[Editor’s note: The following commentary is in response to an opinion piece by Ventura County Sheriff Geoff Dean that was published in our Feb. 14 issue.]
By Randolph Hinton
Proponents of Ventura County’s defined-benefit pension plans for county employees are fond of saying how much safer pensions are than 401(k)s. They say this because the benefits to employees are guaranteed, while the benefits from 401(k)s are dependent in part on the performance of the markets in which they invest.
These claims of superior safety are based on one fallacy and one giant omission. The fallacy is the idea that pension funds are somehow safer than 401(k)s, and the omission is that when pensions do lose money in the markets, you, the citizens of Ventura County, are obligated to make up the difference.
The truth is this: Pension funds are not intrinsically safer. Pensions and 401(k)s invest in the same markets in the same world. There is no alternate universe in which pension plans invest in safe, guaranteed returns.
Pension funds invest in the same stocks and bonds as you do through your 401(k) plan. They use the same money managers and the same Wall Street firms. They also use many more exotic investments, such as hedge funds and direct real estate holdings that you cannot use. Sometimes these boost returns, but they can also boost risk.
In 2008, the total Ventura County pension fund was down 30.7 percent, just like most of your 401(k)s and the markets as a whole. CalPERS lost 5.1 percent and 24.8 percent for its fiscal years 2008 and 2009, respectively.
This information is taken directly from the websites of each organization. I am not criticizing the funds’ money management, but rather illustrating that current pension plans are already subject to the same risks as 401(k)s. They are not inherently safer or better protected.
The big fact that public employee unions don’t mention when they tout the safety of pensions is that when the pension fund loses money, you — the taxpayers — have to make up the difference. When your personal 401(k) loses value, you have to make adjustments in your plans, delay retirement or contribute more money. When the county or state pension fund is down, public employees don’t have to do anything because their benefits are not affected one dime. The reason is that taxpayers act as guarantors for those pensions. The pension fund sets a rate of return necessary to fund its liabilities to future pensioners.
If they fail to achieve the expected rate of return, no problem — they just demand more money from the employer to make up the difference. The problem is, the employer is you.
It is fundamentally unfair for public employees that, on average, make nearly twice as much as the citizens they serve, to demand those citizens also backstop all their retirement risks. With the salaries they earn, they should be able to save and invest like the rest of us, along with getting a fair contribution from their employer.
Voter-approved pension reform is the only legal way to end this vast disparity between public employees and the rest of the citizens of Ventura County.
Here’s the bottom line: Public service workers should be well-paid for the work they do, at a level commensurate with the skills they apply to their positions and the demands of their jobs. And they should receive a retirement benefit that is no better and no worse than the citizens that pay for it.
• Randolph Hinton is a member of the Committee for Pension Fairness and a Ventura-based financial adviser.