This article was written in response to “How should John Arnold approach pension reform?” (February 16) by Felix Salmon.
Felix Salmon’s recent post about my involvement in pension reform and Mayor Chuck Reed’s efforts in California contains serious mischaracterizations.
Salmon repeatedly claims that my wife, Laura, and I and our foundation, LJAF, “support plans making it easier for governments to default on existing promises.” Nothing could be further from the truth. We strongly believe that pension reform should not aim to cut or eliminate benefits, and we believe equally strongly that workers deserve to be a part of a fiscally sound, responsibly managed retirement savings system that provides a path to retirement security. Our communities need a simple, transparent system that holds governments accountable to pay for promises to workers. The current system falls far short of this goal. State and local governments have accrued at least a trillion dollars in pension debt, which has led to benefit cuts in 48 out of 50 states. It is unfair to workers to place them in a system where governments’ failures to fully fund retirement promises can necessitate unexpected benefit changes. For the past three years, we have worked to protect workers by encouraging governments to responsibly address their pension problems through reforms that are comprehensive, sustainable, and fair.
In the interest of furthering constructive debate based on facts and not rhetoric, I offer specific comments on Salmon’s recent blog post.
Insofar as there’s a pensions problem, it’s in large part a function of how labor negotiations work in the real world. Local governments, operating on a tight budget, can’t offer the kind of pay raises that the unions demand — and so the unions accept juicier pension benefits in lieu. The present value of the pension benefits is invariably larger than the amount of money the unions would accept as a simple raise — but so long as the current government doesn’t need to pay anything, both the government and the unions are happy. The unions get valuable rights for life, while the government gets to leave for its successors the question of how to pay for them . . . None of this will be easy: the whole reason why pension obligations started ballooning in the first place was that local governments didn’t have the money to hand out pay raises. So the unions will push back against these ideas: they like any system which makes it easier for them to accrue valuable benefits at negligible up-front cost to the government.