As the nation grows, becoming more diverse and complex, our politics devolve because harried, predisposed average citizens just can't keep up with all the changes and nuances. So some of them rely on simplistic shorthand – tweeted half-truths and coffee talk, mainstream media apathy or wing-nut radio screeds. Case in point: Wisconsin's public employee pension system.
This week the State of Wisconsin Investment Board (SWIB) announced that, thanks to a resurgence in the stock market and its careful crafted investment portfolio, the pension fund for most public employees state and local is now earning enough so that current retirees in the system will get their first increase in monthly benefits in years.
When this was reported in Madison's Wisconsin State Journal, the online version of the news story immediately garnered a raft of just-plain uninformed or even ignorant responses. Below the fold are examples of those ill-considered reactions and why the critiques are totally misguided:
1. Liberals should thank the wise financial leadership of Gov. Scott Walker for all this good fortune. (summarizing several comments)
Nope. By state law, governors have no power to manage the finances of the Wisconsin Retirement System (WRS). This separation of powers was ensured after then-Gov. Tommy Thompson back in the '90s raided the pension fund and then lost a state supreme court case that required him to restore the money. It's true that Walker has tried to get around that limit, albeit failing to get the WRS to invest in his idea for a venture capital fund. And he has made noises about legislation that would "reform" and "save" the highly successful fund (consistently rated one of the best managed and most fully solvent such funds in the nation) by transforming it from a defined-benefits plan to a defined-contributions plan -- a 401(k) in other words. Walker's also certain to try using his appointive and budget power to influence the investment managers. And he certainly has a track record of dismantling well-organized government, so ... maybe someday.
But as of today, Walker hasn't and couldn't do a damned thing to contribute to the fund's improved investment returns. Which is not to say he hasn't implied otherwise on the stump and in his new book.
2. This came about because Walker made state employees contribute more to the fund out of their paychecks.
Nope. Like SWIB said, it came about because the pension fund's investments are doing better in the marketplace. The same amount of money went in, only Walker made state employees contribute a greater portion of that money. Which amounted to a pay decrease for them, since amounts earlier were set as part of overall compensation packages. In other words, Walker robbed current public employees of some of their current salary against the possibility they would get it all back and more later, when they retire.
3. "When Walker and 52% of the voters asked the public employees to `invest' in their future, all we heard was the crying from the left because of the pay cut they were going to receive and how bad it is for the states economy, blah, blah blah."
See Item 2. First of all, public employees have long invested in their future via cash contributions to their pension fund. The just-announced retiree benefit increase will not, of course, put more money into the pockets of current public employees, most of whom actually have been losing and continue to lose ground in terms of their base wages. They'll only see that benefit when they retire, and then they may get an increase or they may not, depending on conditions at that point. The adjustment only benefits current retirees, for certain. Mr. Blah Blah has no clue that public employees still have hundreds of millions of dollars less in income to spend in the state's economy, relative to their earnings a decade ago and relative to current inflation. And now there are fewer public employees in Wisconsin, too. That continues to represent a lot of opportunity cost in the state's economy.
4. "I am sure the pension holds stock in non union companies and in companies who's [sic] CEO's are grossly compensated. I see this as a major ideological disconnect. Don't you?"
The "major ideological disconnect" is called capitalism, and for better or worse we all swim in that system. Just where else, exactly, is a very large institution supposed to invest on behalf of future retirees? In Vegas? More important, public workers didn't invent and don't run the Wisconsin pension system; they are just duty-bound to contribute money to it and are guaranteed a benefit of some minimum amount when they retire. Their increased pension contributions did not change that circumstance one bit.
5. "So the pension fund doesn't invest in McDonalds? WalMart? Are you sure of that? How about Apple and its off-shore manufacturing? Are you sure your hands are clean? Or do pension profits trump public union message points?"
Public employees have no power to choose which firms the pension fund invests in. That's determined by professional fund managers, and the funds are held in trust, protected from manipulation by annuitants or state government itself.
Like any citizen, public employees do have First Amendment rights to voice comments about pension fund investment practices and choices, and that has happened on occasion, as when the fund invested in businesses consorting with then-racist South Africa. One supposes this particular critic might also think it morally consistent if public employees declined their paychecks when even a dollar of state tax revenue used to pay their salaries could be coming from questionable individuals or businesses. Indeed, maybe Gov. Walker should refuse his salary since some of it comes via taxpayers who didn't vote for him.
6. Public employee unions were responsible for the declines in pension fund performance during the Great Recession (summarizing several comments).
See Item 5. So deregulated Wall Street wheeler-dealers didn't depress the US economy or retirement investments in particular? It was, rather, the fault of workers whose money was invested? Hardly. If you are a Wisconsin state government employee or work for one of many of the state's municipal governments, you are a participant in the WRS pension fund whether you are a member of a union or not. And like we said earlier. public employee unions have never had any control whatsoever over decisions made by the pension fund managers.
7. "The expense ratio on my largest [privately invested stock] holding is 0.1%. That is lower than WRS. If you are stupid enough to pay big fees, that is on you."
See Item 5 yet again. The pension fund's performance has nothing to do with the relative intelligence of individual public employees -- Gov. Walker and members of the state legislature possibly excepted, if they continue to meddle. But other eligible public employees don't have any power to make decisions about pension fund operations. More important, the fund actually has paid remarkably consistent, relatively solid benefits to public retirees over the years. That performance more than makes up for the fund's operating expenses. Moreover, Mr. I'm Not Stupid doesn't say how much his low-expense holdings actually are paying out.
8. The pension fund is ripping off taxpayers and some of its "extra" earnings should go back to them. And, public pension recipients should be made to pay taxes on their benefits.
Sigh. See Item 7 and most of the earlier items as well. First off, WRS benefit recipients do pay taxes, both to Wisconsin and the federal government, on their monthly retirement checks. Meanwhile, what Mr. I'm Getting Ripped Off doesn't understand is that public employees earned these retirement benefits as part of their promised compensation, which studies suggest in many cases nevertheless lag the overall compensation paid to comparable private-sector workers. These workers also have contributed their own money to the fund right along. Also, when the WRS like most of the rest of the US economy was hurting as a result of the Great Recession, public retirees in the fund took lower monthly pay-outs to help smooth the fund's finances. And unlike public pension systems in other states, taxpayers were not asked to make up those losses.
There you have it. Dumbth in a nutshell. Now back to your regularly scheduled political dog and pony show.
ADDENDUM: A Wisconsin-based blogger, Jake's Economic Funhouse, just put up an excellent piece on the Wisconsin Retirement System including the following comment that buttresses the idea Republican lawmakers might just like to take another run at siphoning retirement investments for other purposes:
... The concern you should have is that the full funding and reduced contributions for the pension fund makes for a juicy target for Republican officials for stealing in the name of more tax cuts. State Rep. Duey Stroebel said as much after the report came out.
“Secretary Conlin has already stated these great returns should mean increases in pension payouts. He declared, ‘That’s money that will be spent in nearly every community in this state.’ I encourage Secretary Conlin and the ETF Board to also focus on relieving the recent spike in contribution rates, not just raising annuitant payments above the core level. These markedly higher pension contribution rates to maintain solvency are paid by current public employees and by every Wisconsinite in the form of higher taxes. WRS contributions are taxed out of the private sector. That’s money that will not be spent in every community in this state.”
Apparently public employees like me who are double-paying into this system (both as an employee and taxpayer) aren't so much of a concern for the guy from the 262. Thanks, Duey.