Monday, January 10, 2011

What Happens When Joel Klein Has Time on His Hands?

He writes must-read editorials like this one in yesterday's Wall Street Journal on how public sector pension plans are a lot like a Bernie Madoff ponzi scheme. These defined-benefits plans "hollow out public education," because they guarantee implausible pay-outs. (NYC's pension plan for teachers guarantees an 8.25% return regardless of actual earnings and NJ's is just as bad.) However,
While irresponsible, this kind of behavior makes good political sense. After all, people run for office in the short run, and money spent now—rather than put aside in a pension reserve—is more likely to garner votes. As one legislator recently told me, "When budgets are tight, as they often are, we simply kick the can down the road by underfunding pension obligations." But as with Madoff, inevitably a day of reckoning arrives. For many states and municipalities, that day is now.

1 comment:

kallikak said...

As the prospective recipient of payments under a properly-funded corporate defined-benefit plan, I take issue with Mr. Klein's analysis.

Any pension scheme will fail when its overseers use unrealistic funding assumptions to cover the diversion of monies to other uses.

Mr. Klein's op-ed is just another salvo in the Journal's on-going campaign to privatize Social Security.

In the case of NJ public employees, those same employees faithfully made their own contributions to these plans.

Look to Trenton for those who have "hollowed out" public education--and the public retirement system--in this state.