Rarely As Simple As It Seems - Pension Reform Edition

Andrew Rotherham:

In April there was a dust-up in the finance and education worlds when the American Federation of Teachers called out Dan Loeb, founder and CEO of a hedge fund, for simultaneously investing teacher pension fund assets while serving on the board of StudentsFirst's chapter in New York, which advocates for pension reform, and advocating reform of teacher pensions himself. The whole episode was part of an enemies list exercise (pdf) by the AFT to put money mangers on notice if they deviated from the union's line on pension reform. And it was, of course, easy fodder for one dimensional takes.

But as is often the case the reality was more complicated. For starters, because of multiple issues including irresponsible decisions by state legislators and unsustainable benefit schemes demanded by public employee unions (yes there is plenty of blame to go around) there is an enormous problem with financing pensions (pdf). But, for the most part, so far reforms have come at the expense of teachers, generally new teachers, rather than comprehensive efforts to reform how we finance retirement for educators. We need a richer conversation about how to simultaneously address the fiscal problems and modernize teacher retirement for today's more mobile labor market. The choice facing policymakers is less a binary one between defined benefit pensions (those that pay participants a pre-defined benefit) and defined contribution plans (401k-style plans that provide benefits based on contributions and investment choices/performance) than it is about a subset of choices about employer and employee contributions, risk allocation, vesting rules, and issues like portability for participants. In some states Social Security participation is also an issue.

Posted by Jim Zellmer at May 16, 2013 1:19 AM
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