If you’ve read this blog for awhile now you’ve noticed how we draw attention to the selective alarm-ism of certain policy analysts, anti-defined benefit activists and certain policy groups.
The meme they promote is that public employee pension systems can’t perform to expectations, are underfunded, and are always about to fail. Their pitch attempts to motivate overburdened taxpayers and their elected representatives to change defined benefit plans to defined contribution plans, for the purported purpose of lessening future expectations of tax increases. The problem with this meme, as we’ve discussed here, is that it is not happening in Texas. Pensions are doing well. And as some latest news indicates, it may not be happening in other states either.
The news story we’re referring to is “State, local pension funds rose in 2011,” from the UPI. The story indicates state and local pension plans were worth $3 trillion in 2011, compared to $2.7 trillion in 2010, indicating a 13.2% growth rate.
Let’s remember that this increase is coming at a time when many ‘reformists’ are calling on pension systems to lower their assumed rates of return, an assumption that affects the amount of money that cities and states contribute to their actuarially required contributions. Many pensions have 8% assumed rates of return and are considering reducing that to 7.5% or some such, which might require some nominal increases of taxpayer contributions. However, growing your assets at a 13% rate will go a long way toward reducing pensions’ need to reduce their assumed rates of growth, and hence their expectations for taxes.
A TEXPERS report earlier this year confirmed that returns over the 10- and 20-year period for Texas state and local pensions average 8.9% returns. Shorter reporting periods have lower rates of average return, but all pension systems are by definition long-term investments.
We continue to believe that the ‘sky is falling’ crowd is looking at facts all their own, because they aren’t applicable to Texas pension funds – or many others across the nation for that matter it seems. – Max Patterson