U.S. House Resolution 6484, the “Public Employee Pension Transparency Act,” will finally require public employee pension funds to adhere to the same regulations that govern private pension funds. The reason for this is clear enough – by not reporting sufficient information about the financial status of these massive funds, there is greater potential for them to become underfunded. This is because reducing the benefits promised under these funds, or increasing the annual contributions required by these funds, are both politically unpopular. There is an inevitable temptation to cook the books. Here are some of the key reforms in H.R. 6484:
“The plan sponsor of a State or local government employee pension benefit plan shall file a report for each plan year beginning on or after January 1, 2011, setting forth the following information:
(a) A schedule of funding status, which shall include a statement as to the current liability of the plan, the amount of plan assets available to meet that liability, the amount of the net unfunded liability (if any), and the funding percentage of the plan.
(b) A schedule of contributions by the plan sponsor for the plan year, indicating which are or are not taken into account under paragraph (a).
(c) Alternative projections which shall be specified in regulations of the Secretary for each of the next 20 plan years following the plan year relating to the amount of annual contributions, the fair market value of plan assets, current liability, the funding percentage, and such other matters as the Secretary may specify in such regulations, together with a statement of the assumptions and methods used in connection with such projections, including assumptions related to funding policy, plan changes, future workforce projections, future investment returns, and such other matters…
(d) A statement of the actuarial assumptions used for the plan year, including the rate of return on investment of plan assets and assumptions as to such other matters as the Secretary may prescribe by regulation.”
There has been a great deal of debate as to whether or not the financial solvency of public employee pension funds is seriously threatened. One of the key variables affecting this debate is the future rate of return these funds are using in their long-term projections. For example, a pension fund that is solvent – i.e., requires no increase to the annual contributions into the fund and projects no unfunded liability – when the fund managers use a long-term rate of return of 4.75% (this is still CalPERS official after-inflation return projection), will find themselves with an unfunded liability equivalent to 50% of their asset value if they lower that rate of return to 2.5%. It is reasonable, with literally trillions in assets under management by public employee pension funds, and taxpayers supposedly liable to make up any shortfalls, to expect rigorous disclosures of their financial status, and justifications for the return projections they assume. H.R. 6484 is long overdue.
Opposition to H.R. 6484 has been fierce, however. Leading the charge are the public employee unions who have negotiated the pension benefits that are now turning out to be unaffordable. An excellent report posted on December 20th, 2010 by Mike Flynn on BigGovernment.com entitled “Public Pension Cost Cover-Up? The Union Effort to Kill Transparency,” provides numerous examples of how public sector unions across the United States are condemning H.R. 6484. Lining up against H.R. 6484 are a who’s who of public employee unions, including the SEIU and AFSCME, along with public employee pension funds represented by the National Association of State Retirement Administrators (NASRA) and the National Conference on Public Employee Retirement Systems (NCPERS). Flynn’s notes on the composition of the NCPERS Board of Directors make for interesting reading:
- Pat McEllicott, President, former president of the Tacoma Professional Fire Fighters Union, IAFF Local 31
- Mel Aaronson, First Vice President of NCPERS, is the treasurer of the United Federation of Teachers (UFT), Local 2, American Federation of Teachers (AFT).
- Daniel Fortuna, Second Vice President of NCPERS, is a 30-year member of the Chicago Fire Fighters Union, IAFF Local 2
- Tina Fazendine, NCPERS Secretary, was the Insurance and Retirement Services manager for the City of Tulsa, Human Resources Department.
- Richard Wachsman, NCPERS Treasurer, was with the Dallas fire department for 41 years and held offices on the board of the IAFF Local 58.
- Elmer J. Khal, Past President of NCPERS, is a past president of IAFF Local 93.
No conflict of interests here, right? After all, only five of these six directors have been union members and only four of the six have been officers in unions. A visit to NCPERS website provides an illuminating glimpse into a massively funded propaganda machine, relentlessly promoting an agenda that includes two grotesque canards, (1) public employees do not receive total compensation that exceeds private sector employees (ref. “Pay Comparability Study Debunks Theories on Public Employee Pay and Benefits,” and (2) public employee pension funds are not in financial crisis (ref. their letters to Business Week and the New York Post).
These sorts of biased perspectives are pouring out of dozens of public employee union funded, public employee pension associations across the U.S. Their agenda, apparently, is to keep their members, voters, taxpayers, media pundits and policymakers in denial as long as they possibly can. But the reality of unsustainable deficits, maxed-out debt, and obvious disparities in compensation and benefits between public and private employees can only be obscured a while longer through extreme exertions. The party is ending.
Whether or not there are a few places left in America where public employees are underpaid – and public employee pension funds are overfunded – is certainly open to some debate. But in California it is getting harder and harder to argue either of these points with any credibility. The only thing standing in the way of defaults and bankruptcies is a commitment to get accurate information and make equitable financial adjustments based on good data. H.R. 6484 is one vital step in that direction.