Experts Document That Public Pensions Are Weathering the Financial Crisis

Congressional testimony faults research of public pension critics as distorted, misleading; new CEPR study agrees that state and local pension fund shortfalls are “seriously misrepresented” and finds that most appear “easily manageable”

WASHINGTON--()--The following is a statement issued by the National Council on Teacher Retirement:

Keith Brainard, Research Director of the National Association of State Retirement Administrators (NASRA), today told the U.S. House of Representative’s Judiciary Committee that state and local government pensions are weathering the financial crisis, making measured changes to ensure long-term sustainability, and do not require Federal assistance. Mr. Brainard said that many public pension critics lack sound knowledge and understanding of how public pensions work, or rely on methods and assumptions that are “inappropriate and inapplicable” to the way these plans operate.

Mr. Brainard, who was appearing before the Judiciary Committee’s Subcommittee on Courts, Commercial and Administrative Law, expressed particular concern with research conducted by certain academics.

They promote confusion, according to Brainard, by mixing apples with oranges. For example, one such report compares, for many states, local governments’ unfunded pension liabilities with the tax effort of only the state. However, local governments are also responsible for funding pension liabilities, and excluding local sources of revenue “produces a distorted and misleading measure,” said Brainard. “This is akin to measuring the mortgage capacity of a working couple, yet considering the income of only one of them,” he warned.

Pension funds hold $2.8 trillion in trust from which they pay benefits, which is roughly 14 times the amount they distributed in benefits last year, according to Mr. Brainard. “Using even conservative estimates, pension funds representing the vast majority of public employees will be able to continue to pay benefits for decades, if not into perpetuity,” he stressed.

Furthermore, the percentage of all state and local government spending on pensions has hovered around three percent during the last decade. The impact of the financial crisis will likely require spending to increase somewhat, Brainard said, but the most recent studies find that the share of state and local budgets dedicated to pension contributions would need to rise to only about five percent on average. “The assertion that public employee pensions are contributing in a meaningful way to state insolvency is simply not supported by the facts,” Brainard pointed out.

Mr. Brainard’s conclusion was echoed in a report, also released today, by the Center for Economic and Policy Research (CEPR). Their paper, “The Origins and Severity of the Public Pension Crisis” by Dean Baker, an economist and Co-Director of the Center, finds that “The shortfalls facing most state and local pension funds have been seriously misrepresented in public debates,” and that the size of the projected state and local government shortfalls, measured as a share of future gross state products, appears manageable.

Mr. Baker says that the total shortfall for most state and local pension funds is less than 0.2 percent of projected gross state product over the next 30 years for most states. “Even in the cases of the states with the largest shortfalls, the gap is less than 0.5 percent of projected state product,” he concludes.

“Mr. Brainard’s testimony provides a careful review of the operations and funding of public pensions, their share of the overall budget picture at the state and local level, and the steps state and local governments are taking to bring their pension plans into long-term solvency,” said Jim Mosman, NCTR’s Executive Director. “His testimony and that of other experts underscores the fact that, despite the hyperbole of certain academics, state and local pensions are not about to run out of money in a few years, nor are they the cause for state and local governments’ current financial difficulties,” Mosman said.

The National Council on Teacher Retirement (NCTR) membership includes 69 state, territorial and local pension systems, serving more than 18 million active and retired teachers, non- teaching personnel, and other public employees, with combined assets of more than $2 trillion in their trust funds.

Contacts

National Council on Teacher Retirement (NCTR)
Jim Mosman, Executive Director, 916-394-2075

Release Summary

Congressional testimony faults research of Joshua Rauh as distorted, misleading. New CEPR study agrees that public pension shortfalls are seriously misrepresented and most are easily manageable.

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Contacts

National Council on Teacher Retirement (NCTR)
Jim Mosman, Executive Director, 916-394-2075