Tuesday, July 23, 2013

The truth about public pensions

Pensions, which are so essential to retirement security, are being attacked as the cause of state and municipal budget shortfalls. These attacks come from radicals who want to dismantle public institutions, like pensions, that don't benefit greedy billionaires. Don't listen to them.

Listen, instead, to economist Dean Baker recently called out the Washington Post for making the nonsensical claim that state and local pensions have unfunded liabilities of $3.8 trillion. Baker notes the funds are basically okay: 
...the $3.8 trillion figure was an estimate of total liabilities, not unfunded liabilities. Since the pensions have $2.8 trillion in assets, their unfunded liabilities are just $1 trillion. Or, to put this in terms that may be understandable to Post readers, the unfunded liabilities are 0.22 percent of projected GDP over the next 30 years. And, as I noted in my earlier post, most state and local governments are already funding at levels that are consistent with making up this shortfall so there will no required tax increases or spending cuts to meet these future obligations.
It shouldn't be a surprise, then, when Brother Brian Aldes, secretary-treasurer of Teamsters Local 320 in Minneapolis, brings us some good news about Minnesota public employee pensions. Cross-posting from Brian's Blog.
Today there is a lot of news surrounding pensions for public employees. If you’ve heard the bad news coming out of Detroit you might have retirement on the mind. There’s certainly bad news in Detroit for city workers and retirees, but I'm happy to report there’s also some great stuff in the news today for Minnesota. 
The latest report on Minnesota public employee pensions have all three funds (MSRS, PERA and the Teachers’ Fund) with an investment return of 14.2 percent for the fiscal year that just ended, and it was much higher than expected. 
According to the St. Paul Pioneer Press
"The investment return is crucial for the pensions because, historically, investment gains have accounted for about 70 percent of their revenues, helping reduce taxpayer costs. Returns have been rocky in recent years, although the average over the past decade has been 10 percent [investment return]." 
What this year's strong investment return demonstrates is the improved funding ratios and how the total unfunded liability for all three plans is expected to drop. This is positive news and Senator Sandra Papas (DFL-St. Paul) who chairs the Legislative Commission on Pensions and Retirement (LCPR) told the Pioneer Press that she is “cautiously optimistic” about the funds’ future. 
Meanwhile in Detroit a judge ruled that Michigan Governor Snyder’s action to place Detroit in bankruptcy had violated the state’s Constitution because the move could cut the pension benefits of retired public employees. The judge said pensions were protected under state law, and issued an order that the bankruptcy filing be withdrawn. Gov. Snyder is challenging the judge’s order in the state’s Court of Appeals. If the bankruptcy is allowed to continue it will enable a bankruptcy judge to impose further city-wide budget cuts, void any and all union contracts, and target the pensions owed to 21,000 city retirees and 9,000 active workers. 
What is happening in Detroit is simply a tragedy, but for public employees in Minnesota things are looking up, and for that I am grateful!