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Tuesday, September 30, 2014

How Much is Your Pension Saving your City?

When the subject of police, firefighter, and municipal employees’ annual salaries come up for debate at city council, the discussions focus on how much budget should be dedicated to their salary, health care, and pension contributions.

But imagine a different world, where the debate would focus on how much the city might save in future public assistance expenditures by making their complete pension contribution to employees today. Wouldn’t that be a much healthier discussion?

Yes, it would be, if more people knew the findings from the National Institute of Retirement Security (NIRS) research. That organization used U.S. Census Bureau data to calculate that households without income from defined benefit plans suffered much higher rates of poverty in retirement than those who did have DB plans.

And NIRS estimated that, in 2010, 1.22 million fewer households received means-tested public assistance because of their DB income. NIRS said that, in dollar terms, governments saved $7.9 billion they would otherwise have paid as public assistance because of defined benefit pension income.

The moral to the story is that defined benefit pension benefits ultimately save federal, state, and local governments from having to provide some public assistance payments to the elderly in their jurisdictions.

To learn more, look up the NIRS report titled “The Pension Factor 2012,” which details its calculations for these findings. It may be that if more city officials knew these facts they might not be so inclined to switch their employees’ retirement plans to defined contribution plans. And they might understand their city’s pension contributions to be a “Pay now, or pay more later” type of trade-off.

Friday, September 12, 2014

Pension Funding is a Local Matter

Our blog articles contend that every Texas city knows better than Austin or Washington how to appropriately fund their pension. It’s good to see an article in Governing.com reflect our position.

The story, “Pensions’ Unfunded Liabilities Still Going Up,” is based on a Loop Capital Markets survey of a number of cities. It found that, overall, American state and local pensions’ funded ratios decreased from 65.6 percent to 65.3 percent when comparing the 2012 to 2013 periods.

Let’s focus on the comments by Loop Capital Markets managing director Chris Meir in summarizing the study. He said that that pension reforms across the country have been whittling away at unfunded liabilities in many states and localities, but the processes are slow:
Thanks to each state’s particular legal and economic structure, he said, the reform process has been a “state-by-state skirmish,” thus dragging out the process. “Therefore, we do not believe [this] is a systemic problem,” he said. “It is a state-by-state problem with a state-by-state solution."
We’ll add that this dynamic produces very unseemly processes that aren’t for the faint of heart. Every state is different, just like every city is different. The study describes how states experiencing the biggest declines, like New Jersey, Massachusetts, New York and Virginia, are older states with more expensive infrastructure to maintain. Some of those states are also seeing population decreases. Those and other dynamics require continuous management from elected officials.

Similarly, all of Texas’ cities, in one form or another, wrestle with balancing city infrastructure needs with their civil service infrastructure needs. It’s an ongoing give-and-take process.  But it should always be handled at the state level for state pensions, and the local level for local pensions.

It’s possible that the seemingly sloppy, stop-and-start, two steps forward, one step back process is too much to handle for many who follow such matters at foundations and political research organizations. Nothing is neat and simple, but to those ivory tower folks who are inclined to put everything in boxes, the pension funding discussion process must be infuriating. Nonetheless, we have yet to find any other process that can honor and reflect the individual characteristics of each city and their different pensions.

We salute the people who take up these tasks daily. – Max Patterson