by Richard C. Dreyfuss
January 22, 2014
A key cause of the recent bankruptcy of the once-great city of Detroit was the overwhelming size of its pension obligations to its employees. More and more governments are facing considerable liquidity challenges, as higher employee pension contributions put pressure on their budgets. The goal of any reform must be to ensure that pensions are properly funded in both the short and the long term. Yet changes toward those goals are frequently deferred, outright ignored, or predicated on overoptimistic forecasts of asset returns. This paper seeks to clarify a number of these “myths of public-sector pension plans.” Real reform—which would eliminate unfunded liabilities, remove politics from pensions, and eliminate taxpayer obligations that extend in perpetuity—is long overdue. But it cannot be implemented until policymakers see past the half-truths and untruths about public-sector pension plans.