there was an html error above the fold, that is now fixed
As a teacher I am a public employee.
I am already drawing a public pension as a result of retiring in 2012. When I go back into the classroom next month, even though I am teaching in a jurisdiction covered by the same pension plan, I am no longer required to contribute (but as a result I also receive less pay). Given what Michigan is trying to do with pensions in Detroit, I pay close attention to public discussion of public pensions.
One of the most important pieces on the subject recently was this blog post by Dean Baker, which took apart this lead editorial by the Washington Post, written after the filling of Detroit bankruptcy by the emergency manager.
But rather than have to wade through all that, all you really need to do is read this short blog post by Paul Krugman.
The Post editorial says that public pensions are underfunded by $3.8 trillion.
All of this came about because of this study from the Center for Retirement Research at Boston College, which apparently the editorial board of the Post had trouble properly understanding when it analyzes the Annual Required Contribution (ARC) and reports in its summary
During 2012, using current GASB standards, the funded status of public plans declined slightly from 75 percent to 73 percent.As Krugman writes,
According to the survey, the ARC is currently about 15 percent of payroll; in reality, state and local governments are making only about 80 percent of the required contributions, so there’s a shortfall of 3 percent of payroll. Total state and local payroll, in turn, is about $70 billion per month, or $850 billion per year. So, nationwide, governments are underfunding their pensions by around 3 percent of $850 billion, or around $25 billion a year.Please keep reading for a bit more - from me, and from Krugman.
A $25 billion shortfall in a $16 trillion economy. We’re doomed!
In Maryland a few years ago, the employee contribution to pensions suddenly went up, from 5% to 7%. Why? Well, when the stock market had been doing well, the state decided that the increase in the value of the portfolio meant that it did not have to continue to fund its share of the pension costs because it was covered by appreciation, even though the actuaries for the system warned them not to follow that route. That 40% increase in employee share was imposed when the stock market loss of value meant the plan was not on a path to the target of 80% of future liabilities funded. That was not the only time such an approach was taken, as one can see in this story, in which once again the legislature has cut the state's contribution to the pension plan.
It was a decision to in part achieve balance in the budget on the backs of public employees, for whom the pensions were as part of total compensation a form of deferred compensation for current service. I know a number of teachers eligible for retirement who did not continue in the classroom because the increase in contributions to the pension, and the serious increase in premiums for health care plans, felt punitive to them.
Given the relative shortfall NATIONALLY on public pensions, given the waste in defense spending, given how much goes to profits for contractors for services that could be done by government employees at all levels of government, and - most of all - given the tendency of governments at all levels not to appropriate tax the incomes of either corporate or wealthy individuals, there is realistically NO pension crisis.
Which is why Paul Krugman, after wondering why the shortfall is not really such a major issue, ends his blog post thusly:
So, why is it being hyped? Do I even need to ask?Know the facts.
That will put you ahead of both the editorial board of the Washington Post and those who constantly are pushing "austerity."
In the past corporations were able to raid their pension plans (when they still had defined benefit pensions) on the grounds that they were "overfunded" because of appreciation of the assets - although somehow they were not required to put the money back in when the assets depreciated.
And remember this - what happens to public employee pensions is a trial balloon for what the austerity hawks want to do with Social Security.
Have a nice life - if you can afford it in retirement.