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Monday, October 29, 2007
Reform state retirement system because it’s right action
The Atlanta Journal-Constitution
A quarter-century ago, faced with the reality of a corrupted state retirement system, legislators took responsible action.
They closed the corrupt system and created a new one for employees hired after July 1, 1982 — promising all the while that the corruptions and the manipulations that riddled the first would never taint the second. And, indeed, for about 10 years — or until a critical mass of the new hires started thinking of their retirement — the promise held.
Over time, though, the manipulations crept back in: an unnoticed formula change, credit for service rendered elsewhere, and the sweetheart provisions politicians insert for themselves and their friends.
The plain truth is that politicians, sometimes devious, sometimes in ignorance, simply cannot resist the temptation to play games with public retirement systems. They routinely twist the benefit structure of systems serving as few as seven and as many as 280,000 employees and retirees to serve the financial interests of a handful or fewer.
The problem always has been and always will be that beneficiaries make decisions for beneficiaries. Scratch my back …
Michael Nehf, the executive director of four of the state’s retirement systems, spoke to legislators last week about the largest of those he administers, the Employees’ Retirement System of Georgia, with a 2006 membership of 77,000 state employees and almost 33,000 retirees. He warned that unless legislators take action to deal with a rising projected gap between assets and liabilities, the expected shortfall of $781 million on June 30, 2009, will increase to $16.7 billion in 2039 — driven largely by the practice of adding 3 percent cost-of-living increases yearly. This year’s increase is 2 percent, which angers some retirees.
The fund now expects to have 94.5 percent of the assets needed to pay liabilities. Because the retiree population increases, the price of the COLA will rise from $236 million to $528 million in 2039, said Nehf, boosting the unfunded liability to almost $17 billion — at which point the asset shortfall will increase from 4.5 percent to 50.83 percent.
The funding problem has one set of solutions, including lower COLAs, higher employer and/or employee contributions and a rate of return higher than the current 7.5 percent, all combined with a commitment not to make the problem worse by adding new benefits.
Gov. Sonny Perdue proposes an entirely new retirement plan for new hires after July 1 of next year. All current employees will remain in their existing plan and get all the benefits promised.
The three options, put forth as Senate Bills 327, 328 and 329 and House Bills 837, 841 and 843, are these:
• The state would contribute up to 9 percent of salary into a 401(k) or a 457-section plan. It’s employee money immediately. When the employee leaves, all the money goes with him or her.
• A hybrid plan. New hires would participate in ERS, but at what amounts to half benefits, and would also participate in a retirement plan they’d own, just as with those in option 1.
• Enrollment in the existing ERS defined-benefit plan, but with benefits based on a different formula. The difference would be about $300 per month less for an employee who worked 20 years at a maximum salary of $36,000.
The General Assembly should approve Senate Bill 327 and House Bill 837, the purest defined-contribution plan.
Under the current system, state employees are paid less than the average of top 20 employers while working, but they make it up in retirement. On the whole, though, as Perdue’s chief financial officer, Tommy Hills noted to legislators, state employees are compensated as well as those who work for the federal government and for other large employers in Georgia. Young employees want the money up front and they want retirement benefits to be portable. The money “saved” by moving from a defined-benefit to a defined-contribution plan would be paid out up-front in the form of higher salaries.
The real advantage for taxpayers is not “savings.” It’s that a defined-contribution plan would remove the temptation of politicians to corrupt retirement systems with sweetheart benefits for the undeserving.
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Required national service?
The Atlanta Journal-Constitution
Political science professor Larry Sabato of the University of Virginia includes among his 23 proposals to “revitalize our Constitution and make America a fairer nation” a requirement that all young people perform national service.
Sabato, in an interview published in Sunday’s AJC, proposes that a Bill of Responsibilities be added as a new clause in the Constitution. It would declare that “all citizens of the United States, who are of sound mind and body, shall be required to give two years of service to their country, in a manner prescribed by law.” The clause is needed, he said, because “there’s too much emphasis on rights, and not enough on responsibilities.”
Without question, he’s right in the observation about rights over responsibilities. This is a national discussion we should have. The military barely made its recruiting goal of 80,000 for the year ended Sept. 30. There’s some indication that to make the goal, the military is taking men and women it would previously reject. The Army, for example, allowed 1,620 enlistees with felony arrests and convictions this year, up from 459 in 2003, according to the Army Recruiting Command. The number granted “moral character” waivers reached 18 percent in the last fiscal year, highest in five years. Twice as many of those with “moral character” waivers wash out. Age limits have been raised, too, and education requirements lowered.
Unfortunately, however, the nation has just about lost its ability to have a rational, sane and civil discussion about a national service requirement in general and a military draft in particular. We’ll try today. Is it possible to discuss the value of a draft, or national service in general, without making either a proxy for arguing our views on Iraq or George W. Bush?
Certainly to my mind there is no higher national service calling than military service. A requirement, therefore, should be tiered, with military service rewarded far more generously with pay and education benefits than any other kind. In general, I’m not a fan of the paid volunteerism that would send some young people to advocacy organizations. Sabato lists organizations he’d staff (with a sub-minimum wage) as Meals on Wheels, the Humane Society, Habitat for Humanity, Big Brothers/Big Sisters and others.
It’s an idea worth debating nationally. We have become a nation of people who consider it a right to have every law and institution shaped to our personal preferences and situation, while our responsibilities are limited to a Saturday walk in support of some charity or cause.
