spouse of a former state worker, I get a monthly benefit from LASERS, the Louisiana State Employees Retirement System.

Back to the discussion: Look at the comment stream on any online story about retirement benefits for public workers, and you’re likely to see a certain sentiment expressed. It goes like this: Defined-benefit pensions are a thing of the past in private industry, so why should government employees still be entitled to them?

If you raised that “leveling” argument in any other discussion, though, you’d be shot down promptly, and probably by the same people.

Tax better-off folks to pay for government services for the classes below them? Answer: That’s socialism!

Enact affirmative action programs to ensure that opportunities are spread out to an ethnically diverse corps of job seekers? Answer: It’s not about race, it’s about finding qualified employees.

But talk about preserving government pensions, and suddenly we’re fighting like crabs in a barrel, with people demanding that public pensioners be dragged down to the level of private-industry workers who have no access to defined-benefit pensions.

There are a few things to remember about government retirees. For Louisiana state employees, as well as many other public employees across the country, there is no Social Security to fall back on. The same once was true of federal workers; they contributed only to the federal retirement system but not to Social Security. When President Ronald Reagan and a Democratic Congress decided to try to fix Social Security, they required federal employees to contribute to it.

People who’ve spent a lifetime in state or local government service may have only their public pension coming to them. That’s a major difference between those on a public pension and those on one provided by private industry. If the private pension program goes belly-up, the former employee still can draw Social Security.

Another difference between government-pension systems and private-industry pensions is this irony: If a private-industry pension program runs into trouble, its retirees wind up on the equivalent of a government pension, via the Pension Benefit Guaranty Corp. PBGC works as a kind of insurance company (businesses pay premiums into it) and takes over pension systems that run into trouble.

It will pay a retiree a maximum of $57,477 per year in benefits, and that maximum changes every year. So, someone with a pension from a private system that’s run into trouble can be assured they’re not going to be living on the street, begging for food. However, a government employee whose pension plan defaults –— and all eyes are on Detroit at the moment — has no protection. PBGC does not cover public pensions.

Yes, there have been abuses in the system, as we saw a few years ago in Jefferson Parish, but that’s no reason to let public-pension systems wither on the vine. After all, no one’s talking about shutting down Wall Street just because some people occasionally figure out ways to cheat investors.

Usually, the pension abusers are those who have enough political pull to game the system to their advantage. Most rank-and-file public employees don’t have that, and they would be the babies thrown out with the bathwater if we decided to let a troubled public pension system die just because private-industry workers don’t have access to similar plans.


Dennis Persica is a New Orleans-area journalist. In his weekly column, he shares his thoughts and observations about people, places and issues in the New Orleans area. Persica’s email address is dpersica@theadvocate.com.

Public Pension Funding 101: Key Terms and Concepts

Normal cost, amortization payment, unfunded pension liability, actuarial cost method. How often have you heard these terms in discussions about public pensions and wondered what they mean and how they apply to public pension funding?

In a recent article, Public Pension Funding 101: Key Terms and Concepts, Keith Brainard of the National Association of State Retirement Administrators (NASRA) explains key terms and concepts most often used when discussing public pension funding.

Click here to be re-directed to Public Pension Funding 101: Key Terms and Concepts. 

LASERS Posts Strong Investment Performance, Continues National Ranking

The Louisiana State Employees' Retirement System (LASERS) has posted a year-to-date investment return of 11.1 percent for the period ending September 30, 2012.

In an analysis by Wilshire's Trust Universe Comparison Service (TUCS), LASERS ranks among the top public pension systems in the United States with a market value greater than $1 billion. According to statistical data, LASERS is in the top nine percent in both the 10-year and three-year investment return categories. TUCS is the most widely accepted benchmark for the performance of institutional assets and represents the largest database of any peer-comparison service in the industry.

In addition, LASERS was recently recognized as being among the top 10 state pension plans in the United States based on an analysis of 10-year annualized investment returns by Cliffwater LLC.

LASERS Executive Director Cindy Rougeou said, "Though the market experienced significant corrections, including the Great Recession during this decade, LASERS earned a 9.0 percent annualized return for the 10-year period ended September 30, 2012. Much of our success can be attributed to a highly qualified staff, managing over 30 percent of our portfolio internally."

Many states have modified their retirement benefits, but they’re passing on switch to DC plans

There is an easy way to shore up state pension systems, or so many leaders elected last year believed: States should move to offering 401(k)-style retirement plans. Eight new governors and numerous new legislators said they would support shifting state employees to these plans, following a move the private sector made long ago. Kansas, Kentucky, Nevada and Oklahoma appeared especially ready to make the change. 


But 401(k) fever seems to be over, at least for now. No state this year replaced its traditional fixed-benefit pension with a new plan in which employees set aside a portion of their pay and assume the risk in making investment decisions. Only one state, Indiana, implemented such a plan for new employees, but made it optional.   


