We Have the Money for Pensions, But Not the Governance

The underfunding of public pensions in California is a problem, but a solvable problem, at least as a matter of cash.

But the problem goes beyond money. Paying for pensions is a problem for governance, and California is especially weak in this area. Proper pension management requires putting aside the money to pay the future pensions of today's workers today.

But this basic concept eludes many of the people who govern us. For a particularly egregious example of brain-dead thinking on governance, consider Oakland city councilwoman Libby Schaaf, who is quoted at the end of Daniel Borenstein's Contra Costa Times column uttering the sort of idiocy that makes one fear for the future not only of the state, but also of civilization itself.

Schaaf has proposed a ballot measure to extend the deadline for the city of Oakland to make good on pension promises made under its old pre-1976 pension system.

Borenstein explains:

Councilwoman Libby Schaaf, who proposed the extension, has essentially discarded the notion of pre-funding pensions, and instead suggests making payments into the retirement system only as they are needed to fund pension payments.

All but one of the members of the pension system have retired. The average age of the surviving retirees and their beneficiaries is about 75. That means some of them could be collecting benefits through 2050. .

So Schaaf argued in a report to the council last month, that "front-loading of the city's payment obligations to the retirement system ... may not be fiscally necessary." .

The comment, however well-intentioned, displays a stunning misunderstanding of a key principle of pension financing. Pre-paying pensions is not "front-loading," as Schaaf claims. It's properly paying for benefits when they are earned. .

Keep in mind that pensions are just one form of compensation for labor. No one would suggest taking out a loan to cover salaries or health insurance premiums. Pensions are no different. The costs should be fully funded when the labor is performed, not foisted onto future generations.

The sort of thinking -- a term I use advisedly -- on display in Oakland makes one wonder if pensions are just too complicated for our elected officials to monitor. Let's hope not -- since the retirement security provided by pensions is something public and private workers need.