May 16, 2016
Air traffic control is in dire need of reform and modernization, and there is a great plan in the House FAA bill to do just that. But a handful of conservative activists have launched a campaign to roil reform. Last week, I published two posts debunking false claims made by critics. While the vast majority of free market advocates familiar with the issue support the air traffic control corporatization plan contained in the House’s AIRR Act, a small group of anti-union conservative advocates opposes these reforms, citing concerns over labor unions.
The reform plan would transfer the...
April 12, 2016
For years, the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private sector defined benefit (DB) pension plans, has been severely underfunded below what it needs to cover its payout obligations to retirees, especially for multiemployer pensions. Closing this funding gap is urgent. Yet despite greater attention to the problem by lawmakers, the media, and the public, the problem persists.
A major reason for that is the perverse incentives built into the very workings of the PBGC. And it’s even worse for its multiemployer pension program.
First, PBGC premiums are set by Congress—a sure way to politicize the process and end up with premiums that don’t reflect actual funding risks.
Second is the “last man standing” rule, under which...
April 6, 2016
When you’re in a hole, stop digging.
That seems like such a simple concept that it shouldn’t need stating, but in the area of public pension reform, it’s often proven difficult to implement.
For states facing huge pension shortfalls, it means to stop adding to the total of pension liabilities. When it has been implemented, as in Utah, it has worked.
Better yet, it can be implemented in states whose constitutions prevent lawmakers from making any changes to pension obligations—as in Illinois, where a judge struck down a Chicago reform law on precisely those grounds.
March 28, 2016
On March 24, the Illinois Supreme Court struck down a Chicago pension reform bill that sought to address the city’s considerable pension shortfall. In addition to posing a setback for Chicago Mayor Rahm Emanuel’s efforts to fix the city’s finances, the ruling highlights a problem some states face in attempting to bring their pension liabilities under control.
As the late, great Yogi Berra would put it, last week’s ruling was déjà vu all over again. Last week’s ruling echoes a May 2015 case, in which the court ruled unanimously that SB1, a modest state pension reform law enacted during the administration of Governor Pat Quinn ran afoul of...
December 3, 2014
“I’ll gladly pay you Tuesday for a hamburger today” was the trademark utterance of J. Wellington Wimpy, the mooching character from the old Popeye cartoons. These days, he might find work to pay for his burgers managing a public pension fund—while playing bingo after hours.
In recent years, state and local governments’ pension shortfalls have gained greater public attention, due in part to the 2008 financial crisis, which left many in even worse shape. But the financial crisis isn’t alone to blame.
For years, public pension managers have been contributing less than the actuarially recommended contribution, essentially eating the proverbial burger today while leaving a future patron to pay the bill. Then, as the burger bill grows larger and our friend Wimpy gets more worried about ever paying it back, he turns to playing bingo, making ever larger wagers in the hope of...
October 7, 2014
“Heads I win; tails you lose.” That essentially sums up the relationship the California Public Employee Retirement System (CalPERS) has long enjoyed vis-à-vis the Golden State’s elected officials. Now it is finally facing a serious challenge.
Last week, a federal bankruptcy judge ruled that cities must treat bondholders and pensions in like fashion. Judge Christopher Klein of the Eastern District of California said he would decide by the end of October how to apply the ruling to the bankruptcy of the City of Stockton, but it seems unlikely that pensions will escape cuts altogether, while bondholders are forced to take haircuts.
As The New York Times reported on the case:...
Moody’s $2 Trillion Public Pension Shortfall Estimate Highlights Need for Better Pension Accounting PracticesOctober 1, 2014
In a new report, Moody’s estimates the nation’s largest pension funds face a $2 trillion taken together. That’s a lot of money. But as significant as the size of the deficit is Moody’s criticism of how many pension funds have been managed, and pension fund’s reporting of their own liabilities. Bloomberg reports:
“Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”...
September 22, 2014
CalPERS knows when to fold ‘em. The California Public Employee Retirement System, the nation’s largest public pension fund (and one of the world’s largest), announced last week that it would no longer invest in hedge funds, where it had sought larger returns in the hopes of gaining greater investment returns. It’s the right move. But it’s really only correcting a mistake, for CalPERS should have never held ‘em in the first place.
July 28, 2014
Coauthored with Alex Bolt.
President Barack Obama spuriously claimed, "These so-called right-to-work [RTW] laws, they don't have anything to do with economics," when he futilely attempted to thwart Michigan’s enactment of a right-to-work law.
A new study by the Competitive Enterprise Institute demolishes Obama’s spurious claim by showing how RTW laws, which free workers from a mandate to join a union in order to be employed, benefit states. RTW laws produce better income, population, and job growth than in forced-unionism states.
July 9, 2014
Today, the Competitive Enterprise Institute released the first installment of CEI’s new three-part series, The High Cost of Big Labor, which looks at the economic impact of labor policies on U.S. states.
In “Understanding Public Pensions: A State-by-State Comparison,” economist Robert Sarvis ranks the states based on their pension debt. This debt burdens labor markets and worsens the business climate. To get a clear picture of the extent of this effect around the nation, this paper amalgamates six studies of states’ pension debts and ranks them from worst to best. Today, many states face budget crunches due to massive pension debts that have accumulated over the past two decades, often in the billions of dollars. There are several...