April 28, 2014
By Edwin J. Feulner, Ph.D.
Say you saw a car heading down a road that you knew had a bridge out several miles ahead. You wave your arms and shout a warning, trying to avert a terrible accident. How do you think the driver would react?
With gratitude, you’d hope, but you’d at least want the driver to stop and take heed. About the last thing you’d expect is for him to yell angrily, accuse you of lying, then continue to speed down the road.
That’s the way the Laura and John Arnold Foundation must feel these days. For the past few years, they’ve been funding research into the health (or lack thereof, to be more precise) of government-employee pensions. Cash-strapped cities and municipalities are finding it harder and harder to meet their bills. Revenue sources are dropping, and financial obligations are rising.
Detroit filed for bankruptcy last year, in large part because of its underfunded government-employee pensions. According to Moody’s, U.S. states and cities face more than $2 trillion in liabilities for such pensions. They’re forcing governments nationwide to cut services significantly — and raise taxes.
Consider government-employee pensions in California. The average payout for new retirees doubled between 1999 and 2012, according to the Sacramento Bee: “The largest group of state workers is under a ‘2 at 55’ formula.” Under that plan, a government employee retiring at 55 with three decades of service would collect a pension equal to 60 percent of his or her highest salary for the rest of his or her life — with retiree health benefits added on top.
In short, the bridge is out. Something has to be done, but what? The Arnold Foundation has published papers that discuss shifting from a defined-benefit system for pensions, in which your company stipulates how much you’ll be paid, to something closer to a defined-contribution one such as a 401(k), in which what you get depends on what you pay in, or a mix of the two.
Love it or hate it, at least they’re considering possible solutions. They’re trying to find some way to fix that bridge down the road. Their alternatives, they write, “would move plan sponsors toward a financially sound system.” Isn’t that everyone’s goal?
Apparently not. Public-sector unions aren’t content simply with voicing their disagreement with what the Arnold Foundation is proposing. No, they’ve been leaning on groups that accept Arnold funding — such as public television, the Pew Charitable Trusts and the Brookings Institution — to renounce the money. (The Heritage Foundation, which I served as president for 36 years, has never received any Arnold donations.)
According to a recent article in The Wall Street Journal: “The unions argue that the Arnold Foundation is trying to sway public opinion to support replacing public pensions — which give workers including police, firefighters and teachers guaranteed benefits at retirement — with defined-contribution accounts similar to 401(k)s, or hybrid approaches.”
Perhaps I’m missing something, but when did it become out of bounds to try and “sway public opinion” in this country? Isn’t that the whole point of free speech?
How instructive that the unions are reacting this way. It speaks volumes about how much confidence they have in their position that the current pension system is working just fine, thank you very much.
Of course, the current system isn’t just fine, and you can bet the unions know no one can argue with a straight face that it is. Otherwise, that’s what they’d be doing. Instead, they’re resorting to thug tactics, such as intimidation — a smart (if indefensible) move when you don’t have the facts on your side.
The facts plainly indicate that something has to be done. Silencing the Arnold Foundation won’t magically make it so that cities and states won’t have to cut pensions down the road when their financial situation becomes untenable. Just ask the Detroit employees whose pensions are being cut in bankruptcy proceedings.
If the government-employee unions think that the Arnold Foundation is that far off base, I have just one question: What’s their solution?
- Ed Feulner is founder of the Heritage Foundation.
Originally appeared in The Washington Times
Edwin J. Feulner, Ph.D.
Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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