Enthusiasm for the switch waned after consultants and legislative researchers told state officials that it would cost money before it saves money. That was a difficult sell at a time when many states faced their fourth consecutive year of big budget deficits.

The problem is that changing from a so-called “defined benefit” plan to a “defined contribution” plan comes with huge transactional costs. When the old plan is closed, the employees and retirees who remain in the plan still receive their pension checks even as the number of employees contributing to the plan drops — new hires contribute to the new plan. The state has to make up the difference. In Kentucky’s case, the increased cost would be $8 billion over 15 years. The Nevada price tag: $1.2 billion over the next two years. 


While the 401(k) boom never materialized in 2011, a number of states did pass sweeping changes intended to shore up their pension systems. Lawmakers in half of the states cut benefits for current and future state workers. Nine states increased pension contributions from current employees; Florida began requiring workers to chip in for the first time. Even North Dakota, the nation’s most financially sound state, asked current employees to contribute more to their plan. 

More changes are likely to pass still: Pension proposals are pending in nearly all of the 15 state legislatures that have yet to adjourn for the year. So despite the stalled momentum toward defined contribution plans, states for the third year in a row will reduce the amount of money that government pays its workers when they retire. The cuts signal a continuing shift in the way states view retirement benefits, reversing years of increases towards a system that is less generous to public employees.

Public sector pension funds: Not dead yet

Public pension funds are experiencing a robust recovery from the historic market downturn of 2008-2009 -- reporting strong investment returns, growing assets and funding levels on track to meet obligations," said the National Conference of Public Employee Retirement Systems.

The group, the largest trade association for public sector pensions, surveyed state and local systems representing 7.6 million people and assets exceeding $900 billion.

It found that over the last year, funds have achieved an annual investment return of 13.5 percent, nearly double the 7.7 percent rate most assume. On average, said NCPERS, pension systems are 76.1 percent funded, meaning they can cover more than three-quarters of liabilities. Typically, pensions are considered fully funded when they surpass 80 percent.

Sure, pension funds aren't going to register 13.5 percent returns annually on an ongoing basis, and the report goes on to note that the improved performance isn't happening in a vacuum. There has been some clear retrenchment:

NCPERS found that over the last two years most public pensions have lowered their assumed rates of return, lengthened the period of time to amortize their liabilities, increased employee contributions and raised the retirement age.

But the changed financial outlook does underscore an important point that public pension plans have been making for several years: Judging the financial prospects of a pension fund in the middle of a historic economic crash is a dumb thing to do. As the economy improves so too will fund performance.

The lesson can be extrapolated to the larger challenges facing the federal government. The best deficit-reducing strategy is a growing economy that generates increased tax revenues. A misguided pivot to austerity, on the other hand, runs the clear risk of inducing slower economic growth, lower tax revenues and higher deficits.

How Bad is the Pension Problem?

This article was published in U.S. News & World Report

 Well-publicized crises in Illinois and New Jersey may have given public pension systems a bad reputation, but in reality, the vast majority of state and local government programs are not on the verge of collapse.

"The public pension community is not in a state of crisis," says Keith Brainard, research director at the National Association of State Retirement Administrators. "Some plans face larger challenges than others, but it varies by plan." 

Overall, state public pension programs were nearly 78 percent funded in 2009, according to the Pew Center on the States. While that figure is down from 84 percent funded in 2008, experts say the decline isn't cause for panic. "Seventy-eight percent is a number we're very comfortable with," says Hank Kim, executive director at The National Conference on Public Employee Retirement Systems.

While the legacy of the Great Recession continues to weigh heavily on the financial affairs of state and local governments, public pensions programs have several factors aiding their recovery. Here are a few that experts say will eventually help put pension programs back in the black:

1. No "magic number."

An underfunded pension program can signal deeper systemic problems, but it doesn't mean the program is insolvent or unable to meet its obligations. On average, state pension plans are funded at 78 percent, which means they have enough assets and cash on hand to pay participants obligations up to 78 percent.

"There's nothing magical about being 100-percent funded," Kim says. "It's essentially like a mortgage. If you buy a house and pay 78 percent of that mortgage and have that 22 percent left, that's not a bad thing." 

2. Time.

Experts say that in general, pension plans have the luxury of time and compounding interest to recoup their losses. Pension funds were slammed during the recession, but markets have seen a lengthy recovery over the past couple of years, which has helped pension fund balance sheets.

The outlook is good," says Kil Huh, director of research at the Pew Center on the States. "We've seen strong market returns and that's good news for the states because it will help them get to a healthier level of funding over time. It's still going to take a number of years to get back to pre-recession levels, but they are on the way up." 

3. Structural changes.

The increasing number of baby boomers entering retirement has put additional pressure on pension programs, initiating discussion among lawmakers and pension administrators on how to adapt these plans to better align with changing budget constraints.

Pension plans have three streams of income: employee contributions, investment returns, and employer contributions (the state or local government entity). While investment returns have recovered somewhat in recent months, low tax receipts due to the recession have caused many plan sponsors to shortchange their contributions.

