Union Bosses Have Frequently Favored Schemes to Underfund Public Employee Pensions

In a column appearing in RealClearMarkets this past week (see the link below), Steven Malanga of the Manhattan Institute cites a new study by Moody’s finding that from 2004 to 2012 unfunded liabilities in America’s biggest government pension funds nearly tripled to just under $2 trillion dollars.

When confronted with such alarming data, the government union officials who wield monopoly-bargaining power over most of the employees whose pensions are at risk pin a large share of the blame on poor investment returns resulting from the Great Recession of 2008-2009. However, Malanga, again citing Moody’s, points out that public pension investments actually roughly met their targets over the past eight years in question: “[I]nvestment returns averaged 7.45 percent annually, just slightly below projections.”

The actual reason liabilities skyrocketed from 2004 to 2012 is quite different:

[B]y employing a host of questionable accounting techniques, the pension funds understated their debts and minimized the amount of money that governments and workers needed to contribute to these systems, shorting them of valuable assets.

Government union bosses and their allied politicians have for decades colluded in the underfunding of public employee pensions.  Deals in which future benefits are inflated by a huge amount, but government employee and employer contributions to the funds are not increased nearly enough to pay for the promises that are made, are not good for employees or taxpayers.  But such deals enable union bosses to brag to members about the big contract “gains” they have made and provide an excuse for union officials’ often exorbitant salaries.  And they enable politicians to benefit from Big Labor support without suffering any significant taxpayer backlash in the short term, because the cost of the deal is pushed off into the future.

In the long run, of course, promising bigger pensions than you’re willing or able to finance means the retirement funds employees are counting on may not be there in the end.  It also means taxpayers may well get socked hard, down the road.  The Golden State, Malanga notes, is a key example:

In California, meanwhile, voters passed a $6 billion tax package in November of 2012, with much of the money earmarked for education. But most of that money will go toward educator pensions after Gov. Jerry Brown passed a new funding plan for Calstrs–the severely underfunded California state teachers’ pension system–which collectively increases retirement contributions by school districts from $2 billion to $6 billion over the next five years.

Two years ago, Big Labor California Gov. Jerry Brown helped union bosses secure approval of a $6 billion tax hike to fund “education.” Now it turns out little of the money raised will go into teacher salaries, refurbishing schools, or new curricula. Instead most will go to shore up the Golden State’s grossly underfunded pension fund for K-12 educators. Image: radiotrece.com

Bad Pension Math Is Bad News for Taxpayers