STUMP » Articles » Public Pensions Interest Group Says: Your Money Creates More Value With Us! » 18 August 2017, 12:57

I may have changed the title of the press release from NCPERS (National Conference on Public Employee Retirement Systems).

I will let them have their say:

Critics Ignore How Public Pensions Benefit U.S. Taxpayers, NCPERS Finds
Continuing Research Shows Pension Plans Bolster Economy at Low Cost

WASHINGTON—(BUSINESS WIRE)—Public pension plans are resilient, pose little burden on taxpayers, and stimulate the U.S. economy, according to a research report from the National Conference on Public Employee Retirement Systems.

The latest report in the NCPERS Research Series, “Public Pensions Are a Good Deal for Taxpayers,” dissects several arguments used by ideological organizations to discredit public pension funds on grounds that they are inadequately funded. NCPERS has long argued that underfunding levels are calculated using highly politicized processes in many states and should be taken with a grain of salt.

“Critics often advance the false imperative that cities and states should be able to cover their long-term pension liabilities with current revenues,” said Hank Kim, executive director and counsel of NCPERS.
“But that’s not how advance funding models work, whether for public pensions or other long-term goals such as retirement or college savings.”

Michael Kahn, NCPERS research director and author of the report, offered an example. “If you prefunded your child’s education by establishing a college fund at birth, you’d have an unfunded liability for many years,” Kahn explained. “Over time, investment income and ongoing contributions would reduce this unfunded liability. With proper planning, the unfunded liability can be reduced to zero, and sometimes a surplus is created. That is how pensions work.”

“Many factors can affect the level of unfunded liability over a period of years, but in the end, pre-funding is a winning formula that controls rather than increases risk for taxpayers,” Kahn added.

The report walks through historical advantages that make public pensions resilient, bouncing back and growing even after recessions. It also shows how taxpayer contributions to public pensions are equal to or less than the revenues generated by investments in pension funds and spending by pension beneficiaries.

Okay, let’s check out their paper.

WE’VE GOT MONEY ALCHEMY!

Public Pensions Are a Good Deal for Taxpayers

Public pensions are beneficial to taxpayers in a variety of ways that are both under-reported and poorly understood by many observers. In the quest for simple answers to complex questions about public pensions,
facile observers routinely overlook salient facts. For example, taxpayers get public services from dedicated nurses, firefighters, teachers, and police officers and pay only 20 cents on the dollar for their retirement benefits. The rest of the money comes from investment earnings and employee contributions. Taxpayers
benefit from $3.7 trillion of pension fund assets invested in our economy, providing capital for established businesses and start-ups. Additionally, taxpayers benefit because retirees typically spend their pension checks locally, creating new jobs. Above all, tax revenues created through retiree spending and pension investments may exceed what taxpayers pay into public pensions.

In the following sections, we expand on these observations using empirical data. We also focus on the resilience of public pension funds through economic ups and downs. This Research Series article is organized as follows:

• Pension funds are resilient.
• Pension funds pose little burden, if any, on taxpayers.
• Taxpayers’ contributions are fully or partially offset by the tax revenues generated by public pension investments in the community and by the local spending of retirees who receive pension checks.

First off, let’s state the obvious: all of the “pension contributions”, whether attributed to the employer or the employee, comes from employer money. There are aspects, if the employee chooses to contribute more (as opposed to being forced to), that makes the taxpayer burden even worse.

Think of the Dallas Police & Fire 8% DROP program.

But the people who think that the money of “employee contributions” comes from some “other” source, sure. Whatever. You probably believe that there’s real investments in the Social Security Trust Fund, too.

But let’s just ignore that. Let’s look at the part I bolded above:

For example, taxpayers get public services from dedicated nurses, firefighters, teachers, and police officers and pay only 20 cents on the dollar for their retirement benefits.

What are we actually going to pay? That’s the question.

JOHN BURY RESPONDS

Here’s John Bury’s take: NCPERS Progagandizing

Spewing faulty research commissioned by misguided public unions the National Conference of Public Employee Retirement Systems (NCPERS) has taken to playing the Frank Drebin role:

And according their latest ‘research’ brief, they are being insulting about it now:

“Pension funds are resilient and well managed. They have stood the test of time for more than 100 years through economic ups and downs. If state and local legislators had kept their side of the bargain over the years by making scheduled payments on time, most critics of public pensions would have to find another hobby. (page 2)”

It is that ‘if’ that disturbs us hobbyists.

Note that John Bury is a pension actuary. So is Jeremy Gold. Then there’s the former chief actuary of the New York City pension system, Robert North.

All these people have questioned how public pensions are valued. North did it even as he worked for New York City — he used to include his preferred valuation in the actuarial valuation reports (in addition to the “official” GASB approach.) (I believe the current chief actuary of NYC pensions does not do this.)

But sure, call them hobbyists.

I am a hobbyist, but that’s okay. I show my work. You can email me directly: marypat.campbell@gmail.com or refute me on twitter (@meepbobeep). Do what you want. Just ignore me, if you wish.

Bury, being in New Jersey, is well familiar with horribly underfunded pensions. As he says, that “if” was not fulfilled, so it’s tough to say public pensions are all rainbow-excreting unicorns.

That picture could have been a lot worse.

So go read what Bury had to write about that “if” being unfulfilled.

I have a different question — let’s say a public pensions supposedly is well-run: its long-term asset management is okay, full contributions are made… how have those plans fared?

Because if certain plans are doing everything they’re supposed to be doing, and they’re still struggling….. then yeah, we’re going to question the ultimate costs.

I’ve got a few separate posts coming up where I’ll look at how those costs evolve. First, I will look at how funded ratios have changed since 2001. Watch this space.