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PENSIONS
OVERVIEW
We know that public pensions are significantly underfunded, but answering the question of “just how underfunded?” is harder than you might think. This is because pension plans can make accounting choices that change their reported funding gaps without any change in the amount of assets they hold or the liabilities they owe. Sometimes, these choices hide the true extent of pension underfunding, leading lawmakers and taxpayers to underestimate the true cost of promises to public employees.
This primer covers two key accounting concepts that are used and misused to determine a pension plan’s funding gap. One, selection of the “discount rate,” regards the amount of money that must be set aside in the present to cover a liability due far in the future. The other, “asset smoothing,” refers to the way pension plans recognize unusually strong or weak asset returns, such as those we have seen since the second half of 2008... continue reading >>
FORUM
The staff of the Republican Joint Economic Committee of Congress digs into the fiscal and economic performance of states in a new report that raises concerns about the diverging paths of states, with some states enacting significant reforms to deal with their debt and pension problems and others continuing to pile up liabilities. Provocatively titled Eurozone USA?, the report compares the economic performance of states with low debt, smaller levels of unfunded retirement liabilities and modest taxes to states that have higher debt and taxes. 
Remember Wimpy? His famous line was: "I'll pay you tomorrow for a hamburger today." That is, in effect, the practice of states  and local governments who have been offering citizens more public services (schools, roads, police protection, etc.) today and promising to pay for them tomorrow. What happens when the bill comes due is a huge political problem...
More and more people are coming to understand that the huge pension mess confronting more and more state and local governments is at least in part a result of unrealistically high estimates of investment returns, often projected at 8 percent annually by public pension funds, which have missed their investment goals consistently over the last decade. Theoretically, the higher the return from investments the less that taxpayers have to chip in to finance pensions, and the lower the returns, the bigger the bill for taxpayers. Just how much of a difference investment returns make are illustrated in a new study by the Center for Retirement Research at Boston College. 
Two years ago, the Los Angeles Times made waves with an investigate report that revealed that the tiny Los Angeles County city of Vernon was a hotbed of public sector venality and corruption. The apotheosis of this trend was former City Administrator Bruce Malkenhorst, who pulled down an annual pension of over $540,000 -- the highest in the state -- for having governed a city of 95 people. Last week, CalPERS (California's largest pension fund for public employees) released the results of an audit of Vernon, and the results were appalling.
My second article from the National Conference on Public Employee Retirement Systems convention highlights a difference of opinion between private- and public-sector unions. The building trades support private infrastructure investments, but public-sector pension officials were skeptical.
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 PSI ARTICLES |
Wisconsin Shows What Ohio Can Gain from SB-5
Josh Barro, Nov 07, 2011
Improving Public Pension Transparency
Josh Barro, May 05, 2011
Pension Reform for Public Workers Outside Social Security
Josh Barro, Mar 29, 2011
A Reply to Dean Baker on Pension Panic
Josh Barro, Mar 07, 2011
Assessing states' pension reform proposals
Eileen Norcross, Feb 23, 2011
Illinois to Taxpayers: Drop Dead
Collin Hitt, Jan 18, 2011
Pension Promises, Real and Imagined
Josh Barro, Jan 02, 2011
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RESEARCH |
New York's Exploding Pension Costs
E.J. McMahon and Josh Barro, Special Report 8-11, Empire Center, December 2010
Eight Things New Yorkers Should Know About Public Retirement Benefits in NYS
Citizens Budget Commission, October 2010
The Crisis in Local Government Pensions in the United States
Robert Novy-Marx and Joshua D. Rauh, Kellogg School of Management, Northwestern University, October 13, 2010
Unfunded Liabilities of State and Local Government Employees Retirement Plans
Courtney Collins and Andrew J. Rettenmaier, National Center for Policy, National Center for Policy Analysis, July 29, 2010
The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey
Eileen Norcross and Andrew Biggs, Mercatus Center, June 23, 2010
Going For Broke: Reforming California's Public Employee Pension Systems
Stanford Institute for Economic Policy Research, April 2010
In The Danger Zone: A Comparative Analysis of New York State's Long-Term Obligations
Citizens Budget Commission, March 2010
more research on pensions >> |
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| ARTICLES |
New Mayor Rahm Emanuel is tackling Chicago's budget
Josh Barro, Washington Examiner, 04-14-11 (This article is adapted from the spring issue of City Journal.)
Blame it on the pols
E.J. McMahon, New York Post, 04-11-11
Down to Earth Explosion in Pension Costs Can't be Averted without an Honest Look at Real Numbers
Josh Barro, Newsday, 02-20-11
Public vs. Private Retirements
Josh Barro, E. J. McMahon, New York Post, 12-19-10
This Bomb Just Stopped Ticking
Josh Barro, E. J. McMahon, New York Post, 12-08-10
The False Obstacles to Pension Reform
Josh Barro, RealClearMarkets.com, 10-05-10
New Jersey's Pension Misdeeds Are Real, But Not Unusual
Josh Barro, RealClearMarkets.com, 08-24-10
more articles on pensions >> |
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| PODCASTS |
Steven Malanga interviews Christian Schneider about his City Journal article and Governor Walker's successful strategies that made reform in Wisconsin possible.
Michael Allegretti interviews Rhode Island General Treasurer Gina Raimondo about her pension reforms and the successful strategies that made reform possible.
Nicole Gelinas talks with Josh Barro about public-sector workers and their retirement plans
Steven Malanga interviews Josh Barro about his PSI article, "Pension Promises, Real and Imagined."
more podcasts on pensions >> |
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