Public pension plans: excessive or equitable benefits?

• Author: Esser, Jeffrey L.
• Position: Editorial

Public pension funds are under attack in the popular press. In its March issue, Reader's Digest published an article, "America's New Privileged Class," portraying public pension retirees as receiving extraordinarily generous benefits. In it, as in articles in Money and Fortune magazines during the past two years, a few public retirees whose pensions appear to be overly generous are used to generalize the retirement benefits of all public-sector employees. Devoid of data, research, and facts, these articles are a disservice to public employees. In any broad-based program, isolated examples of individuals abusing the system can be found if one is searching. Public employee pension systems have an extraordinary track record of responsible funding and reasonable benefits.

An understanding of the operations of public pension plans is critical for a reasoned discussion on their performance. Public pension funds are different from private pension funds. Private funds are governed by the well-known Employee Retirement Income Security Act (ERISA), while public funds are excluded from many sections of this law. At first glance, therefore, many authors outside of the pension industry assume that public pension funds are unregulated. This is far from the truth. Public pension funds in many cases are subject to extensive state and local laws and regulations governing their operations. In addition, state legislative bodies provide oversight to the public pensions in their jurisdiction. The administration of public pension plans, as a public trust of state and local governments, is held to the highest standard of public scrutiny as local hearings, local newspapers, and local taxpayers focus on budgeting for pension plans and proposed changes to the plan laws and regulations.

Articles in the popular press too often are based on two myths concerning public pension funds: 1) public pension plans are grossly underfunded; and 2) the design of these plans produces excessive benefit levels. These conclusions not only are unsupported, they are contrary to documented evidence. The Government Finance Officers Association and other responsible organizations know well that the facts demolish these tired old myths.

Funding of Public Pensions

Public pension funds generally are well funded. Data from the 1994 Public Pension Coordinating Council (PPCC) survey, covering nearly 80 percent of all public pension fund assets, show that public pension funds have, on average...