Public “pension plans” are actually wealth transfer systems

Did you know that your Social Security benefits aren’t guaranteed? Read Flemming v. Nestor, 363 U.S. 603 (1960). Wikipedia conveniently sums it up:

“[It] is a Supreme Court Case in which the Court upheld the Constitutionality of Section 1104 of the 1935 Social Security Act. In this Section, Congress reserved to itself the power to amend and revise the schedule of benefits.”

Revise means no guarantee. Period. Remember that case when you hear all the talk about the state constitutionally guaranteed pension benefits here in Illinois.

Despite the fantasy that is accepted by many (if not most) Illinoisans, not even a state constitution can guarantee the impossible. And right now, there is no rational or reasonable way for the current state employee pension deficit to ever be caught up on without stealing from future taxpayers.

A few days ago I linked an important article from the Wall Street Journal titled, “Public Pensions Cook the Books.” The subtitle is “Some plans want to hide the truth from taxpayers.”

The article opens:

“Here’s a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don’t want to raise contributions. Cutting benefits is out of the question. To be honest, you’d really rather not even admit there’s a problem, lest taxpayers get upset.

What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary.”

Here in Illinois the issue is just ignored by our Republican leadership. When I say ignored – I mean the reality is ignored. When you hear from them – it’s about how state taxpayers must fund the system. Sorry, but that’s not constitutionally guaranteed.

Any talk that doesn’t address reforms as discussed by Bill Zettler is frankly just another form of ignoring reality. You can read examples of their work here and here.

The Wall Street Journal article also states:

  • “Public employee pension plans are plagued by overgenerous benefits,
  • chronic underfunding,
  • and now trillion dollar stock-market losses.”

If that’s not enough happy news, take this:

“University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion.”

Besides Bill Zettler’s work, important work is being done on the issue by serious people. News on the topic can be found at www.pensiontsunami.com.

The pattern is this: elected officials buy votes today from those who work for public employee unions. Future taxpayers are burdened with debt, debt, and more debt – much of in the form of so-called “pension obligations.” This pattern must be stopped in dramatic fashion – a good way to do so is for the taxpayers to end their role in state employee pensions.

Future Illinois taxpayers are not obligated to pay for personal benefits put into a contract they weren’t a party to. And in fact, pension plans are paid in real time. If they’re not, they’re intergenerational wealth transfers and not actually pension plans.

In his book “Real Change,” Newt Gingrich writes this about under-funded state pension plans:

“One issue is fairness: not only are we being unfair to our children and grandchildren, but we’re also being unfair to today’s taxpayers and retirees. As two economists note, ‘Federal data shows that state and local governments spend an average of $3.91 per hour worked on employee health benefits, compared to $172 in the private sector.’ So as a taxpayer, you are paying taxes to give bureaucrats 125 percent more benefits than you are getting.”

Sounds like a great issue for new Republican candidates to run on for the purpose of throwing out current Republican office holders who have failed to adequately draw attention to this debacle. It also sounds like a great issue to win over the twenty- and thirty-something generation to the GOP.

©2009 John Francis Biver