Too often we hear bad news stories about how public pension plans are underfunded and that they’re a drain to taxpayers. But a congressional hearing last week told a different story. The hearing, Your Money, Your Future: Public Pension Plans and the Need to Strengthen Retirement Security and Economic Growth, focused on how public sector pensions efficiently provide adequate retirement income to a large segment of the workforce.
Barbara D. Bovbjerg, Director of Education, Workforce, and Income Security Issues for the Government Accountability Office (GAO), discussed a new GAO report showing that most state and local government plans have more than enough resources to pay the pensions they have promised to the 20 million workers covered by their public-sector pension plans. These defined-benefit plans provide guaranteed pensions to the more than 20 million policemen, firemen, teachers and other public servants who help build and protect our society.
William Pryor, a professional firefighter and paramedic, added a personal touch to the hearing. He said that “for firefighters, a pension helps them have decent salary replacement that will never run out, good medical care and solid survivor benefits for their families.”
Sherrill Neff of the venture capital firm Quaker BioVentures made the point that defined benefit pension plans not only provide guaranteed income to retirees, but that they are also a critical engine to the nation’s economy. Defined benefit plans provide billions of dollars of funds to be invested in new companies – helping promote medical research, launch new technologies and create hundreds of thousands of new jobs.
Mr. Neff also mentioned that approximately 90 percent of venture capital is raised from institutional investors that include defined benefit plans as well as foundations, corporations and university endowments. In other words, funds from defined-benefit plans have helped launch companies like Google, Cisco, Yahoo! and countless others.
Given the good news about the status of the nation’s public pensions, Representative Earl Pomeroy (D-ND) declared at the hearing that it was “a good day for pensions.”
Christian Weller, an Associate Professor at the University of Massachusetts, noted that public pension plans provide most of the characteristics of the ideal retirement plan, including: broad-based coverage, secure money for retirement, portability of benefits, shared financing by both employees and employers, professional management of assets, spousal benefits, and low fees.
If these are characteristics of an ideal retirement plan, shouldn’t we look to public plans as a model – and consider fashioning a retirement income system with these elements for all American workers?