AEI: 'Pension Industrial Complex'

Transition cost claims are bunk

Andrew Biggs of the American Enterprise Institute has provided some useful context on the source of bogus arguments being used to oppose a pension reform passed by the Michigan Senate last week. The self-serving mischief has caused tremendous confusion in the House, threatening to derail a potentially transformational reform. Biggs’ subject was new research by University of Arkansas economist Robert Costrell, which was cited here.

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Public-sector employees and the pension industrial complex are using deceptive and self-serving arguments despite having an obligation to provide the public with solid facts.

…Public-sector employees—who enjoy their generous retirement benefits—and the pension industrial complex of plan managers, pension actuaries, and investment advisors don’t like Defined Contribution (401(k)-type) plans. They’re pushing back with a novel argument: Defined Benefit pensions’ massive unfunded liabilities create “transition costs” that make shifting to DC plans unfeasibly expensive. In other words, the more broke DB plans become, the more we have to stick with them.

…The transition costs myth is an example – I cited another one in a recent Real Clear Markets op-ed – of the pension industrial complex using deceptive and self-serving arguments despite having an obligation to provide the public with solid facts and analysis upon which voters can make important decisions regarding public pension reforms.

From “Public-Sector Pensions: The Transition Costs Myth,” by Andrew G. Biggs. Posted May 21 in “The American,” the online magazine of the American Enterprise Institute.

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