Sharing the Pain Means You Hurt and They Have to Reduce Their Massages
Somehow, I think we all expect Rhode Island to pursue the sort of inadequate solution to the pension crisis that consultant Joseph Newton described to the union-heavy pension advisory panel. Consider:
Cost-of-living adjustments, instead of being based on a commonly used measure of inflation, would be based on how well the pension fund’s investments perform. As an example, if the fund met its target of a 7.5-percent return, retirees would get a 2-percent adjustment. If the fund didn’t meet the 7.5 percent, the adjustment would be lower, Newton said. On the other side, if the fund did better than 7.5 percent, retirees would get an adjustment higher than 2 percent. This would align how much the government pays with how much it has in the pension fund.
It’s like Bugs Bunny counting out “one for you, one for me; two for you, one, two for more.” The pension system outperforms the necessary returns one year, beneficiaries get more money; it underperforms, beneficiaries get more money. But this is the best part of Newton’s suggestion:
… it might take 15 years to reach a point where the contribution levels he outlined could be implemented. As an example, the taxpayers might have to kick in 23 percent of an employee’s salary during that time to help pay off the unfunded liability. And retirees might be asked to do without cost-of-living adjustments for the same amount of time.
For fifteen years, we’d collectively be paying $16,100 toward the pension of a $70,000 per year teacher. That’s a quarter of a million dollars per teacher, and teachers aren’t the only pension recipients. On the other side, the “shared pain” is no automatic annual increase.
And when it turns out, in fifteen years, that investments didn’t do as well as necessary, or some other mismanagement by the government affected the amount of money on hand? There’ll only be more pain to share.