UNDERSTANDING PUBLIC PENSIONS

Understanding Public Pension Costs: The Example of Wisconsin

http://www.heritage.org/research/reports/2012/05/understanding-public-pension-costs-and-retirement-funds-for-public-sector-workers?roi=echo3-12224572257-8831149-adea94c34805c74db3f2b12a6ff10f4b&utm_source=Newsletter&utm_medium=Email&utm_campaign=Morning%2BBell

Heritage Foundation – Jason Richwine – 5/31/2012

The generosity of pensions provided to public-sector workers has come under increased scrutiny as states and local governments search for ways to close their budget deficits. The intense and ongoing battle over public-sector collective bargaining in Wisconsin, for example, is in part a conflict over the generosity of public-pension benefits. Whether reducing pension benefits is a wise policy choice depends crucially on understanding the full costs to taxpayers. Unfortunately, the complexity of estimating pension costs has led to significant confusion among both policymakers and taxpayers.

This paper is a short primer on the public-pension issue, starting with the basics and moving to the most politically salient aspects. Wisconsin is used throughout for illustration, but the broader points apply to pensions in general.[1]

Here are the topics in the article:

Pensions Are Paid from an Investment Fund

Projected Costs Must Be Estimated by an Actuary

Government Actuaries Do Not Properly Account for the Riskiness of Pension-Fund Investments

Government Actuaries Do Not Properly Account for the Riskiness of Pension-Fund Investments

What the Government Puts Into Its Pension Fund Is Not the Same as Actual Costs

Generous Pensions Help Drive Excessive Public-Sector Compensation

Real Costs Matter for Taxpayers Across the Country

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