Public unions betray their own members with pension propaganda
- Monday, February 6, 2017
Thanks to lobbying efforts from public-employee labor unions, Nevada teachers must now rely on an increasingly risky retirement system that costs more, and provides fewer benefits, than ever before.
New teachers are being treated “as sources of revenue for other people’s pensions,” according to a well-documented and authoritative national study. Done for the Thomas B. Fordham Institute in Washington, D.C., the just-released 370-page report examined the largest school district in every state.
It asked the question: “How long must a new teacher remain in the same retirement system until the value of her benefit exceeds the value of her contributions?”
For Clark County school teachers, that “crossover point” will take 30 years to occur. Thus any teacher who leaves before then will lose out.
“The most conspicuous victims,” write the study authors, “are new teachers, people eager to enter a profession where they can make a difference for kids:
The bargain used to be that a new teacher would receive mediocre pay but could count on a comfortable retirement. Now most new teachers can expect mediocre pay and lousy benefits. Yet many of those new teachers are unaware that the job they’ve dreamed about doesn’t fulfill its part of the bargain.
They will pay a portion of those mediocre wages into a pension system, and for most, that system will later fail to provide them with any actual benefits. What they receive in retirement will be worth less than what they put into the system while they were in the classroom. (Emphasis in the original.)
The Fordham study is the latest in a barrage of academic research that has found severe deficiencies in retirement systems like PERS, which may “negatively affect current teacher quality and retention,” in the words of two scholars with the federal Bureau of Labor Statistics.
Chad Alderman of Bellwether Education Partners believes that “public school teachers have some of the worst retirement plans of any group of workers in the entire country,” while scholars at the Brookings Institution say that “it is obvious” that pension plans like PERS are “undesirable in terms of recruiting and retaining the best public employees.”
How did we get here?
By design, the Public Employees’ Retirement System of Nevada (PERS) passes the costs from past funding failures onto future workers, which is why members’ retirement costs have increased by 40 percent over the past decade:
PERS costs as a percentage of members' salary, 2005-2016
Because of last year’s rate hike, in addition to a union-backed reduction in benefits passed in 2015, all new PERS members will fare even worse than those analyzed in the Fordham study, which used 2013 data.
And since all of that added cost is spent on existing debt and not on their own future benefit, it's likely that all new teachers will be net losers — meaning that they will have paid more into the System than what they can expect to receive back in benefits.
This unfair and inefficient practice actually violates PERS own Actuarial Funding Policy, which calls for benefit costs to be spread reasonably and equitably.
But when members’ complaints related to this inequity surfaced at PERS board meetings, those complaints, on multiple occasions, were summarily dismissed by PERS Board Chairman Mark Vincent, often with insulting and condescending language.
Perhaps even more startling is that government unions purporting to represent their members’ best interests — specifically, SEIU Nevada and the Nevada State Education Association — have actively fought reforms that would end this inequity, while supporting legislation that furthers it.
In the 2015 legislative session, Assembly Bill 190 sought to restructure PERS in a manner similar to the retirement plans used by the federal government and in states such as Arizona and Utah. The bill would have increased most members’ future retirement benefit and ensured that new members would no longer be forced to pay for other people's pensions.
Yet, AB 190 was uniformly opposed by Nevada’s public unions, who falsely maligned the bill as an attempt to “blow up” the system.
By contrast, the unions overwhelmingly supported SB 406, which cut the retirement benefits offered to workers hired after July 1, 2015 by at least ten percent, while still requiring them to pay the same record-high rates as those receiving full, unreduced benefits.
Consequently, these newer teachers will fare even worse than those analyzed in the Fordham study.
Then-president of the Professional Fire Fighters of Nevada Rusty McAllister was particularly vocal in his support of SB 406, calling it “a reasonable approach to reform.” He failed to mention that the so-called reform did not, in any way, impact police and fire members such as himself. McAllister’s own $113,000 annual pension — which he would begin collecting just two years later — was completely unaffected by the change.
