Public Pensions: Did the NYT Drop the Ball?

According to the Columbia Journalism Review, the recent New York Times piece on the public pensions “crisis” was a real mess.  Steven Greenhouse, the author couldn’t explain the problems in places like Utah:

So, the state of Utah has been putting insufficient money into its pension plan, and now there isn’t enough money there to meet upcoming liabilities. And the solution here is for the state, in future, to contribute “roughly half” of what it’s been spending up until now in pension contributions.

Needless to say, this makes no sense on either front. The liability to existing workers doesn’t go away if a different plan is adopted for new workers, so the problems at the pension plan aren’t being addressed. On top of that, it’s hard to see how contributing much less to new workers’ retirement is going to help them at all, either. From a pensions perspective, there’s no winner at all: the only entity better off is the state, from a cashflow perspective.

As someone who once had to suffer through the intricacies of pension funding, I sympathize with Greenhouse, but he did manage to get much of it wrong.  On the other hand, the CJR did find a good NYT piece on pensions.  But it was on the web, not in the paper.  That opinion piece by Teresa Ghilarducci, summarized the results of Dean Baker’s analysis of the situation and came to conclusions very different from those offered by Greenhouse:

401(k) plans are bad deal for taxpayers. Dollar for dollar, a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher. And professionals who manage money in pooled pension funds usually get higher returns than workers who manage their own 401(k) accounts. The only clear winners when pensions switch over to the 401(k) plans are brokers and bankers…

The unintended effect of widespread 401(k) plans is more volatility. In contrast to traditional pensions and Social Security, 401(k) plans fuel bubbles and make recessions worse. When the economy is booming, 401(k) plan asset values soar, making people spend more and work less. Not what you want in an expansion.

Worse, when the economy plummets and takes 401(k) assets with it, people do the opposite; they cling to the labor market and rein in spending – again, two things you don’t want in a recession.

What’s going on with the Grey Lady?

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