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Editorial: Make the price of pension repair clear and logical – TwinCities.com

Editorial: Make the price of pension repair clear and logical

Pioneer Press
Updated:   03/05/2013 06:39:22 PM CST

Public-employee pension funds are in the news, and they should be. There’s a lot at stake.

Retirement security for their participants, for one thing.

Huge exposure for taxpayers, for another.

The economic storm of the past few years exposed weaknesses in public pension funds. But that was a cool breeze compared to the demographic storm forecast for the next three decades.

Over the long-term, a switch to a defined-contribution plan, rather than a defined-benefit plan, is preferable. That’s what the private sector has done (401k’s). There are tradeoffs in a system that doesn’t guarantee a return but rather offers participants a more market-oriented risk and reward calculation. There are tradeoffs with any choice.

In the best of circumstances, the tradeoffs are clear, the risks are visible, and so is the price.

But public-employee pension funds are under the influence of politicians. In politics, clarity is often a liability. Whether it’s favorable tax status for a favored industry or socialized risk for a favored union, the inclination to solve political problems with misdirection and somebody’s else’s money is persistent.

As Minnesota aims to address its various pension problems, these lines of reasoning should come to bear:

1. If pension payouts rise in good times, they should fall in bad. The comparison between Wisconsin’s system — almost fully funded — and Minnesota’s — with big gaps and and an overly optimistic expectation of returns — is

instructive. (Pioneer Press reporter MaryJo Webster wrote about the difference in the Sunday, March 3 edition.)

2. Hidden taxes, or taxes that don’t stand up to logic, are bad. Example: Taxing auto or homeowner insurance policies to shore up police and fire pension funds.

3. Bailing out funds that are in trouble because they were unsustainably managed encourages unsustainable management.

Finally, when we’re talking about public pension funds and somebody talks about “state” contributions or “employer” contributions, we should always remember that “state” and “employer” are synonyms for “taxpayer.”

Editorial: Make the price of pension repair clear and logical – TwinCities.com.

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