Union propaganda keeps members in the dark
Naturally, if members — or lawmakers — recognized what was really going on, a revolt would occur. But due to a deliberate campaign of misinformation from PERS officials and labor bosses alike, most members have been kept in the dark.
Nowhere is this more evident than in the falsely titled “The Truth about PERS” section of the SEIU Nevada website.
Anyone acquainted with the facts will find the page a breathtaking display of shameless propaganda, completely devoid of facts and littered with outright falsehoods. More than anything, however, it treats the union reader as a child, constructing a cartoonish narrative wherein evil, fat-cat bankers conspire to steal the retirement savings of public workers.
The union makes several demonstrably false claims:
- “Everyone agrees, the public employee retirement system is healthy.”
Yet, scholars from a wide range of institutions disagree. The American Enterprise Institute, the Brookings Institution, the Bureau of Labor Statistics, Citigroup, the Congressional Budget Office, the Federal Bureau of Economic Analysis, the Federal Reserve Bank of Cleveland, Harvard's John F. Kennedy School of Government, Moody’s Investors Service, the National Council on Teacher Quality, the Nelson A. Rockefeller Institute of Government, the PEW Charitable Trusts, Stanford University, the University of Missouri, the University of Washington, the Urban Institute, as well as Warren Buffet, Nobel Laureate economist William F. Sharpe, former head of JPMorgan’s Global Sovereign Liability Management Ed Bartholomew, and former Vice Chairman of the Federal Reserve Board Donald Kohn — just to name a few — all insist that PERS is anything but “healthy.”
- Pension reform advocates employ a “doomsday scenario” that is “based on every single public employee retiring at exactly the same time.”
Not true. Reformers have never suggested such an absurd premise. The concerns raised by most reform advocates address the accounting methods used by state and local public pension plans — in which assumed investment returns are treated as certain. These methods — called “nuts” and “idiotic” by Warren Buffett and Nobel Laureate William F. Sharpe, respectively — are outlawed for private pension plans in the U.S. and are rejected by the U.S. federal government as well as the government plans in Canada and most of Europe. (This is discussed in more detail here.)
- “Wall Street wants to hijack public employee pensions to line the pockets of the 1% while leaving the 99% at the risk and the whim of a volatile stock market.”
The content of this talking point is the exact opposite of reality. The Nevada PERS portfolio is already almost entirely dependent on the stock market, with roughly 65 percent of the fund invested in stocks.
This is a significant increase from historical practice, in which equities accounted for less than half of the total fund. Reformers have consistently highlighted this increased exposure to stocks as a negative. In all likelihood, reform would actually reduce PERS dependency on stock market returns and, consequently, reduce the fees sent to Wall Street.
Ironically, it is those who reflexively defend the status quo — such as SEIU Nevada — that are pushing for the preservation of an excessively risky system that is overly reliant on stock market returns.
A way forward
Instead of concocting wild conspiracy theories designed to keep their members in the dark, and unknowingly trapped in a failing system, union leadership should embrace an honest, fact-based dialogue over how best to proceed from here.
One option would be to create a new hybrid tier, modeled after the successful reforms passed in Utah. If designed properly, a hybrid would actually increase the retirement benefits of most workers, while avoiding the possibility of future debt — with all money and investments remaining under PERS exclusive control.
If a hybrid isn’t an option, another possible reform would be to create a new retirement system entirely — perhaps one specifically for educators. Even without the hybrid component, this could be a dramatic improvement over the status quo by simply allowing new members to start fresh.
Of course, this new system would need stronger funding requirements in order to ensure we don’t find ourselves right back where we started. As a guide, lawmakers should look to Arizona’s recent reforms, which were so well designed that even the police and fire unions embraced them.
Regardless of what path is chosen, the particulars of reform matter much less than acknowledging the problem and expressing a commitment to finding a solution. To the extent that public unions continue to deny this reality, it is they, and not some imaginary Wall Street villain, that represent the biggest threat to their members’ retirement security.
Robert Fellner is the director of transparency research at the Nevada Policy Research Institute
For more from NPRI on the Nevada PERS situation, please visit: http://www.npri.org/issues/detail/pers