Defending Public Pensions

If we don't start having serious, honest conversations about our retirement security systems, we could put future retirees at risk and left wondering why we ever attacked a retirement system that has adequately served millions of Americans for decades. So says a recent column featured at ABC News written by Earl Pomeroy, a former U.S. Representative from North Dakota, and Cathie G. Eitelberg, a Senior Vice President at The Segal Company and an expert in public pension design and finance.

The column, "Defending Public Pensions", addresses the misconceptions surrounding pension issues, including the myths that public employee benefits are bankrupting states, are overly generous, and will require taxpayer bailouts.

Pomeroy and Eitelberg echo what we have said before: that today's pension shortfalls are a direct result of the economic crash that sent state revenues plummeting, and that as the economy recovers, so will public retirement funds. They also stress a very important fact: without an adequate retirement security system in place, like the one that has proven to work for the past several decades, the next generation of retirees could find themselves retiring into poverty.

Below is an excerpt from the column; we encourage you to read it in its entirety here.

Over the past year, politicians, pundits and an array of think tanks have put forth some frightening predictions about public employee pension plans. A misguided belief that pensions, particularly defined benefit plans, are causing the fiscal stress of many states is false. The widely held notion that 401(k) plans can provide adequate retirement benefits is, similarly, a myth.

[...] Here is the simple reality about the bulk of today's shortfall: It is the direct result of the fact that our economy went off a cliff three years ago, sending state revenues plummeting. As the overall economy recovers, funding levels in most public retirement plans will improve as well. Let's remember that pensions are funded over the long-term and have weathered previous swings in market returns.

Over the 25 year-period ended Dec. 31, 2010, the median public pension plan has produced an annualized return of 8.8 percent. For the years ending 2009 and 2010, the median rate of return was 12.8 percent and 13.1 percent respectively. These returns will not fully repair the funding deficit, but as they are recognized by the plans over the next few years, they will help with the recovery of asset levels.

Public plans are not relying only on investment returns to mitigate the shortfall. In 2010, more than 20 states made changes to their pension plans to bring down future costs. Over time, these revisions, combined with employee and employer contributions and investment returns, will restore stronger funding for most pension plans.

As state and local legislatures across the country consider scaling back and changing retirement benefits of public employees, it is imperative that they focus on the real challenges they're facing. The critics are missing the real issue: the retirement security of the coming wave of baby boomers, many of whom are woefully unprepared for the financial demands ahead of them.

Read the rest here.