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Pension Reform Unnecessary!
Nov 02, 2016

      

Lately there has been a lot of noise in Lansing, and in various newspapers around the state, about pensions. We keep hearing that traditional pensions are “unsustainable” and in crisis. While it is true that many public pensions around the nation are still recovering from the Great Recession, the fact is that most are seeing their bottom lines improve and many are doing quite well.

Some groups are calling on the Michigan Legislature to use the handful of session days left after the election – the infamous “Lame Duck” session – to make sweeping changes to Michigan’s pensions. Not only do these changes have the potential of robbing hundreds of thousands of Michigan workers of their hard-earned retirement security, they also could massively drive up the cost of funding pensions and addressing the current debts that some pensions systems have.

Traditional pensions are built to harness the power of the free market to help fund workers’ retirement. They are also constructed with safeguards to weather the storms that periodically affect Wall Street. After a major economic downturn, employers will temporarily need to invest more money into a pension system to stabilize it. Unlike a 401(k) plan which can be wiped out by a recession, traditional pensions are designed to better absorb bad years and use long-term planning that lets them recover over time.

Closing public pensions would not only be a disaster for public employees like fire fighters, school teachers and police officers, it would massively accelerate the debt payment requirements on the state and local communities. Closure would end new contributions being made into the system that can harness the power of investment returns to pay off pension liabilities. When a system is closed, employers must immediately infuse the pension fund with large investments. The Michigan Office of Retirement Services estimates that closing the school pension system (MPSERS) would require the state to spend an additional $500 million per year over the next 20 years to make up for the lost investment revenue of new members coming into the system. That number gets multiplied by a massive factor if every public pension in the state were forced to close.

Traditional pensions, along with Social Security, have been the most powerful weapons we have against senior poverty for the past 50 years, and it is no coincidence that the same voices calling to eliminate pensions also seek the privatization of Social Security. It would be a tragedy if we allowed either of these great programs for the middle class to be destroyed.


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