West Virginia is faced with a "failure of government" with its constitutional prohibition against investing state pension funds in equities. It's ironic that a state, created out of an extraconstitutional action of the Civil War, should now be paralyzed by its own constitution. Maybe public employees and taxpayers should petition to rejoin the state of Virginia. At least they might petition the state's pension funds be allowed to secede from West Virginia.
Right now, the taxpayers who finance the pension funds and the public employees who depend on them to secure retirement income are virtual slaves of a misguided constitution, specifically a provision, as interpreted by the state attorney general and the courts, forbidding equity investments. As a result, the state's defined benefit pension funds have been poorly funded and its defined contribution funds, set up a few years ago, are in jeopardy.
No state constitution is carved in stone. For years now, it has been evident an amendment is needed to the state constitution lifting the prohibition against stocks. But the state's politicians, despite years of problems with the pension funds, have yet to put forth a permanent solution.
The governor and state legislators, who should have made it a priority some years ago, should now have a special brainstorming session to devise a plan to amend the constitution. They have to first come to agreement among themselves of the significance of an amendment, then establish a timetable for moving swifty, and lastly but most importantly campaign among the electorate to persuade it of the need for change.
Politicians might begin by showing how state funds have been waylaid by disastrous investment policies.
The idea that equities are risky and bonds and other fixed-income investments are safe shows the wayward thinking in West Virginia.
Fixed income has caused the state major troubles. The losses cumulatively may outweigh any Orange County derivatives disaster. But because they are more hidden and take place over years, it's harder for taxpayers and beneficiaries to appreciate the growing problem.
The lack of diversification into equities is one reason the West Virginia Teachers' Retirement System had $3 billion in unfunded liabilities in 1990 when a defined contribution plan was created for teachers.
A recent state Supreme Court opinion reaffirming the prohibition on stock investments may cause the state to close two defined contribution plans, including the one set up for teachers five years ago.
If the ruling covers the plans, they would not be able to generate enough money to pay retirement benefits and should be closed, said Jim Sims, executive director of the Consolidated Public Retirement Board in a news service report. As he has, Mr. Sims is correct to suggest that the only way to solve the problem is to pass a constitutional amendment allowing the Board of Investments and Consolidated Public Retirement Board to invest in stocks.
Despite having a Rockefeller as a senator, West Virginia is not a rich state. Its taxpayers and state pension beneficiaries can ill afford to spend more or take less in pensions. One reason the people aren't better off is that the state has made - and is making - them poorer by making them pay more in pension contributions than they need to do. It's time for the residents to rebel by passing a constitutional amendment.
