In re Pensions

An editorial by the Houston Chronicle published over the weekend touched upon this topic, and a Mike Morris article on the front page of the Chronicle‘s City & State section on Sunday expanded upon the topic. Municipal pensions.

The argument is somewhat straight-forward. Our liabilities on the Municipal, Police & Fire (all distinct) pension funds all drastically outweigh our funds to cover them. However, there are some straight-forward goals that are easily attainable to solve these issues. All too often, though, the term “pension reform” is a clever euphemism for giving the shaft to public employers. Yet another way to pull a massive scam over the heads of the working person in the name of fiscal responsibility.

Parker’s ideas, which I mostly agree with, are to end the generous cost-of-living adjustments for the workers, as well as give the option to for employees convert to a “defined contribution” plan, which is a fancy euphemism for privatization, since George W. Bush ruined the reputation of that word vis-a-vis retirees. The “defined benefit” plan, or the status quo (actual) pension, would continue for all those who want it, albeit in less generous amounts, under Parker’s plan.

Hall, meanwhile, wants to force all employees hired after 2008 off the road and into the privatized 401k plans. What all this means for Hall’s cozy relationship with the Firefighter’s is somewhat unclear. The Fire pension is the best funded because of special State control that mandates extremely generous contributions from the City of Houston. It is the small bites of Parker’s that led to the exceedingly acrimonious relationship in the first place.

When asked about Hall’s plans, Todd Clark, representative of the Fire fund, dodged the question, but took immediate aim at the lesser demands of the Mayor. Clark went on to disparage both the end of cost-of-living-adjustments (COLA) and the mere option of the 401k plans. From the Chronicle article, Clark’s quote:

“Working as a Houston firefighter is a long-term career. We strongly believe (defined contribution) plans do not provide an adequate retirement after serving three-plus decades protecting the citizens of Houston. The defined benefit that is in place is in the best interest of the Houston firefighters.”

Parker seemed somewhat confident that the COLA could pass through the City Council, but was more ambivalent on the question of the partial privatizations.

Finally, Chalres Kuffner at Off the Kuff has some brilliant commentary on this topic. We largely agree on this issue, believing that pension reform is often a thinly-veiled euphemism for disparaging working people. Oh, and that’s the position of the Texas Observer as well. Back to Kuffner for the close:

Thank God, Bill King finally has a Mayoral candidate he can support. I just wonder if this is what the firefighters thought they were getting when they endorsed Hall. But like Mayor Parker, this is where I get off. Because let’s be clear on something, pension plans generate vastly superior returns than 401K plans. High income workers in the private sector may do better with 401Ks than they would with pension plans, but lower income workers and public employees do better with defined benefit plans. Employers may do better under 401Ks, but that’s because they get to contribute less. Of course, that comes out of the hides of the employees. Not a bad deal for the Bill Kings of the world, who somehow never call upon themselves to make sacrifices for the greater good, but not so good for the affected employees.

Finally, the conflation of the police and firefighters’ pension funds just serves to muddle what the issues actually are. The city’s complaint about the firefighters’ pension fund is that they don’t have any say over how much they have to contribute to it each year. (Perhaps not coincidentally, the firefighters’ pension fund is also one of the best funded in the state.) The city would also like to negotiate over and try to wring some concessions on things like the deferred retirement option (DROP) and automatic cost of living adjustments (COLAs). The city has already gotten most if not all of the concession it sought from the police and municipal employees’ pensions, and if you listen to my interview with CM Costello, you’ll hear him say that the city has largely solved its long-term problems with these pension funds. There are issues in the short to medium term, resulting in no small part from the city’s underpayments to those funds in recent years, but once we’re past that the system is sustainable. Mayor Parker will tell you that if the city can negotiate changes to DROP and get some discretion on COLAs, it will have a handle on the firefighter’ pension fund. Whether you agree with that or you agree with the firefighters, the point is that replacing pensions with 401Ks is hardly necessary. Making bogus comparisons to Oakland or Detroit isn’t helpful.


2 thoughts on “In re Pensions

  1. “All too often, though, the term “pension reform” is a clever euphemism for giving the shaft to public employers.” I’m pretty sure you meant “employees” and not employers in this sentence but yes, the ones most anxious in so-called “reform” are the ones trying to lower pay and benefits for the working class.

    Some of the detractors might just be jealous that they took their payments for work rendered while working, having to settle for whatever they get from Social Security and often meager savings. Others are just opposed to anyone getting a better perceived deal than they got, forgetting that most studies, Kuff mentioned one, show that when all factors are considered, public sector employees get paid less so pensions help make up for it a bit.

    The professional detractors have their motives too, from Bilkings using it as a campaign platform for a likely run for office even though he resides in another city, to the academics for hire used by the likes of the Arnolds, McGee admitting in a lengthy radio interview awhile back that he had not even read the three pension reports he was commenting on. John Arnold’s motivations have been tied to possible investment opportunities that would arise from massive amounts of money moving into the public sector equivilent of 401k plans but frankly, given how he soaked the public with his energy trading (before regulations curbed his niche), I’m not sure if that is accurate or not.

    Most employees for the city have begrudgingly given in to benefit cuts and payment holidays over the last nine years, HFD leaders coming to the conclusion that since they are paid so poorly compared to their peers in other cities both during their active years and in retirement, they are not willing to easily cave in as the others did. The other two groups appear to have formed the opinion that unless HFD shares in future cuts and the city stops funding so many frills, they should be left alone.

    Ultimately, the already accumulated liabilities are not going away and reforms to future employees are not going to help that issue. To impact those, cuts to existing retirees and those currently working would need to take place, something unlikely to happen under Parker or Hall given state politics. No one one in Austin wants to give either of those two something to use as a steppingstone for higher (state) office.

  2. Pingback: Texpatriate | More on pensions

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