Underfunded Public Pension Systems: Dallas Isn't The Only One
A vote scheduled to begin Nov. 14 to help rescue the failing Dallas Police and Fire Pension Fund instead has been put on hold after five cops and firefighters filed a lawsuit.
The plaintiffs in their suit said they don't favor benefit cuts proposed to help the Dallas Police and Fire Pension Fund. A recent report found it’s now on track to become insolvent within 12 years unless changes are made. But this kind of problem isn’t unique to Dallas.
Mike Davis is with SMU’s Cox School of Business. He specializes in the intersection of government and business:
Is Dallas an isolated case? “Our fund seems to be a little bit, well frankly, out there. But there are serious problems with a number of the public pension systems in Texas. Reports have been written for the past ten years or so, and the trends are for these things to become less fiscally stable over time.”
How widespread is the problem: “It’s a really significant problem. The Pension Review Board wrote a report actually a couple of years ago, but it’s about to be updated, in which they said – and depending on how you read the numbers – it could be that half of the public pension funds in Texas don’t make their standards of reliability. Half of the pension funds need to take steps to shore up their finances.”
Why? “There are two things that go on here. One is that since the financial crisis interest rates have been real low. And it’s for these pension funds to generate yield, so they go out and look for more investments and they tend to be risky investments.
The other reason: “Governments tend to overpromise. It’s sometimes hard to give your employees a raise because to give them a raise you have to raise taxes. But it’s relatively easy to promise more generous pension benefits, and that’s really what’s happened. It’s a classic kick the can down the road solution. It kicks the problem down to future generations.”
How do you stabilize these public retirement systems? “There’s no magic bullet, and it’s not a painless process. The solution for not having enough money is more money. So that means that taxpayers are going to have to pony up. And it probably means there are going to be benefit cuts for recipients in the future."
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