I love the New York Times. But its reporters’ slant on public employee pensions has been driving me crazy, and the latest story by Mary Williams Walsh and Rick Lyman didn’t help. Walsh has been carrying a vendetta against public pensions for many years, so it is no surprise that the article makes the unsupportable claim that none of the 40 state pension overhauls has “come close to closing their pension gaps quickly enough to keep pace with a rapidly agingand retiring—public work force.” I leave it to the reader to fully decipher that statement, but it seems to reflect the story’s headline, that “Public Pension Tabs Multiply as States Defer Costs and Hard Choices.” It implies that despite the states’ pension overhauls, things are getting worse everywhere because public employees are aging and retiring faster than the financing is improving. It’s surely meant to be alarming, as is the chart of Moody’s Investor Service data showing 13 states with “unfunded pension liability greater than annual revenue.”
Moody’s, itself, tells a different story. Moody’s points out that its data are 20 months old and don’t reflect current balance sheets or the enormous market gains of the last 18-20 months. Moody’s points out that “A run-up in financial markets has helped shrink public pension shortfalls” since June 30, 2012, because “Investment returns provide the lion’s share of the retirement systems’ revenue”:
But fiscal 2012 ended for most states on June 30, 2012, and since then, a run-up in financial markets has helped shrink public pension shortfalls. Investment returns provide the lion’s share of the retirement systems’ revenue, and in 2013, pensions’ holdings reached record amounts.
That could make fiscal 2012 the high-water mark for pension problems that have rocked state governments over the last decade and led to a wave of pension reforms recently, according to Moody’s.
Pension liabilities “for 2012 may reflect a cyclical peak as a result of subsequent strong market returns and a rising interest rate trend,” the rating agency said.”
Williams and Lyman move from obfuscation to something closer to dishonesty with a claim (which they attribute to Stanford professor Joshua D. Rauh) that “The clearest evidence that pension overhauls have fallen short is that the gap between the projected cost of the benefits and the money set aside to pay for them has continued to grow—to $4 trillion this year from $3.1 trillion in 2009.” This year is 2014, and no one has a complete, current accounting of total unfunded pension liabilities. Rauh’s statement could be true about 2012, but as Moody’s suggests, 2013 was a banner year for investment returns and unfunded liabilities have almost surely declined.
The story’s claim that no state is managing to catch up on its liabilities because the workforce is aging at a faster rate is also untrue.
I haven’t looked at all 40 states, but I’ve looked closely at Oklahoma, which has undertaken a series of reforms over the past several years. Steve Herzenberg of the Keystone Research Center and I have published reports in the past four months showing the steady improvement in financing for Oklahoma’s biggest public plans. The improvements resulted from enactment of the following reforms:
- In 2006 and 2007, the state increased employer contributions to the Teachers’ Retirement System and enacted legislation that made it much more difficult to improve pension benefits.
- After a history of ad‐hoc cost‐of‐living adjustments (COLAs), the state in 2010 enacted a requirement that future COLAs be fully funded at the time of authorization, preventing the cost of COLAs being absorbed by the plans, and slashing nearly a third from their aggregate unfunded liabilities.
- Other changes provided additional dedicated revenue to the teachers’ pension plan, raised the normal retirement age for most new employees from 62 to 65, and increased employee contributions and reduced benefits for firefighters.
The unfunded liabilities in Oklahoma’s seven public pension plans fell from $16.1 billion in 2010 to $10.6 billion in 2011. But the state wasn’t finished. In 2013, the legislature made major changes to firefighters’ pensions, increasing employee and employer contributions and the share of the state insurance premium tax dedicated to the firefighters pension fund increased from 34 percent to 36 percent. Other changes increased retirement ages, vesting periods, and years of service requirements and dedicated surplus revenue to a pension rainy day fund.
Oklahoma’s pensions are sustainable for the long run, but reporting like the Times’ misleading story and efforts by ideological opponents of public pensions like the Pew Center on the States and the Arnold Foundation are encouraging right-wing politicians to attempt to eliminate the plans altogether.
Williams and Lyman got one thing right, and though it’s obvious it’s worth repeating. The surest way for states to get into pension trouble is to fail to make actuarially required contributions, as New Jersey and Illinois did year after year. Electing politicians who won’t raise taxes to pay for the state services they authorize is a sure recipe for trouble.