“A lack of transparency results in distrust and a deep sense of insecurity.”
-- The Dalai Lama, 2012
Last month, a Blue Ribbon panel commissioned by the Society of Actuaries issued a report on public pension funding in the United States. The results were sobering. The study found that “the financial condition of public pension trusts has weakened during the last 15 years, while its exposure to future financial and other risks has increased.” More troubling, it concluded that public pension funds are opaque, consistently failing to provide adequate data concerning future liabilities.
As a result, one of the major recommendations is to have pension actuaries provide plan boards of trustees and the public with the fair value of pension obligations and estimates of the annual taxpayer contributions needed to cover them.
Pension funds have long resisted such calculations, instead preferring traditional actuarial estimates, which, as the New York Times described, are “smoothed, stretched, averaged, backloaded and otherwise spread across time.” Indeed, the unions whose members benefit from such plans (disclosure: I am a member of one such plan—the New York City Employees Retirement System) fear that such transparency will “be used to cast public pensions in the worst possible light to whip up fervor against them and justify the termination of the plans.”
While that is a reasonable fear given the ubiquity of pension naysayers intent on gutting defined benefit pensions regardless of the consequences, the true risks to the future of such pensions are (a) failing to grapple with gap between assets and liabilities—which some estimates suggest have risen to over $4 trillion from $3.1 trillion in 2009 (Massachusetts has a $63 billion shortfall according to Moody’s (see map), and $89 billion according to State Budget Solutions)—and (b) losing the confidence of the public by failing to be transparent about pension management.
That fate appears to have already befallen the board of the Massachusetts Bay Transportation Authority (MBTA) pension fund, which, because it was organized as a private entity rather than as a public pension fund, is not legally required to hold open board meetings or respond to public requests for information. Thus, despite the fact that taxpayers fund the MBTA trust to the tune of $55 million a year, they are largely left in the dark not only about the trust’s funded ratio (its assets compared to liabilities), but also the investments made by the fund.
Indeed, as the Boston Globe reported, the MBTA fund recently lost $25 million in an investment in a bogus hedge fund—an investment pitched by a former MBTA Executive Director. This relationship was not disclosed publicly by the pension fund.
In politics, when individuals or institutions try to hide the proverbial ball, it only attracts greater scrutiny and more distrust (as the Dalai Lama wisely pointed out). Thus, the way to defend public pension funds or other policies must never be to shy away from their pitfalls, but to confront them head on—and in so doing, treat citizens as adults capable of making rational judgments about the costs and benefits of various government programs.
For far too long, our leaders have blithely asserted that we can have something for nothing. And We the People, to our shame, have not only accepted these offerings, but also demanded them.
In the context of public pensions, instead of sharing in the burden of their cost, states and cities across the country have systematically shifted the burden onto the next generation of government workers, chipping away at our children’s benefits in an effort to save our own. This phenomenon is not limited to pensions. Rather, it infects every part of our public life—from the idea that we can somehow maintain our roads and bridges without raising the gas tax for 20 years to the belief that we can allow a brave minority of our contemporaries to fight and die in foreign wars while giving ourselves huge tax cuts here at home.
Transparency may not solve all these problems. But by shining a light on the true effect of our choices, maybe, just maybe, we’ll look in the mirror and decide we don’t quite like what we see.
Post a Comment