The right-wing American Legislative Exchange Council has jumped into the conservative effort to dismantle public pension systems in a big way, making it one of its top 2014 legislative priorities, a public pension advocacy group has warned.
The National Public Pension Coalition, which represents public sector employees, in a statement today flagged ALEC’s entry into the public pension battle as a threat to the financial security of millions of state and local public employees.
It’s an escalation of the campaign against public pensions highlighted in the Institute for America’s Future Report, “The Plot Against Pensions.” That report focuses on the work of a foundation founded by John Arnold, a former Enron executive, and a public pensions project of the Pew Charitable Trusts to promote the notion that there is a public-pension “crisis” that can only be solved by substituting these pension programs for programs that shift risks to workers, eliminate benefit guarantees and create new profit streams for Wall Street money managers. “Studies” that take advantage of the Pew reputation as a reputable, unbiased source of information have encouraged several states to take actions to privatize their retirement systems that, as the report points out, leaders in some of those states have already begun to regret.
ALEC set the stage for its own intervention into the public pension debate with a report in August that encouraged states to convert their public pension (“defined benefit”) plans into 401(k) plans or other “defined contribution” plans. The report said that the “unfunded liabilities” incurred by state pension plans could range anywhere from “$750 billion to more than $4 trillion.” To address the shortfall, the report concludes, “There is ample evidence to suggest that legislators should move from defined-benefit systems to properly designed alternatives, such as defined-contribution, cash-balance, or hybrid plans.”
That report was followed by a paper issued earlier this month by TIAA-CREF Institute, the research arm of the Teachers Insurance and Annuity Association–College Retirement Equities Fund, which markets the kind of plans that ALEC wants states to move to. That paper was written by an associate of the Laura and John Arnold Foundation, and asserts that a defined-contribution plan is not necessarily more expensive for workers and taxpayers than a defined-benefit pension plan.
That assertion has not been borne out by many of state states that have switched to defined contribution plans. “When states have adopted pension overhaul legislation, they have found that it came at a significant cost,” according to the National Public Pension Coalition statement. “Alaska and Michigan went down that road and saw their pension debts increase. West Virginia adopted a 401(k)-like plan for public employees in 1991, but reversed course in 2006 after a report found that public employees had such low incomes in retirement that they were eligible for means-tested public programs, driving up costs to the state.”
Also, the Plot Against Pensions report notes that in Rhode Island, which Arnold and ALEC hold up as their model for how the system should be remade, costs were driven up so much by fees to Wall Street money managers that even the business-friendly Forbes magazine called it “just a blatant Wall Street gorging.”
Absent from the ALEC report, as well as from the materials Arnold and Pew have sent around the country, is the fact that the amount of money needed to close any shortfalls in the pension systems and give them long-term sustainability could be easily raised by closing tax loopholes to corporations and the wealthy. Pew’s Public Sector Retirement Project estimates that public pensions face a 30-year shortfall of $1.38 trillion, or about $46 billion a year. (Notably, ALEC’s report does not offer a time frame for its shortfall estimates that would put the numbers in proper context.) That $46 billion compares to the estimated $80 billion a year that states and cities spend on corporate subsidies, many of which provide no demonstrable economic benefit beyond those receiving the subsidy.
Not only is securing a decent retirement for state workers, using funds that are often invested in projects that serve the pubic interest, a more efficient use of tax dollars than many of these tax giveaways to the wealthy, but a key argument ALEC and other conservatives use to justify dismantling public pensions has it exactly backwards. The ALEC report notes that most private companies have shifted from pensions to 401(k) plans, and questions why public employees should retain a benefit that private sector employees have all but lost. As employees who lost as much as 25 percent or more of their 401(k) balances as a result of the 2008 recession could attest, we should be fixing, not destroying, public pensions and holding those up as a model for how we can help restore retirement security to private sector workers.