HOUSTON, TX—The Laura and John Arnold Foundation (LJAF) today released, “The Transition Cost Mirage,” a policy brief that debunks some of the most common arguments against pension reform and analyzes how to fix the broken system once and for all.
Josh McGee, LJAF vice president of public accountability and the brief’s author, will discuss the report and answer questions about pension reform during a media conference call today at 12:30 p.m. (EDT). Reporters who wish to participate are invited to call (877) 594-8353. Please use the following access code: 47476105#
Across the U.S., state and local governments are estimated to have more than $1 trillion in pension debt, which is a serious strain on municipal budgets and employee wages and benefits. “Faced with financial challenges, many state and local governments recognize the need to reform their retirement system,” Dr. McGee explained. “Our goal is to help policymakers and the public understand that comprehensive reform will do more than just cut cost; it will protect workers and taxpayers.”
The brief challenges several “transition cost” arguments including the claim that moving to a new pension system would starve the current system of needed contributions. The report explains that this assertion is false, and the move to new system would have little to no effect on the current system. Employers would still be required to make payments since pension debt is a bill that is owed to public workers for past service. The debt must be paid regardless of any change to the system.
A second common myth is that there are large costs associated with a transition. Many believe the Government Accounting Standards Board (GASB) requires states to accelerate payments when a plan is closed. The brief points out that GASB changed its standards and made it clear that states are freely able to amortize, or pay off, their pension debt as they see fit.
“Too often misguided claims of potential increased cost frustrate reform efforts that would otherwise place systems on a more sustainable path, protecting both workers and taxpayers,” the report states. “Policymakers should move beyond these distracting and misleading claims and fix the broken system once and for all.”
The policy brief is part of LJAF’s broader public accountability efforts to promote transparency and improve the efficiency and efficacy of the public sector.