Monday, January 14, 2013

Texas Pensions Respond to Cities’ Circumstances, Face Lawsuits

We admit that the actions of the Laura and John Arnold Foundation sometimes leave us scratching our heads as to what they are trying to achieve.

Take the foundation’s recent release of its “LJAF Policy Perspective: Pension Litigation Summary.”

The report rightfully notes how pensions large and small across the nation frequently initiate reforms to their system, to enable their plan to match contributions and investment returns with expectations for future benefits. The objective, of course, is usually to minimize the contributions needed from taxpayers. A noble pursuit we believe.

The reforms aren’t liked by every one – especially those whose benefits may be impacted in the future. They then typically challenge the reforms in court. The LJAF report says, “Within the past three years, at least 24 jurisdictions have faced lawsuits alleging that pension reform measures are unconstitutional.”
Our response? So what.

Isn’t it still a prerogative of free men and women to understand whether their rights to what they see as their money is in fact theirs? We hope so. As to how the courts decide these cases is still in the process, but what we do know is that there are always efforts to “reform” pensions to the facts at hand. The LJAF says its report fills the information gap, compiling the active cases in one place so that everyone might keep a close eye on them.

At this point it’s important to note how “reform” is a relative word. The LJAF and others view “reform” as leading to the wholesale destruction of defined benefit plans.

By contrast, those who support their existing usefulness and practicality as a tool of city budget management would use the word “reform” as measures that continually adjust plans according to the real world financial situations that cities and their pensions face.

There is no one-size fits all policy panacea that would ‘fix’ all the problems said to exist, especially not a wholesale switch from defined benefit to defined contribution plans, of the sort that the LJAF has previously endorsed. That’s macro-reform, and could be said to be similar to throwing the baby out with the bathwater. The micro-reforms, occurring as they are in sloppy, choppy fashion, respond to particular problems.

Just to save you some time, there are two Texas cases in the LJAF report, both in Fort Worth. The city initiated reforms in response to the expected shortfalls their employees pension expected due to years of the city’s deferring the contributions it owed. The lawsuits were enacted in late 2012.

Again, when considering the larger issue of the health of local defined benefit pensions in Texas, we say “So what?” These aren’t reasons to get alarmed about anything, other than their clear spotlight on the tendency of delayed contributions causing problems down the line and likely to spur lawsuits. In our view, that’s the real lesson we see here.

As an aside, it must be nice to be on the dole of a billionaire’s payroll, to come up with these sorts of alarmist, but less than meaningful reports. – Max Patterson

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