Archive for August 24th, 2010
The Wrong Way on Pensions
Posted by Joshua Sharf in PERA on August 24th, 2010
Via this morning’s Denver Post:
The city and the fire department union were at odds over how pension benefits are paid. The city wanted to continue the current pension plan, similar to a 401(k).
The union wanted to have the Fire and Police Pension Association of Colorado take over management of its pensions. The city feared losing control of the pension process.
An outside arbitrator recently sided with the fire union.
But this month, the City Council rejected that recommendation, which would have forced the issue onto the November ballot.
…The resolution passed by an 8-2 vote. Another matter to put the issue before voters in November was tabled indefinitely, killing it.
This is a terrible development, taking one, relatively small public pension (although not to the people of Aurora) entirely in the wrong direction.
PERA is underfunded by at least $20 billion. It’s underfunded because it’s a defined benefit plan, and because politicians have traditionally found it easier to vote new benefits, listening to rosy return estimates and aggressive discounting. There is enormous default risk associated with these pensions, and it’s sad to see the City of Aurora going down the same path with its firemens’ pension.