Virginia Coalition of Police
and Deputy Sheriffs
Pensions Pose Time Bombs for Budgets is full
Letters to the Editor
9/28/2005 - State pension funds
It is regrettable that the September 23 article by Kathleen Hunter,
entitled, "Pensions Pose Time Bombs for Budgets" is so full of
inaccuracies. She did not write a balanced piece about public pension
plans. In this letter, it is impossible to respond to every point, but
let me counter the major arguments of the article.
First, state pension plans are not woefully underfunded and they will
not break the state budgets. Most public plans are funded at 80% or
above, which is the actuarially sound funding level. These funds have
30-40 years to make up any shortfalls that may currently exist. Defined
benefit plans in the public sector are the best way to ensure taxpayers
receive vital services they can count on. It is a cost-effective,
proven and stable method to attract and retain qualified people to
perform critical public sector work.
Second, yes there are some problems. But most of these problems have
been created by politicians either "stealing the funds," and replacing
them with IOUs from future taxpayers - or employers not making their
full contribution. In New Jersey, the funds were stolen (due back soon)
and employers have not made contributions for the past 6 years.
Employees always make their contributions. In Illinois, the state
budget has been balanced since 1970 by the employer not making its full
contribution to the state pension fund - instead giving IOUs with a
promise to pay later plus interest. Over the past 20 years, for every
$1 paid out in pension benefits, 75% has come from plan investments.
The remainder has come from employee contributions (yes, public
employees contribute to their pension plans) and employer contributions
(taxpayers) - when they didn't enjoy a contribution holiday!
Third, you cite Alaska and its supposed short-fall of $5.7 billion. The
new law that puts public employees into private accounts does absolutely
nothing to shore up the current system, adds the costs of managing
private accounts, and will ultimately cost Alaska taxpayers more. The
existing DB plan will have a shorter time period and fewer investment
options to make up the shortfall. Alaska taxpayers will pay more in the
short term and any savings (if any at all) will not be realized for 20
years or more. By then, the current politicians will be gone and
someone else will be stuck with the bills.
Last, as to the comment, "You're not going to have enough new workers to
replace the older workers," made by Daniel Clifton of the Americans for
Tax Reform, he obviously doesn't understand that public pension DB plans
are not pay-as-you-go systems. They are funded by employee
contributions, employer contributions and plan investment returns. The
funds are invested so that, if the government was to close down, there
would be enough money to pay all pension obligations until the last
person dies. Our plans are not funded by new employees. Perhaps Mr.
Clifton is showing his ideological bent to dismantle state and local
governments and thus eliminate pubic pension plans.
The bottom line is simple: the traditional public pension system works
and has for over 100 years. It is flexible and provides vital services
to taxpayers at a low cost. Further, it provides a modest and stable
retirement income for workers who have spent a career serving the
Frederick H. Nesbitt
Executive Director & Legislative Counsel
National Conference on Public Employee Retirement Systems