Opponents to Defined Benefit Plans Never Stop Their Non-factual Assaults

Would new public employees accept wages lower than what they could get in the private sector if they were offered “portable” defined contribution plans like private sector employees are?

It’s a valid question which is being touted by the Honorable Talmedge Heflin, director of the Center for Fiscal Policy at the Texas Public Policy Foundation, in his opposition to the use of defined benefit plans today. It seems as though Heflin is suggesting that people seeking employment would be more inclined toward 401(k)s and lower compensation:

It would be folly for the state to try to chase private sector pay during an economic boom, said Talmadge Heflin, director of the Center for Fiscal Policy at the conservative Texas Public Policy Foundation.

Instead, Heflin suggested the state try to lure younger workers by creating a portable retirement plan akin to a 401(k) and dispensing with the pension that serves as a "golden handcuff" that has kept older employees on the job. (Why state workers are leaving their jobs,” by Kate Alexander, in the Austin American Statesman, Jan. 23, 2014)

One way to probe Heflin’s assertion would be to look at the popularity of defined contribution plans to private sector employees. We know that public sector employees accept their golden handcuffs as a primary reason to stay on the job. But how do private sector employees view them?

 The Deloitte Annual 401(k) Benchmarking Survey for 2012 holds some clues:

 1) The last several Deloitte surveys have found private sector employers (PSEs) worried that their employees aren’t saving enough for retirement. “In 2012, plan sponsors reported a continued sense of obligation in preparing employees for retirement. The number of plan sponsors rating retirement readiness of participants as quite important or very important increased to 78% in 2012 from 73% in 2011. This uptick in concern from plan sponsors may signal that they feel participants are trending in the wrong direction with respect to understanding their retirement income needs and saving appropriately.” 

Our question is “Why?”

If 401(k)s are so popular with employees, why are they not using them appropriately? If as Heflin asserts that 401(k)s should be viewed as a replacement for “golden handcuff” defined benefit plans, why must PSEs go to such lengths to promote 401(k)s within their organization?


2) Participants’ activity with their 401(k)s is decreasing each year, according to the following chart from the Deloitte study.
 

Again, we have some questions.

If 401(k)s are so popular (and a draw to private sector employment), wouldn’t employee involvement increase?

Another statement in the report reflects this skepticism: “Without taking an active role in managing their 401(k) accounts, employees can remain stuck at a low deferral rate and disengaged from investment decisions that impact their retirement savings. With this in mind, plan sponsors are looking to their recordkeepers to help improve plan effectiveness via an overall enhanced participant experience aimed at active engagement.” (As an aside, it seems this sentence is saying that plan sponsors see the need to improve positive results for employees in order to make them less complacent and despairing of their investment results.)

We are going to look for other surveys and research that go more to the heart of Heflin’s assertions.

While the Deloitte study has fairly consistently found that PSEs feel 401(k)s fit their recruitment and retention requirements, the study never asks them any questions comparing their feelings about the use of DB plans for recruitment and retention. And Heflin’s assertion seems to imply the opposite view, that only if DC plans are implemented would more employees gravitate toward lower paying government work.

Of course, as we go looking for more facts, we’d encourage the Honorable Mr. Heflin to offer any proof that “creating a portable retirement plan akin to a 401(k) and dispensing with” golden handcuff pensions would serve the public interest in attracting more employees to replace the outflow of state workers. Somehow we doubt he’d have even an iota of evidence in that regard. – Max Patterson

 

Just Because You’re Rich Doesn’t Mean You’re Immune to Scrutiny

We’ve previously offered our opinion about billionaire John Arnold’s efforts to insert his foundation’s opinions about public employee pensions into the public debate.

Our point has been simple – Arnold secured his retirement by the age of 39 with single-minded focus on investment trading while hard working men and women taught children, fought fires and busted bad guys for the general benefit of society. Their retirement may be later in their life than his, but they deserve the opportunity to have good investment management for their retirement nest egg, just as Arnold created for himself. Defined benefit plans offer that opportunity for people more concerned about the public good than their own trading account.

Over time we’ve also noticed that David and Charles Koch have become active participants in policy debates about public employees’ pensions. The Koch brothers’ financial support of the Cato Foundation, Americans for Prosperity, the Texas Public Policy Foundation, and the American Legislative Exchange Council are all documented fact by other sources, here and here as examples. (Other billionaires, like George Soros and Michael Bloomberg, are known to swing their money around as well for their pet causes, so we don’t want to seem lopsided in our concern about billionaire influence on U.S. politics.)

But we wanted to spend just a minute congratulating MSNBC TV host Rachel Maddow for her recent stand in support of general journalistic prerogative in investigating and recounting the activities of the Koch brothers and their billionaire power plays. You can see here her brave stand against the Koch brothers’ attempt to dissuade her investigation of their activities.

