Public pensions are a good deal for taxpayers, and dismantling them would be costly and short sighted, the National Conference on Public Employee Retirement Systems asserts in a new research report.
Critics of public pensions funds disagree, arguing that they are inadequately funded.
The report seeks to dissect arguments used by what NCPERS calls “ideological organizations” to discredit public pension funds.
It argues that underfunding levels are calculated by means of politicized processes in many states, and should be looked at askance.
“Critics often advance the false imperative that cities and states should be able to cover their long-term pension liabilities with current revenues,” NCPERs’ executive director and counsel Hank Kim said in a statement.
“But that’s not how advance funding models work, whether for public pensions or other long-term goals such as retirement or college savings.”
Kim’s colleague Michael Kahn, director of research and author of the report, gives this example. Setting up a college fund at birth for a child’s education results in an unfunded liability for many years.
Over time, however, investment income and ongoing contributions would reduce this unfunded liability — possibly to zero with proper planning, and sometimes into a surplus. “That is how pensions work,” Kahn said in the statement.
“Many factors can affect the level of unfunded liability over a period of years, but in the end, pre-funding is a winning formula that controls rather than increases risk for taxpayers.”
Dismantling pensions would harm taxpayers economically, the report says, citing NCPERs’ earlier research. By the middle of the next decade, the economic damage would amount to $3 trillion if governments continued to dismantle public pensions.