This week, the American Legislative Exchange Council released its new report, “Keeping the Promise: State Solutions for Government Pension Reform.” I’m a bit of a pension nerd, so I combed through the report with great interest.
Pension obligations can wreak havoc on state and local budgets, as we’ve seen with some high-profile examples (Detroit, for instance, which recently filed bankruptcy). The pension crisis cities and states face arose from decades of bad decisions, including not setting aside enough money each year to pay for retirement costs as well as increasing plan benefits without a corresponding increase in plan revenues.
Couple this with the 2008 market crash in which many retirement plans lost 20 percent of their funds…and it’s not hard to see how we got to the point where pension liabilities across the nation total up to $4 trillion. According to ALEC estimates, that’s enough money to cover a $60,000 salary and benefits package for 625,000 to 1.2 million new elementary school teachers for 20 years.
What struck me as especially poignant in the pension study were the following statements: “[The] pension problem need not be a political debate over the size or scope of government; it is a problem of math. The numbers of today’s pension plans do not add up, and observers on the right, on the left, and in the center agree on this point.”
I couldn’t agree more.
A few years ago, Gov. Haley Barbour tasked a group of business leaders, pension experts, lawyers, retirees, and legislators with looking at Mississippi’s state retirement system. The commission reviewed the retirement system with an eye toward ensuring its long-term health and sustainability, making reasonable recommendations to trim costs without jeopardizing retiree benefits.
But to hear Democrats talk about it, you would have thought that mean old Republican governor was trying to take Grandma Suzie’s retirement check and leave her destitute on the street.
Hogwash.
Let’s examine the facts. The state’s retirement system is not on the verge of collapse, but the trends are worrisome. Because the Legislature increased benefits in the late 1990s and early 2000s but failed to pay for these new costs, the plan has become excessively expensive. The system is costing taxpayers close to $900 million this year (that’s more money than it takes to fund Medicaid), and plan actuaries forecast no taxpayer relief in the foreseeable future. The 2008 market crash only compounded the problem, meaning taxpayers are on the hook for skyrocketing pension costs unless changes are made.
That’s not my opinion; that’s just math.
Reining in the costs of a retirement system is one of the most important challenges facing lawmakers today because everyone has a stake in the problem. As the ALEC report notes, “workers and retirees have a stake. People who pay high taxes are affected, as are people who pay nothing at all. The problem touches all Americans…Why? Money that is obligated to pay for pensions cannot be used to reduce tax rates or fund public programs.”
That’s exactly how big-time Democrat and Rhode Island Treasurer Gina Raimondo sees it. She campaigned on pension reform, successfully pushed it through the state’s general assembly, and defended it as a moral imperative. When asked by a disgruntled employee about her views, she responded, “[Is] it morally right to do nothing and not provide services to the state’s most vulnerable citizens? Yes, sir, I think this [reform] is moral.”
(As an aside, I heard Treasurer Raimondo speak about pension reform during a Pew Center conference a few years ago. Her determination to put Rhode Island on solid financial footing was impressive, and I expect she’ll be on the political scene for quite some time.)
If we don’t rein in the costs of our own state retirement system, I fear we’ll be left without options. To paraphrase Mayor Rahm Emanuel, we’ll have to pick between pensions and police officers; pensions or paved streets; or pensions and public health. That’s not fair to taxpayers, and it certainly isn’t fair to retirees.
As the ALEC report indicates, fixing the problem of unfunded pension liabilities is a difficult task. Legislators must overcome both technical and political challenges; they must understand arcane financial concepts and respond to statutory law, case law, and even constitutional limits. But ultimately, the question of pensions is not just an “obscure topic of interest to actuaries and accountants. It is, rather, an issue with widespread consequences.”
I certainly hope Mississippians – legislators, retirees, state employees, businessmen and women, soccer moms, and even high school graduates – recognize the benefits and necessity of reining in the costs of the state’s retirement plan. Pension reform isn’t about cutting benefits, but rather ensuring retirees get the benefits they were promised. At the end of the day, keeping our promises means making tweaks to the existing program to ensure retirees, state employees, and taxpayers are treated fairly.
This isn’t about some conservative philosophy, nor is it aligned with Democrat principles. This is about protecting the financial security of our retirees, our taxpayers, and our state.
NOTE: Here is a link to the full ALEC report.
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