Public Promises and Pensions

What’s wrong our public pensions?

On the face of it, the promises are too big and the funds are too small. We’ve underfunded our pensions because contributing a dollar today requires taxes today, taxes that have to be approved by politicians who can be punished at the ballot box. At the same time, pension benefits promise a dollar tomorrow, dollars that earn worker loyalty and union support today. A tax today is penalized; a future payment is rewarded.

But it goes deeper. There’s a deeply corrupt public pension culture in which audits are scarce, board members owe seats to politicians—politicians who receive political contributions from those who directly benefit from the system—retirees, unions, consultants, and investment managers. Those board members are rarely investment or actuarial experts themselves; instead they rely consultants who charge fat fees to give plain-vanilla advice that comports with the wishes of the most powerful pols.

In order to supplement the budget, public pensions act as a private piggy-bank for stealth borrowing. And multi-billion dollar pension funds are awfully tempting targets. Underfunding thrives in a place that tolerates corruption. The solution is a culture of accountability and transparency that punishes covering up. Sunlight is the best disinfectant.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-12-18T12:14:58+00:00 December 18th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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