During its legislative session this year, the Texas Senate confirmed Josh McGee as the Chairman of the Texas Pension Review Board. This should concern everyone who cares about the retirement security of public employees in Texas because McGee is also an employee of the Laura and John Arnold Foundation, an organization that has spent millions of dollars advocating to eliminate traditional pensions. This post is the first in a new series featuring the voices of those on the front lines in Texas fighting to protect retirement security for teachers, firefighters, nurses, and other public employees.
Josh McGee is a slippery fella. In an op-ed he wrote June 8 in the Houston Chronicle, he pats the city of Houston on its back for working through partisan politics in conjunction with state legislators in the development of a plan to fix the city’s $8.2 billion pension debt. The thing is, during Texas’ recent legislative session, McGee openly suggested that legislators insert individual defined contribution accounts into the Houston legislation. This is a more costly means of providing retirement income to Houston’s police, fire and municipal employees.
McGee serves as Chairman of the Pension Review Board (PRB), an independent state agency mandated to oversee all Texas public retirement systems regarding their actuarial soundness and compliance with state law. The PRB was very involved with assessing the Houston legislation going back and forth as a part of its normal function. Through his role on the PRB, McGee served as a resource witness to legislators and he attended legislative committee hearings as a representative of the PRB during the Houston bill’s discussion.
The conflict of interest in his work arises because McGee’s full-time, paid job is as an analyst for the Houston-based Laura and John Arnold Foundation, a nonprofit campaigning to reduce the retirement income promised to public employees. McGee’s service as an impartial advocate on the state agency is a disguise for his real intention to encourage state and local governments to abandon the secure retirement incomes provided by pensions and move to risky, inadequate, 401(k)-style investment plans.
As an Arnold Foundation analyst, McGee publishes faulty research paper after faulty research paper touting the superiority of 401(k)-style plans over defined benefit pension plans. In Arnold Foundation reports published in October 2016, November 2016, and April of this year, McGee and his co-author, Paulina S. Diaz Aguirre, urged the cities of Austin, Dallas, and Houston to enroll workers in 401(k)-style plans. In addition to his work with the LJAF, McGee is a senior fellow at the Manhattan Institute, a “think-tank” that also campaigns to change the public pension landscape to the 401(k)-like defined contribution plans. Like Two-Face, the split-personality villain from DC Comics’ “Batman,” McGee says one thing and acts a different way. In his role at the Pension Review Board, he pretends he is not part of the effort to move to 401(k)-style plans while his research and public comments as an Arnold/Manhattan representative are the opposite.
The Texas Association of Public Employee Retirement Systems (TEXPERS) and the firefighters, police officers, nurses, and other public employees it represents, stood as an advocate against any proposed legislation that would switch to 401(k)-style plans. If TEXPERS hadn’t exerted its legislative clout, McGee’s conflicting role with the Arnold Foundation might have helped get defined contribution amendments into the Houston bill.
Moving public employees to a 401(k) plan is a flawed strategy. Studies by the National Institute on Retirement Security (NIRS) prove defined benefit pensions provide equal retirement income at half the cost of 401(k)-style accounts. According to the NIRS research, the longevity investment risk pooling of defined benefit plans generate a 10 percent cost savings. The defined benefit plans provide a more balanced portfolio of investments generating an 11 percent cost reduction compared to defined contribution plans. And, the plans provide higher investment returns compared to individual investors under defined contribution plans. Defined benefit plans also cost less due to lower fees and the fact they are managed by investment professionals. That generates a 27 percent cost savings, according to the NIRS study.
Further, financial sites such as Investopedia illustrate how defined contribution plans reduce income for hard working public employees. Pension plans come with a guarantee of retirement income for life. In a 401(k)-style plan, the employee is at the mercy of the stock market’s whims, never knowing what their retirement income will actually be. There is no guarantee their investment decisions will pay out. Defined benefit plans pool risk and give police officers, firefighters, and other city workers a predetermined sum they will continue to earn when they retire from public service.
McGee praises leaders for saving their pension funds. That applause is drowned out by his cheers of defined contribution plans.