State Pensions Aren’t Washington’s Problem
Congress and the next president should make it clear that federal bailouts of state and local pension funds simply won’t happen.
Ed Bachrach’s prescription for national pension reform (“How to Save Public Pensions, No Federal Bailout Needed,” op-ed, July 18) would be needlessly heavy-handed and inappropriate—requiring the federal government to immerse itself far more deeply than ever in regulating state and local pension plans.
Mr. Bachrach’s premise is that America’s state and local public-pension funds are going broke at the same rate, overseen by equally irresponsible politicians poised to demand costly federal bailouts. “Congress,” he says, “should pass a law allowing states and local governments to reduce promised benefits—something that is now illegal under some states’ statutes or constitutions.”
This ignores the many creative, forward-looking pension reforms already enacted by states as diverse as Republican-led Utah and Democrat-dominated Rhode Island. Unfortunately, Mr. Bachrach is dismissive of the proposed federal Public Employee Pension Transparency Act (Pepta), which would boost bottom-up pension-reform efforts across the country by mandating more stringent financial disclosure and reporting requirements.
Mr. Bachrach’s right on the key point: Congress and the next president should make it clear that federal bailouts of state and local pension funds simply won’t happen. Meanwhile, enact Pepta and require that public-pension funds more honestly account for themselves.
E.J. McMahon
Manhattan Institute for
Policy Research
Albany, N.Y.
Ed Bachrach properly observes that state and local governments should close the pension-funding gap they have created. However, he exaggerates the size and the immediacy of the shortfall—the gap is less than $1 trillion spread over 30 years, according to the 2015 Census of Governments. These costs equal 4% of expected state revenues—hardly the “crippling” problem he sees.
Governments brought this problem on themselves by relying excessively on regressive and volatile revenue schemes such as casinos, lotteries and “sin taxes,” and reneging on their pension funding commitment during an economic downturn. Mr. Bachrach’s solution—federal legislation allowing states and local governments to reduce promised pension benefits—is unfair to workers who faithfully made every required contribution and violates a host of constitutional, contractual and property-rights principles.
There is a better way. State and local governments can adopt more progressive, broad-based revenue systems with lower rates. Governments should stop giving away twice as much in economic development incentives as they have committed to spend on pensions. Pension checks are spent locally and domestically, unlike money given to corporations through tax loopholes and subsidies. Other solutions include using well-designed pension obligation bonds and improving risk management.
Hank H. Kim
Executive Director and Counsel
National Conference on Public Employee Retirement Systems
Washington
Only five states—Illinois, Kentucky, New Jersey, Connecticut and Arizona—have one or more pension systems funded at less than 50% of their multidecade promises due to insufficient contributions over time.
Given these facts, the federally imposed, one-size-fits-all policy outlined in the piece seems unwarranted and a federal override of state constitutions. Requiring states to switch to 401(k)-like accounts does nothing to address underfunding; rather, it creates a new moral hazard to not act responsibility.
A retirement crisis looms elsewhere. Working households face deep savings shortfalls. As a majority of Americans enter retirement unable to maintain living standards, the pressure on state financial safety nets will increase.
Diane Oakley
Executive Director
National Institute on
Retirement Security
Washington
Of course, federal laws solve it all. Simply set aside local legislatures, governors, legally enacted laws, decisions of state courts and years of contract negotiations and fix it once and for all. I believe that many state legislators and governors approved these benefits because they believed these provisions were the right thing to do. Keep in mind that the “right thing to do” is political-speak for “it will get some votes.” If we fix this mess on the backs of the retirees, we can start fresh and do it all over again. Great plan, and it doesn’t let our founders’ plan for government close to the people get in the way.
Kenneth Keipper
Celebration, Fla.
Do we really want the federal government to issue national mandates for state and local pension programs? How would Mr. Bachrach feel if the federal government imposed collective-bargaining obligations on all state and local governments? After his plan, the door would be open for such pre-emption.
Prof. Michael C. Petrowsky
Austin Community College
Round Rock, Texas
