Politics plays big role in demands for public pension reform

As public pensions take up a larger share of state and local budgets — and headlines — interest groups across the political spectrum are stepping into the limelight at unprecedented levels.

Still, as many public pension systems start racking up stronger investment returns that help ease the strain on public budgets, the call for wholesale public pension reform might lose some steam, observers say.

While public pensions traditionally have been seen as a union issue, the more recent voices for change are “probably more conservative,” said Frank Shafroth, director of the Center for State and Local Government Leadership at George Mason University in Fairfax, Va. “There's not great sympathy for defined (benefit) pensions, and there is enormous focus by the whole country on what's happening with Detroit,” said Mr. Shafroth, who is a former federal relations director for the National League of Cities. (Detroit in July became the largest U.S. city to seek bankruptcy protection; at the time, the acting city emergency manager said the city's two municipal pension plans had about $3.5 billion in combined unfunded liabilities.)

“To my mind, much of the opposition (to public defined benefit pensions) is really political,” said David Madland, director of the American Worker Project at the Center for American Progress in Washington, a progressive think tank. “It is not really about reform and it's not about saving taxpayers money. To me, it is about several things, including shifting the blame for states' problems, and scapegoating the unions. There is also an ideological fight by some who think that people should be completely on their own in saving for retirement.”

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, thinks the recession helped make pension reform a more frequent topic at the state and local government level, particularly where private-sector workers continue to struggle with employment and benefit coverage. “It's become a fairly mainstream centrist position. The recession was a huge opening,” said Mr. Baker.

“The public has never been as interested” in public pension programs, agreed Stephen Eide, a senior fellow at the Manhattan Institute's Center for State and Local Leadership in New York, who attributes the level of interest to fewer private-sector defined benefit plans and public pensions' larger share of state budgets. A key message of the Manhattan Institute, which describes itself as a think tank aimed at fostering “greater economic choice and individual responsibility,” is how pension costs “crowd out” other public services. The group is also focusing on removing constitutional protections for public pensions in states like California.

At the American Legislative Exchange Council, an Arlington, Va.-based group focused on limited government and free markets, members including state elected officials and corporate backers “have been very interested in looking at moving away from defined benefit” and considering options like cash balance plans and annuities, said Jonathan Williams, director of ALEC's tax and fiscal policy task force. “They are interested in making sure that payments are predictable, affordable and made,” said Mr. Williams, who stressed it will take a bipartisan solution “because it's certainly been a bipartisan problem.”

Mike Barnhart, CEO of State Budget Solutions, a national organization based in Glen Allen, Va., that advocates for defined contribution plans for new public sector employees, insists his group is non-partisan. “We're supportive and critical of both Republicans and Democrats. I think we get accused of (being right wing) because that is something that's in the air, but the debate really has shifted to how you fix it. You do reach a point where it's not about ideology; it's just math,” said Mr. Barnhart.

“To some extent, the taxpayers are kind of in the middle,” said Diane Oakley, executive director of the National Institute on Retirement Security, Washington, who sees the added voices as “sort of a mix of libertarianism with monetary interests,” including retirement plan service providers that stand to gain from a major shift to defined contribution plans.

The heightened scrutiny hasn't been all bad. “One real positive is that you no longer have elected officials giving away benefits without paying for them. Transparency has shed a light on what those practices cost,” said Jeffrey Esser, executive director and CEO of the Government Finance Officers Association, Chicago. But he worries that “folks who do not like state and local government employees (are) furthering the misconception” that all plans are in financial difficulty.

“We're talking about a very small minority. There are those that are not willing to just look at the data. Instead, they want to invent their own methods of measuring the plans,” Mr. Esser said.

Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees, Washington, sees some free market or anti-union groups getting more attention from, and audiences, with state legislators. But he also sees the tables turning as more is learned about the groups' messages and motives, particularly when public pension advocates sit at the table with legislators to work out constructive changes. “We win more than we lose,” said Mr. Kreisberg.

One of the latest victories came Nov. 5 in Cincinnati, where voters overwhelmingly rejected a ballot initiative that would have created a new defined contribution plan for public employees as well as required the $1.4 billion defined benefit plan to become 100% funded in 10 years.

“We are grateful to the voters of Cincinnati for putting their foot down on a risky retirement scheme,” said Jordan Marks, executive director of the National Public Pension Coalition in Washington. The group, whose members include public sector unions, has taken particular aim at the Pew Charitable Trusts' partnership with the Laura and John Arnold Foundation, Houston, on a public sector retirement project that has advocated for cash balance plans in some areas.

Critics of public defined benefit plan programs “are coming up with new tactics, but so are we,” said Mr. Kreisberg of AFSCME. “They are well-funded and have time on their hands. We have better functioning coalitions, more research to bring the facts to light and more of a base. We're beginning to see some progress because the bigger problem in America is the lack of retirement security. That's where the focus ought to be.”

For Mr. Baker the economist, better investment returns are also going to do some of the talking, particularly as public pension funds begin smoothing out the last of their recession losses in the next few years. When those numbers come out, “those funds are going to look a lot better, and that might undermine some of this effort,” he said.

Meredith Williams, Denver-based executive director of the National Council on Teacher Retirement, agreed. He credits opponents of public pensions for being bright, well-funded, and more organized than in the past, but added, “If you've got the facts, I think you're going to be OK.”