Are State Workers' Pensions Fair Game?

The following is an editorial from the Jackson Mississippi Clarion Ledger

Sometimes, being politicians, our state elected leaders get too wrapped up in politics to see the real-life effects of their decisions.

Such is the case with the odd political turn toward treating the state's retired with disdain by underfunding their pensions.

Maybe it was the big brouhaha in Wisconsin that started this ugly line of reasoning that state workers are somehow big, fat targets for politicians.

In that state, the employee unions are more established than in Mississippi. Here, state workers have fewer protections and are among the most poorly paid in the nation.

Underpaid, overworked, taken for granted, often abused by the general public, always the last to be given raises in good times and the first to be cut in bad, Mississippi's state workers have traditionally had one thing to look forward to: a decent retirement.

Honestly, when did it become "fair game" to attack pensions, which represent a contract of the state with long-serving employees? Is a retired game warden or Highway Safety Patrol officer, a schoolteacher or road worker a "beast" to be starved? Is this how we thank people who have spent their productive lives helping teach our children to read, or paving our roads in the blistering summer sun, or putting their lives on the line on lonely stretches of highway late at night?

The state made a promise to provide an established set of retirement benefits. The state cannot renege on that promise. The pension system cannot be a target for cuts if those cuts undermine its fiscal integrity. That is just basic, conservative fiscal policy.

Editorial: Don't assume public workers have it better

The following is an editorial from the News-Press in Fort Myers, Florida

A study by two economics professors from, fittingly, Wisconsin, gives support to the claims of public employees that they are not better compensated than private-sector workers.

A 2010 study of public/private sector compensation over 20 years in seven states, including Florida, concluded that public employees have consistently been compensated less overall than their private-sector counterparts.

The authors say the opposite conclusion has been wrongly reached by neglecting to take education, experience and other factors into account. The authors of "Out of Balance? Comparing Public and Private Sector Compensation over 20 Years," concluded that state workers received 11 percent less and county and city workers 12 percent less than comparable private-sector workers.

Urge our leaders not to milk public employees to plug the $3.6 billion-plus state budget shortfall.

Maine Voices: State retirement system 'crisis' a figment of alarmist imagination

The author of this article is David S. Wakelin a former chairman of the Maine Public Employees Retirement System Board of Trustees.

I have listened with great interest as Gov. Paul LePage and Maine Treasurer Bruce Poliquin have whipped up anxiety about the alleged "crisis" facing the Maine Public Employees Retirement System.

As a pension lawyer from South Portland who has spent the last 24 years building and protecting the retirement system, first as a member of the so-called Monks Commission in 1987, and then as a member of the Retirement System Board of Trustees from 1988 to 2008, and chair of that board from 1993 to 2007, I feel compelled to respond to some of the erroneous information being bandied about over the past few weeks.

First, Maine does not have a pension funding "crisis." Second, it is not necessary to substantially reduce participant and retiree benefits to address the problem that does exist. The system is over 70 percent funded. The UAL liability today is far less than it was in l987 in inflation-adjusted dollars.

Some have alleged that Maine teachers and state employees are overpaid and have too-rich benefits. I respectfully submit that this is also incorrect. When their compensation and benefits are compared to the private sector on an education-adjusted basis, they are below private sector salaries and benefits. In fact, Maine state employees with a college degree tend to earn 15 percent less than their private sector counterparts, a fact which the governor himself bemoaned as he tried to fill his cabinet.

It is critical to remember that Maine teachers and state employees receive their Maine pension instead of Social Security. Thus, their benefits need to be compared to the total retirement benefits that private sector employees receive from both Social Security and their 401(k) plans.

The sky is not falling, so we should not allow the alarmist rhetoric that has been used by some to cloud our decisions. The current rhetoric is simply a distortion of the facts.

Why Employee Pensions Aren't Bankrupting States

From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers. However, that widespread perception doesn't match reality.

A close look at state and local pension plans across the nation, and a comparison of them to those in the private sector, reveals a more complicated story. However, the short answer is that there's simply no evidence that state pensions are the current burden to public finances that their critics claim.

Nor are state and local government pension funds broke. They're underfunded, in large measure because — like the investments held in 401(k) plans by American private-sector employees — they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.

Boston College researchers project that if the assets in state and local pension plans were frozen tomorrow and there was no more growth in investment returns, there'd still be enough money in most state plans to pay benefits for years to come.

The most recent Public Fund Survey by the National Association of State Retirement Administrators showed that, on average, state and local pensions were 78.9 percent funded, with about $688 billion in unfunded promises to pensioners. Critics suggest that the real number is at least $1 trillion or higher, using less-optimistic market assumptions.

The unfunded liabilities would be a problem if all state and local retirees went into retirement at once, but they won't. Nor will state governments go out of business and hand underfunded pension plans over to a federal regulator, as happens in the private sector. State and local governments are ongoing enterprises.