Pensions and Politics

Katherine Gregg’s Providence Journal article on Rhode Island’s pension fund losses has an interesting frame. Toward the beginning (emphasis added):

Despite this recent run of losses, state officials say there is no immediate danger for state and local employees and teachers whose retirement checks are drawn from the pension fund, which is made up of a mix of investment earnings, taxpayer contributions and employee contributions. These retired public employees are guaranteed pension payments for life, regardless of the stock market’s performance.

And the final word is given to Stephen Laffey, who (Gregg notes) is “weigh[ing] a return to politics”:

“I have said many times that the only way to save the pension system is to end it and give everyone their money and go to a 401(k) plan … like the people in the private sector,” Laffey said in an e-mail.

The question — over which the unions will shed blood, if necessary (although probably figuratively) — is who bears the risk. When the market shrinks beyond reserves, or simply does not live up to the excessive requirement of more than 8% growth, either retirees manage on less income or the state attempts to tighten the tax vice on a population that already feels overtaxed (with ample justification). Moral considerations aside, the latter option is simply not functional; folks working in the private sector are not going to idly watch their money flow to retirees, many of whom are taking home more than they are, and employers are not going to accept the escalating costs associated with operations in Rhode Island.
Probably the most important point to emerge from the article is that inadequate half-measures aren’t going to cut it:

But the market losses have already eliminated any possibility of taxpayer savings this year from state lawmakers’ decision to curb annual cost-of-living increases and institute a minimum retirement age for all state pensioners. As state budget officer Rosemary Gallogly explained Wednesday: “The rate of payroll determined for FY2010 will not change as a result of pension fund performance.”

Mr. Laffey, in other words, is absolutely correct: The two possibilities are (1) drastic changes or (2) the collapse of the pension system, bringing the state with it.

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George
George
11 years ago

Once again, truth and solutions from Laffey. Smoke and mirrors from everyone else.
Run Laffey, RUN!!!

Phil
Phil
11 years ago

You have titled this Pension and Politics. Not policies. The reason Ms. Gregg contacted Laffey was to get a response to Caprio’s assessment that his actions as Treasurer had helped the RI pension fund lose less than other state’s funds. Caprio is relevant in this story of pension fund loses given his statewide office is that of treasurer. Laffey is where? Laffey seems to disregard the facts that Ms. Gregg includes here in calling RI pension fund “the worst funded pension system in the U.S.” Look for more from the manic and hyper-talkative Laffey as others do the work in this state.

John
John
11 years ago

Had everyone in the defined benefit pension management businessbeen required to assume nomore than a 6% return with no adjustment allowed for superior performance (because we know that a crash will occur over time), then contributions would have been higher or benefit levels would have had to be lowered.
The whole process is corrupt.

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