Dramatically overstated “unfunded liabilities” of public pension systems are a cornerstone of the arguments used by public-pension opponents. They deliberately and drastically lower the amounts of money public pensions can expect to receive from their investments, which makes for dramatic headlines about alleged shortfalls and inflames public opinion. And just to show their purity of motive, these opponents often decry the fact that the public systems assume higher investment returns than their corporate counterparts.
We’ve seen former Arnold Schwarzenegger advisor David Crane and former legislator Joe Nation misuse Stanford University’s good name and reputation by ginning up a headline grabbing study claiming that unfunded liabilities of California public pension systems are in the hundreds of billions of dollars. They accomplished this feat by enlisting graduate students to crank out projections based on absurdly low future investment return rates.
Likewise, California Congressman Devin Nunes in the past year authored a bill to try to force public pensions to use short-term treasury rates – presently well under 2 percent – to project future investment returns. In doing so, the unfunded liabilities of these pensions would’ve soared, giving Nunes, Crane, Nation and friends more ammunition with which to attack public pensions. And, of course, these very same people would then demand drastic “pension reform.”
But just last week Congress passed HR 4348, raising the investment return rate corporate pension plans can use for their projections. The legislation now allows corporate pension plans to use a 25-year investment history to calculate their investment returns. The New York Times pegs this new rate at “around 7 percent,” which is significant because the new congressionally-approved investment return rate for corporate pension plans will be only a half percent lower than the one used by most public plans.
You might expect Congressman Nunes, whose own bill would’ve required public pension plans to report liabilities using a rate of less than 2 percent, to oppose HR 4348. But he in fact voted “yes” to letting corporate plans increase their investment return rates, as did 38 of the 51 co-sponsors of his legislation.
The California pension bashers have been silent. We haven’t heard a peep from Crane, Nation and friends about the Congressional action that raises investment return rates for corporations to levels on par with those of public systems. This only reinforces our belief that pure politics and a disdain for public employees, instead of genuine concerns about public pension funding, have driven their actions and statements.
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