These examples only scratch the surface on the long list of groups that have, in the past, been targeted for abuse and public ridicule – incidents that we can now look back on and wonder, “What were people thinking at the time?”
Will future generations look back on what is happening presently and ask that same question? They probably will and a group they will likely be discussing will be state and local government employees. “Public servants” seem to be the target du jour and their defined benefit pension plans are being characterized as being the root of all evil that will lead to the end of western civilization as we know it. Why them and why now? After all, don’t we also have a debt crisis, a health care crisis, a social security crisis, a Medicare crisis, an energy crisis, an education crisis, a retirement income security crisis and an obesity crisis, just to name a few. So, why have government employees and their pension plans moved to the top of the crisis list and been subjected to such heavy doses of criticism?
I think there are a number of reasons:
- The first is that the other current crises cannot be identified with a select group (other than perhaps policy makers at the federal level but they are sufficiently diverse that it is difficult to pinpoint a specific contingent). If you are going to trash something you need a group to blame. State and local government employees just happen to be handy.
- For years there have been sporadic initiatives to replace defined benefit pension plans with defined contribution plans, but why? I can offer three trillion reasons – the dollars held in trust by public sector defined benefit plans. Those responsible for the investment of these assets have done a reasonably good job of keeping management fees down. If shifted to individual accounts it will be much easier for service providers to increase their fees. In 2000 there was a major push in Florida to give plan participants the option to participate in an individual account defined contribution plan. According to an article in the May 5, 2000, edition of the Wall Street Journal, the financial services industry had between 50 and 75 lobbyists lined up Gucci to Gucci prowling the halls of government making their case for the defined contribution option. Does anyone think they were doing this in the interest of the plan participants?
- In the same Wall Street Journal article mentioned, a representative of the American Legislative Exchange Council was quoted as having said the following about public employees: “They see their friends in the private sector doing well in their 401(k)s, and they want the same opportunity.” That was then but the tides have shifted substantially since the turn of the century. Now we are hearing that private sector employees have seen their 401(k) balances decimated by the bursting of the tech bubble and the great recession. Accordingly, public sector employees should be stripped of their defined benefit plans so they can be just as financially ill prepared for retirement as are their private sector counterparts. Face it – when a private sector employee retires, the employer typically prefers having no further obligation for that employee. If the retiree runs out of money, it’s not the employer’s problem – it’s the government’s problem. We have many rules and regulations that prohibit pollution of the physical environment. It’s interesting that corporate pollution of the financial environment has not been addressed in this area.
- Public retirement plans need to take some responsibility for the private sector migration to defined contribution plans. In their capacity as shareholders, they expect the companies in which they invest to perform. One way to increase earnings is to reduce costs and one way to reduce costs is to reduce benefits for employees, particularly when unemployment is high and the employer is not at risk of employees leaving. When the employees leave service, the fact that the employees have no retirement income associated with their service with that employer is not the employer’s problem, at least not immediately. Again, let the government take care of the problem (which under this logic is in part is a problem of governments’ making).
For those who are financially or philosophically interested in facilitating the demise of public sector defined benefit plans, the credit crisis of 2008 was made to order. It was a crisis that was just too good to pass up. While there have always been isolated cases, the volume of anti-defined benefit plan literature that has been generated since 2008 has been staggering. A good deal of it has been long on hype and short on substance. The claims being made obviously do not have to be supported by facts and the marching orders seem to be “the more outrageous the better.” All that is needed is a credible name behind it such as a prestigious university or a think tank with broad name recognition.
So who is paying for all of this “research?” That’s the three trillion dollar question and it will probably remain unanswered. It seems that the strongest proponents of “transparency” are not real good about practicing it. Could it be that revealing the funding sources would call their objectivity and the veracity of their conclusions into question? Being able to follow the money can be quite enlightening but I’m not counting on being enlightened on this matter.
Gary Findlay, Executive Director, Missouri State Employees’ Retirement System (MOSERS).
Mr. Findlay is executive director of the Missouri State Employees' Retirement System (MOSERS), a position he has held since 1994. Prior to that, he spent 16 years as an administration and benefit consultant with Gabriel, Roeder, Smith & Company, a national actuarial and benefits consulting firm that specializes in serving the needs of public employee benefit plans. He was CEO of that firm from 1986 until he joined MOSERS.