Public pensions are catastrophically underfunded

Actuarial Establishment Tries to Suppress Explosive Paper on Public Pensions

Mead points out some other problems in our employment system somewhat incidentally. I will address those at the end.

More beneath the fold.

"There are powerful interests that don’t want public pensions to be governed by the same kinds of accounting principles used in the private sector because… well, because if they were, public pensions would go from seriously underfunded to catastrophically underfunded."

This is incomprehensible as it places in great jeopardy the lives of the people dependent upon these pensions. It is almost as if these people do not care what happens, or believe that the public will simply gin up $3 trillion, or $5 trillion should this go on much longer, to pay for this problem. The public will not. Instead this problem will cause a tectonic changes in our local, and state governments, in the lives of the average citizen, in lives of the pensioners, and future pensioners. 

"In the long run, shifting to a more portable system of public pensions—defined contribution, rather than defined-benefit—wouldn’t just help save states and municipalities from fiscal ruin. It would also do much to improve the performance of the civil service. The current system creates a jobs-for-life mentality in public employment because workers need to stay at their positions for decades to collect the full value of their pensions. Somebody who was a good teacher at 30 but wants to leave and should leave at 40 is currently trapped. Also, one of the reasons the unions fight quality evaluations so fiercely is that the loss of job and pension is so much more draconian than simply losing a job."

Agreed, we need to shift as quickly as possible away from defined benefit plans, and to defined contribution plans. This should be available in Social Security as well. Politicians, union bosses, and bureaucrats will hate these ideas and will do everything they can to thwart them. There is little graft, or corruption in the defined contribution scheme, and much in the defined benefit scheme.

Mead also points out how benefits can be used to tie workers to an employer, while his point here is pensions tying the public employee to the public employer, it also happens in the private sector where benefits are used to tie workers to employers. This is economically a very bad idea. Employees who otherwise would be more productive, and more valuable in another job, may not be able to move because of a benefit, say life, or health insurance. 

Not only do with need to move to a defined contribution retirement scheme, but we need to move away from employers providing benefits other than wages to employees. We obviously need to reform most of the benefits making it much easier for individuals to create these benefits themselves, whether life insurance, health insurance, disability insurance, unemployment insurance, or other. None of this is particularly difficult to accomplish outside of the political sphere. As usual politics is the fly in the ointment.

First we need to address pensions, public, and private, then on to the rest. There is no time to waste.