A recent report on CBSMarketwatch looked a pension envy, a growing concern among those that saw their 401(k)’s devastated over the last several years. Eric Schurenberg believes that this sort of envy will come to end as he hopes public pensions will begin feeling some of the repercussions of what affected the vast majority of us in the private sector.
Not so fast. True, there will be an enormous shortfall in the public sector pensions. The promises made will be scaled back for new workers and in some instances, tax will rise to offset some of the obligations that were offered older workers and current retirees.
But it is important to remember that many of these workers, in many instances those who did more manual labor than simply sitting behind a desk, deserve this sort of gratitude for a job well done. Pensions are a trade off for human capital in the early years to a reward for services rendered. Are firefighters to be docked for having done a job that many of us would not have even dreamed of doing? Are teachers to be reprimanded financially for standing in front of a classroom for twenty years simply because they had a union negotiate their future?
At the heart of this problem is an envy of what unions can bring to the average worker. At the heart of this envy is the idea that forfeiting the opportunity to switch jobs frequently (pensions are not portable but after a vesting period, can be frozen) and of course, control over the underlying investments is simply unAmerican. This is after all, the land of the freely mobile.
What is often overlooked is the human element involved in making sure those pensions are in tact, invested conservatively and focused on the actuarial obligations. Many communities took a chance with their pension portfolios and because, even if they lost those invested monies, the obligation to those in the plan does not disappear. They are now faced with anteing up huge portions of the public’s money to cover those financial mistakes in irresponsible fiduciary actions.
Penalizing these pensions for what they provided misses the mistakes and shifts the blame from Wall Street and those that believed (as so many 401(k) investors now know) that the market would never falter.
Pensions are the great economic stabilizer. Had more of us had them in the private sector, fewer of us would be wondering whether we were able to retire. Sure it might be that we had to relinquish the famous GOP concept that we can all be rich (except the rich will do everything they can to keep that from happening), but we would all be in a better position to retire when we wanted.
Had pensions been in place, the chances that the recent economic turbulence would have been less traumatic for the overall market has not been adequately studied. But my guess is the downturn, while brought on by the rush to poor quality securities, would have been much less severe and involved fewer investors.
Would the market have suffered? Sure. Would the downturn be all-encompassing? No. Instead, much of the turmoil was added to be investors who did not know what they were doing (but thought they could do better) and sold their investments on the way down (if they were smart, they would have instead held and counterintuitively, increased their investments). This panic only made things worse for everyone.
Pension may remove the control we say we want. But as we have seen, that control can not always be beneficial.
Visit the Pew Research Center on the States for more.
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