This article from The Fiscal Times is more nuanced and balanced than most of what we read about public pension funding challenges.
Author Marc Joffe of the California Policy Center, is a former senior director at Moody’s Analytics. From Joffe’s perspective no one, right, center, or left has clean hands or pure motives when it comes to pension reform. It’s well worth reading the entire article, but here are his major points:
- Public sector pensions can exacerbate income inequality by providing disproportionately big payouts to retired senior managers, academics, physicians, and public safety officers. In particular, Joffe writes, “Senior managers at public agencies have the power to affect retirement rules, allowing them to cash out in the process.” One fix Joffe suggests to this problem is “to implement some form of risk sharing for benefits above a certain level.”
- Some pension reform advocates have less than altruistic motives for pushing reforms:
For example, if governments can be convinced to increase funding levels, that means pension systems will have more money to allocate to mutual funds and other money managers. Since these financial players normally quote their fees as a percentage of assets under management, more pension funding leads to higher revenues.
If government agencies can be convinced to replace their defined benefit programs with defined contribution plans, financial interests stand to make even more money. Individually managed employer-sponsored retirement plans — known as 401(k) plans in the private sector — generate substantial fees for the firms that manage them.
Joffe’s article just goes to show that nothing is simple or black and white. Give it a read.