Government Pension Plans are Headed for Disaster

by Robert Fellner

The debt held by US public pension plans will top $1.7 trillion next year. This has already forced several US cities into bankruptcy. There are three culprits that can be found in nearly every state suffering from a public pension crisis: The use of accounting gimmicks designed to shift costs onto future generations; lawmakers who have catered to the demands of government unions to enrich their members’ benefits; and a broker governance structure where public pension board members are penalized for acting responsibly, and are rewarded for delaying the day of reckoning.

Government Pension Plans are Headed for DisasterIn theory, government is ostensibly designed to override the allegedly short-sighted, greedy nature of individual actors with policies that are long-term oriented and designed to maximize the general welfare.

Yet as the case of public pensions (not to mention infrastructure spending, the national debt, entitlements, etc.) reveals, the political process actually does the exact opposite: It rewards those who underfund the present and defray costs onto future generations.

So asking for lawmakers to ‘be more responsible’ or ‘think about the future’ misses the point. We are all self-interested actors. Instead of wishing this wasn’t so, it would be much more effective to embrace this reality, and restrict the role of government to only those areas that it is well equipped to provide.

Politics and pensions just don’t mix. That’s all there is to it.


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