1/05/2011

Are Pension Benefits Too Generous?

January 5, 2011
Ignore the Union Leader Behind the Curtain
By Josh Barro  h/t Real Clear Markets

As discontent with public employee compensation grows, the latest fashion from the Left is to claim that public workers are being scapegoated. Yesterday, Gawker even ran a piece called "The Plan to Blame Unions for Everything," arguing that the real causes of states' fiscal woes are failures to properly fund pension plans and a financial collapse caused by greedy bankers. Without problems caused by other people, there would be no crisis in employee compensation-so don't blame the unions.

The problem with this account is that it is false. While many states were in fact reckless in their pension funding practices - New Jersey and Rod Blagojevich's Illinois being the poster children - even states that followed the pension management rulebook are facing a cost explosion, and must re-evaluate their employee compensation practices to cope with budget gaps.

Take my home state of New York. We came into the recession with some of the best-funded pension plans in the country: we made our required pension contributions every year and were over 100 percent funded, if you follow the overly-rosy accounting practices that public pensions are allowed to use. Pension management practices were by most accounts appropriate, notwithstanding a pay-to-play scandal in one of the state's pension systems.

Yet, pension contribution rates are skyrocketing and will continue to do so. By 2015, pension payments by school districts will more than quadruple from their levels in 2010, requiring a property tax increase of 18 percent just to pay for higher pension costs.   READ MORE HERE--->

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