A Response from Dr. James Sandfort
Recently, the Show-Me Institute launched a rather ambitious agenda for the coming year. Among the areas of focus, one, in particular, caught my attention – Public Pension Reform.
As far as public pension reform is concerned two important words were omitted from the title; “for Disaster.” For every PSRS/PEERS member, retired or active, Show-Me Institute’s 2018 Blueprint is a serious recipe for disaster. The goal is to replace the current defined benefit pension plan (DB) with a defined contribution plan (DC) – as the authors suggest – “think 401(k).”
The Show-Me Institute’s Logic:
*DC plans cannot incur unfunded liability
*DC plans put investment decisions into the employee’s hands
*DC plans are transferable from one job to another
The authors emphasize that DC plans for public employees exist, in some form, across the country. What they fail to mention is that other states have experimented with DC plans, judged them flawed and have returned to DB plans for their public employees; most notably, Connecticut.
Additionally, the authors fail to share that 401(k) plans, according to original proponents, were never intended to replace DB plans – only supplement them. Those who study the 401(k) approach have concluded that a 401(k) account, even when generously funded, rarely provides a secure retirement for the average worker – the 401(k) math used in the 80’s and 90’s didn’t add up. The reality is that a 401(k) plan is not a pension plan at all – it is just another type of savings account.
Although DC plans can be portable and move with the employee – once a member is vested in a DB plan (generally after 5 years) there is no need for portability. Upon retirement a check based on years of work, contributions and investment earnings will be there for the remainder of the retiree’s life. One of PSRS/PEERS’s rationales for the creation of Missouri’s DB plan was to attract and retain qualified teachers. It has done just that!
While a DC plan does place investment decisions into the employee’s hands, what employee has the technical knowledge to make those critical investment decisions or the time for ongoing meetings with various financial advisors discussing the intricacies of fees and commissions, risk analysis, a balanced portfolio and more? Most educators entered the profession to work with students and are quite content having qualified professionals at PSRS/PEERS invest their pension dollars. And why should they not be? PSRS/PEERS has provided a secure retirement for tens of thousands of public school educators for more than seven decades.
The claim that DC plans do not incur unfunded liability for the taxpayer overlooks a key point. Many DB plans that are experiencing difficulty financially are in trouble precisely because those same entities that would be funding DC plans have withheld contributions they were obligated to make to DB plans already in existence. It is wishful thinking to believe that these same entities would meet their commitments any better over the long term to any DC plans they create. Bad faith is bad faith regardless of the system in place!
So why would others want to dismantle PSRS/PEERS when it is functioning as intended? Perhaps it is a matter of political ideology or a case of “pension jealousy.” Or perhaps, more insidiously, they are eyeing the dollars involved and want a piece of the financial action, collecting unnecessary fees and commissions, at educators’ expense. Whatever the reason, that cannot be allowed to happen!
For seventy years, PSRS/PEERS has delivered on its promise without default or interruption. Although the check that PSRS/PEERS retirees have reliably received each month for decades may be viewed by others as something extra; for those who have spent a career in public schools educating young people, it is “deferred compensation” for work already done. For Missouri educators there are no social security checks, no stock options, no golden parachutes and no year-end bonuses – there is only PSRS/PEERS!
From my perspective,
Jim Sandfort, Retired Superintendent
Center for Pension Research