Tuesday, September 3, 2013

Another Misguided Attack on Public Pension

Another Misguided Attack on Public Pensions

The latest attack on public pension plans concerns state and municipal lobbying organizations whose employees are eligible for state or municipal pensions.[1]  According to the Associated Press, about 20 states allow certain publicly connected lobbying organizations to participate in their public pension plans.  A couple of years ago, The News & Observer reported that several groups – the N.C. League of Municipalities, the N.C. Association of County Commissioners, and the Eastern Band of Cherokee Indians police officers – participate in one of North Carolina’s pension plans.[2] Many of these lobbyists or organizations make more than the average public employee, so there are undoubtedly cases of individuals who made six figure salaries receiving six figure pensions.

Is this a scandal?  Hardly.  Could it be bad public policy?  Perhaps.  Is it bankrupting public pension plans?  No.
The First Time (1999)
In order for the employees of public lobbying groups to become participants in a public pension plan, the legislature has to amend the applicable pension statute, and the governor has to sign the requisite bill.  While you may disagree with this kind of legislation, the lobbyists aren’t being added to the pension plan by an administrative act or secret process.   Moreover, the lobbyists aren’t being given a freebie as some these articles intimate.  Like all participants they have to contribute to the pension plan, and their contributions are significant.  Typically they are required to contribute 5% to 6% of their salary per year over several decades.

Should the private sector representatives of county commissioners or municipalities have their own pension plans, rather than piggybacking on a public pension plan?  There seems to be a reasonable argument for keeping private sector employees out of public pension plans.  However, cost is probably not the reason.  In order to hire lobbyists, the organization is going to have to offer some type of retirement plan (probably a 401(K)).  Since most of these organizations are relatively small, especially compared to the state, the costs of administering the plans will probably be much higher than simply letting those folks participate in a public defined benefit plan.  Nonetheless, I can see the potential conflict of having private sector employees, whose salaries are not subject to state civil service requirements, participate in public pension plans.

The various articles I’ve read infer that this practice is costing the taxpayers money and contributing to the underfunding of pension plans.  This is complete rubbish.  As long as the public lobbyists have to contribute by the same rules as all participants, their eventual pensions will not drain the system.  If the lobbyists are making six figure salaries, then their contributions to the pension plan will be larger than the rank and file.  In North Carolina, participants have to put 6% of their salary into the pension.  And if their organization is putting in the requisite employer contribution, the pension won’t be imperiled when they eventually pay out in twenty or thirty years time.  As I mentioned earlier, the amount of the pension payment may attract publicity, but it won’t undermine the solvency of the pension plan.

I hope that these types of articles are being written by people who don’t understand how defined pension plans work.  I’d hate to think that the reporters and the people quoted in these article are deliberately using misinformation to undermine public pensions.

Public pension plans face some major challenges because they have not been properly funded in the past.  Clearly, the accounting standards were deficient.  However, stories about lobbyists receiving public pensions or certain public employees obtaining sizable pension benefits have nothing to do with these challenges.  They just make good headlines.

[1] http://www.foxnews.com/politics/2013/08/25/hundreds-private-lobbyists-earning-public-pensions-in-20-states/
[2] http://projects.newsobserver.com/node/28264

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