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updated: 12/27/2012 5:55 AM

Editorial: Mandated payments key to viable pension funds

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  • Legislators must ensure pensions are fully funded -- that's a minimum requirement for any pension reform.

    Legislators must ensure pensions are fully funded -- that's a minimum requirement for any pension reform.

The Daily Herald Editoral Board

By now, we know how it got to this point. The state's pension problem wasn't created overnight, and it didn't happen because someone failed to add or subtract correctly.

It's here in large part due to a decades-long state addiction to borrowing from pension funds. Instead of spending only what taxpayers could afford for state services, lawmakers took money from pensions to subsidize those services. It was the easy way, the politically popular thing to do.

Few noticed or tried to do anything about it, and, not surprisingly, the handful of attempts over the years to end the borrowing did not get far. Our elected officials' legacy is a financial hole as deep as Lake Michigan and wide as the wind-whipped prairie. It took a severe recession to make leaders to get serious. In 2010 they started with reform that created the two-tier system for new employees and then last May attempted to cut yearly increases in pension benefits to lawmakers and other state workers. The latter effort barely passed in the Senate and then, again not surprisingly, fizzled.

Whether lawmakers are serious enough as they face the end of this session is the $96 billion question. Of all the reform plans being floated, each must include ironclad provisions that prohibit the state, localities or anyone else responsible for contributing to the pension fund from delaying or failing to make those contributions. Failure to do so would eventually send us back to where we started, regardless of any changes made to pension benefits.

This cannot happen again. Ever. One proposal before the legislature, HB 6258, addresses the teacher and university pension systems, which comprise the majority of the state's pension-eligible workers. The bill's architects point to funding guarantees as a vital component in a pension solution. Their bill would ensure a contractual relationship in which employer contributions would be enforced through the courts, thereby giving the law the teeth to ensure government contributors play fair.

Currently, the state is borrowing to make its pension payments -- and paying dearly to service the debt. It's an unfortunate and costly penance, so when those obligation bonds are paid off, the revenue that had been paying them must be used to pay down the remaining unfunded pension liability. Not pet projects. Not even education or social services. Only paying down the debt. A solid reform plan also will encode such a mandate, as does HB6258.

There are questions as to whether the repayment schedule in this bill is realistic, and critics suggest a reamortization would be needed to achieve 100 percent funding in 30 years, the goal of the legislation. These details require study and debate, to be sure. But at its foundation, meaningful pension reform must guarantee fully funded systems. Elected officials have been allowed to abuse pensions for too long. Mandated payments are critical to ensuring the benefits will be there for those who earn them.

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