Just as TEXPERS has had to spend time and effort defending public employees’ pension benefits from billionaires’ schemes, we support all journalists in their attempts to expose the influence of wealthy people on public policy through various front groups. The structure for local public employee pension systems in Texas has contributed to their success, just as the structure for a free media has been effective for informing the general public of the activities of the billionaire club. We salute Maddow and all those journalists who endeavor to report on these influencers, just as we salute those who cover events on Wall Street, Main Street and everywhere else in America and the world. – Max Patterson

A Good Reminder from Our Friends at the San Antonio Pension

No matter your profession, each of us have a motivating reason for participating in the line of work that we do.

Police officers do their job to put bad people behind bars. Fire fighters do their job to help protect lives in the case of fire.

Pension administrators make sure that police officers, fire fighters and their families are adequately cared for after putting their lives on the line for others.

In this light, please read an op-ed that was published recently in the San Antonio Express News by Warren Schott, the executive director of the San Antonio Fire and Police Pension.

It’s a great reminder of the motivations behind the establishment of police and firemen’s pensions.

TLFFRA Sets Dates for its Annual Conference, Sept. 7-9th, 2014 in Lufkin, Texas

The Texas Local Fire Fighters’ Retirement Act was created as a result of the Texas Legislature created the Office of the Fire Fighters’ Pension Commissioner (FFPC) during the Great Depression so as to protect the pensions of fire fighters throughout Texas.

Every year, TLFFRA hosts an Educational Pension Conference that focuses on strategies for pension fund administration and investments. The organization has set its 2014 dates as Sunday September 7 through Tuesday, September 9 in Lufkin, Texas, about a 2 hour drive northeast of Houston and a three hour drive southeast of Dallas. More information will be coming available at http://texasfirefighterpensionconference.org/.

Please consider attending next year’s conference. – Max Patterson

Texas’ Biggest Cities Compare Favorably to Others in Pension Costs Per Taxpayer Revenue

Cities have been under fire these last several years because there is the perception that they pay a disproportionate amount of yearly revenues to the retirement benefits of employees.

TEXPERS has been fighting this assertion on many fronts, but it’s nice when a third-party organization undertakes a major research project and adds some perspective to the issue.

The Center for State and Local Government Excellence released a study today, “Gauging the Burden of Public Pensions on Cities,” that asks a simple question: “How much do residents of a city pay for pensions—not just for city pensions, but also for school district and county pensions in their jurisdictions?”

To answer the question, the CSLGE researchers used data from 173 cities around the United States, including 10 of Texas’ biggest cities. Their finding was that, across the nation, pension costs average 7.9% of the total revenue base of those cities.

In Texas, our 10 biggest cities are among the bottom half of CSLGE’s 173 city sample, paying the least amount of taxpayer revenue to their pensions. In fact, the pension costs of the ten Texas cities average 4.2% of their tax revenues, nearly a full 50% below the national average.

The CSLGE study confirms what we’ve been saying over the years:

1)    Texas’ local pensions do not put their cities at financial risk
2)    Locally administered pension plans do a good job of managing a balance of city employee pension benefits with the city’s overall financial goals
3)    Compared to the statistics of pension systems in other states, Texas is head and shoulders above most, if not all, states on many different measures.

We are very pleased to see this study but we know this alone won’t change the minds of those with a bias against public employee pensions. – Max Patterson

Houston Chronicle Publishes TEXPERS Op-Ed on the Differences between Detroit and Houston

As a service to its membership and the taxpayers of Texas, TEXPERS tries to stay on top of the debates about pensions that occur in its different members’ cities.

Today, we had an article published in the Houston Chronicle in response to one columnist’s assertions that Houston is moving on the path to bankruptcy just as Detroit did recently.

We thought the assertion to be a bit much and had to take it on, which you can read here.

The lesson here is that respected columnists and newspaper folks sometimes just can’t resist the temptation to have knee-jerk reactions to what is occurring in other parts of the country and then to apply it to pensions here in Texas. It’s a dangerous game as it skews and misleads people’s view and opinion on pensions. We’ll continue to set the record straight on these matters whenever we can. – Max Patterson

TEXPERS Informational Video Now on YouTube

The Texas Association of Public Employees Retirement Systems is moving into its 25^th year and as such we thought it would be good to provide everyone with a visual overview of who we are and what we do.

Truly, the really remarkable story in the video is the dedication of our members and their staff. Our annual conference and summer forum are no picnics. They require time and attention from attendees. Listening to presentations on alphas, betas and deltas in the investing context is not easy. Neither is completion of our Certified Trustee Training program, for which many give up their weekend to complete. When you see in this video people intently listening to lectures and visiting with their legislators, please know they are taking time away from their real jobs to serve their pension system and, by extension, the taxpayers in their cities and towns, by ensuring the sound operation of a local pension system.

Please take a look. – Max Patterson