Wednesday, September 21, 2011

Radio Interview Contrasts Pension Advocates and Detractor

KUHF Radio reporter David Pitman spent three hours with me in my office earlier this month discussing pensions for public employees. From that, he created this 2-minute news piece (read here or click the Listen Now button on the page) highlighting the contrasting positions of TEXPERS and a new group that opposes defined benefit plans for public employees. The group is being organized by Houston attorney Bill King, the former mayor of Kemah, and likely an aspiring candidate for future office, somewhere. I don’t want to rehash Mr. Pitman’s story, but instead would like to make a few points.

Interviews are never set up as point-counterpoint occasions, with people of opposing views sitting in a room together debating their positions in front of a reporter who is diligently taking notes. Instead, reporters interview the two sides separately and do their best to provide their listener with appropriate overviews of the contrasting positions. The great thing about blogging is that it does provide opportunities to add to the “moderated” debate in a news piece. As such, I have some editorial comment about positions Mr. King takes in the last two paragraphs of Mr. Pitman’s article/radio piece.

Mr. King asserts that “If you suddenly went defined contribution, we’d still be able to recruit all the police, fire, teachers want today, because all those jobs have waiting lines that go out forever.”

That’s conjecture, but while arguably true today, it certainly has not always been the case.

In robust economic times, the public sector has always ceded great disadvantage to the private sector in terms of attracting potential new hires with salaries they would desire to start a career. It would not take too much digging on our part to demonstrate that in boom economic times most cities have had great difficulties attracting qualified candidates of good moral character to replace retiring officers, firefighters, or staff. That’s why we have the system we do today. It’s made good business sense to the public administrators tasked with finding and retaining good public servants.

Remember that the public is asking young men and women in the primes of their lives to forego the corporate career path and, in the case of firefighters and police especially, to ask for the sacrifice of their bodies in terms of the continuous conditioning and training necessary to perform their jobs. The men and women understand that they will not be receiving salaries commensurate with the potential they lose. By potential we mean the opportunities to attain wealth and perks through ascension in the corporate or entrepreneurial world, as well as the potential of their future lives past 40 as they risk their lives in the performance of duty.

In boom times, cities have often found themselves to be in the unenviable position of needing to compete with private sector opportunities. It seems a long time ago now but the Internet Boom of the 1995-2002 period drew millions of young people into the Gold Rush of that time, so much so that today major industries like the energy and utilities sectors are scrambling to find qualified replacement workers for an entire generation of their older employees who did not have their ranks filled behind them during the Internet Boom.

Thus it’s important for the everyday reader to keep perspective on Mr. King’s observations.

Sure, today there are lines of applicants for many public sector jobs. But that is more a sign of the times than a fundamental shift in the type of work that Americans predominantly seek for their livelihoods. When boom times return – and they will – taxpayers do not want the future that Mr. King would take us to, when low pay and inadequate retirement benefits for public sector work would attract only those not qualified for any other type of employment. Cities like New York and Los Angeles sometimes offer us sad demonstrations of the types of official and police corruption that can occur when salaries and benefits attract and retain only people that might not have obtained other types of employment.

In addition, taxpayers in cities that accept Mr. King’s premise should be concerned about the competition – of other cities. Let’s say that City A in a large metroplex area, like Dallas and Ft. Worth, decides to change their retirement benefit structure so that less benefits, or more risky retirement systems like defined contribution plans, are used. A well-qualified candidate for a public sector position, one who grew up in the area, wants to stay close to home, has the choice of seeking the same position with City A or City B, which has a solidly performing defined benefit retirement system. Where will that person apply? City B, obviously.

As a former politician, Mr. King knows how to parse words very well. In Mr. Pitman’s article, King is paraphrased as saying that he doesn’t have a problem with publicly funded retirement accounts, “but he doesn't believe public employees should be guaranteed a certain amount in retirement, when most private sector workers are not.”

Some in the retirement benefits industry describe that as "pension envy" – of one group of people wanting what the others have. Instead of remedying the situation by acquiring a guaranteed amount themselves in the private sector, they want to take away what others have, to level the playing field. We could quibble over the word “guaranteed” as well as a more fundamental question of Mr. King’s understanding of the role of Social Security, but we won’t, at this time.

In our view, it would be much more productive for Mr. King and others to deploy the same energy (and cash) in seeking so-called guaranteed benefits for private sector employers. At one time, most Americans in the private sector did have defined benefit plans provided by their employer. Certain companies abused the privilege of retaining their employees retirement contributions, using the moneys as low-cost or no-cost sources of capital for their expansion, only to find their industry go the way of the buggy whip and leaving their retirees in the lurch. The U.S. Government stepped in and created ERISA laws so onerous as to make administration of defined benefit plans nearly impossible for corporations. (However, it should be pointed out that many corporations still do offer employees defined benefit plans – see our blog here.)

But the point is that instead of seeking to pressure the revision of ERISA laws (or Social Security, for that matter), Mr. King and others are seeking to force public sector employees into the same poorly functioning defined contribution plans that are increasingly unpopular today. If only there were more productive uses of their time and considerable energy. – Max Patterson