Op/ed: Pension investments are fundamentally sound
[Editor’s Note: This piece responds to an opinion piece by Ventura County financial adviser Randolph Hinton that was published in the Business Times on Feb. 28.]
By Rick Shimmel
Randolph Hinton’s recent attack on the opinion letter by Sheriff Geoff Dean demonstrates a lack of understanding of the pension scheme he is promoting, and of pension systems in general.
The truth is that investments made by pension funds are intrinsically safer and on average far more effective than individual 401(k) investments. Pension funds have a long, proven track record of superior risk-adjusted returns. A recent CalPERS study showed that the institutional investment success of pension plans outpaces the average individual success in 401(k) plans by a ratio greater than four to one over a 30-year period.
This is accomplished with much lower fees, and lower risk, than individual 401(k) plans. This investment performance serves to insulate the system, employers and taxpayers from fluctuations that could devastate an individual investor.
It is not accurate to say that pension funds invest in the same stocks and bonds as you do through your 401(k) plan, and use the same money managers. Because they are institutional investors, pension plans have very large assets that allow them to utilize money managers and firms not available to the average person with a 401(k). The pooled assets of pension plans allow them to diversify investments across all available markets, including real estate and other markets not available to 401(k) investors, so that risks in any specific market are greatly reduced.
The Hinton piece claims that “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.” Not true. Aside from layoffs, furloughs and salary cuts or wage freezes that occur when the employer’s costs rise, all public employees pay part of their compensation toward their own pension costs. And with the implementation of the governor’s pension reforms beginning last year, Ventura County deputy sheriffs and other county labor groups will pay 50 percent of the cost of their pensions.
Public employees clearly don’t make twice as much as the citizens they serve, as Hinton’s piece claims. As stated in a January 2013 publication by the Boston College Center for Retirement, “At this point in time, virtually all analysts agree that wages in the state and local sector — when adjusted for the higher educational attainment of public sector workers — are lower than those in the private sector.”
The equalizer in that wage disparity is largely the public pension system, particularly for those public employees not eligible for Social Security benefits after retirement. Pensions are a vital part of compensation and serve as an asset to local governments. Public employers and local citizens benefit directly when trained and experienced workers stay in public service, rather than leaving for greener pastures elsewhere.
Just as importantly, many public service jobs have no civilian counterparts. Deputy sheriffs, firefighters, probation officers, coroner investigators, elections officers, jail service officers, just to name a few, are employed for a discrete and essential public purpose. Many professional employees, such as prosecutors, nurses, public defenders, county counsel and others earn less than most of their civilian counterparts with comparable education and experience.
Hinton’s piece states that public employees “should receive a retirement benefit that is no better and no worse than the citizens that pay for it.” Again, public employees, who are also taxpayers, pay much of their own pension costs, and by far the lion’s share is funded by pooled investment returns over decades of earnings, not by the citizens they serve.
Let’s debate the pension plan and Sheriff Dean’s editorial based on the facts.
• Rick Shimmel is the executive director of the Ventura County Deputy Sheriffs’ Association, which represents sworn law enforcement personnel of the Ventura County Sheriff’s Office and the District Attorney’s Bureau of Investigation.