Time for politicians to keep their promises and invest in pensions

Time for politicians to keep their promises and invest in pensions
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Across the United States, there has been a spring awakening for teachers and other public employees this year. Teachers, school support staff, students and parents have been rallying at state capitols to demand higher pay and better funding for public education. What started in West Virginia has spread to Kentucky and Oklahoma, Colorado and Arizona, and now possibly North Carolina. While public pensions have really only featured in the Kentucky protests, they deserve consideration as part of the broader conversation about pay and funding.

Public pensions are an investment in the public sector workforce. They come with a simple promise that for every year a public employee works serving their community, their employer will contribute toward their retirement. At the end of their career, public employees will have the security and reliability of a defined benefit pension waiting for them. They have earned this part of their compensation over the years and contributed to it themselves out of each and every paycheck. Pensions are an explicit part of the deal when they become public servants.

The problem, as most Americans now know, is that politicians do not always hold up their end of the bargain. State legislators have underfunded public pension plans by skipping or deferring payments. This is even worse than it sounds. Since pension plans receive up to three-quarters of their revenue from investment returns, missing employer contributions hurt the fund overall. The more money you invest and the earlier you invest it, the more money you will be able to earn in the years to come. Every time a city or state government skips a pension payment, public employees not only lose that sum, but also the returns it would have earned, so legislators are leaving money on the table.

Underfunding public pension plans is not a new phenomenon. However, the past decade has seen an increase in the number of attacks on public pensions. This was driven partly by the financial crisis and ensuing recession. During this time, public pension funds lost, on average, a quarter of the value of their assets, while individual investors saving in 401(k)s and other defined contribution plans lost a similar amount. Critics, sensing a moment of weakness, pounced and claimed the sky was falling and that public pensions had to be abandoned altogether.

What these critics conveniently ignored, however, is that pension plans have time to recover the value of their assets. Unlike individuals saving in a 401(k), public pension plans do not have an end date. They can continue investing on an infinite time horizon as long as new employees are paying into the fund while retired employees are collecting their benefits. Abandoning public pension plans is both unnecessary and foolish. It is also part of a larger attack on public employees.

Just like public pension plans, adequate pay for teachers and robust funding for public schools are investments in the public sector and the common good. Public education makes America great by ensuring future generations of citizens will be knowledgeable and productive members of society. An educated workforce helps our economy thrive. Public education cannot succeed, though, when it is underfunded.

Since the recession, those who wish to shrink the public sector have pushed for cuts to education funding, public pensions, and other investments in our communities. Teacher pay has stagnated, classrooms are overcrowded, and a number of states face critical teacher shortages. This lack of investment has consequences, and people are finally pushing back. The teacher strikes in West Virginia, Oklahoma and Arizona have resulted in meaningful increases in teacher pay and education funding.

Public pensions were not a factor in these three states, but it is important to remember them. Research has shown that pensions are an important workforce management tool for recruiting and retaining the best workers. Pensions also provide a secure and dignified retirement for our public employees. Poorly funded pensions represent a lack of investment in the public sector, the same as meager education funding and inadequate teacher pay. These inadequate investments threaten future generations, and taxpayers across the nation are beginning to recognize that.

Tyler Bond is program manager of the National Public Pension Coalition.