Since the beginning of the coronavirus pandemic and the resulting economic crisis, pension critics have been sowing doubt about public pensions by sharing blatantly false and misleading claims about them. This is gaslighting (a form of manipulation in which a person or group makes someone question reality), as their misinformation flies in the face of reputable evidence about pensions.
Below, we outline three major ways pension opponents have recently gaslit the public about pensions, compared to what the facts actually show.
1. Claim: The coronavirus-induced recession will cause unmitigated harm to public pensions, threatening their ability to offer benefits.
The Reason Foundation (a prominent anti-pension organization) elevated this falsehood in a blog post last month titled, “Public Pensions Plans Won’t Be Able to Invest Their Way Out of Financial Losses.”
This blog post conveniently omits several facts, such as the performance of the stock market this year. Following an initial plunge in March, the stock market has mostly recovered all of its recent losses, meaning most public pensions will still be in solid financial shape owed to their mix of high and low-risk investments spread out over a longer period of time.
Secondly, Reason’s blog post falsely states that during economic crises, unfunded liabilities skyrocket for public pensions, threatening their ability to pay out benefits. According to the National Conference on Public Employee Retirement Systems (NCPERS), this couldn’t be further from the truth, as pension debt has remained fairly fixed over the past 20 years (a time period which includes the dot com crash in 2001 and the Great Recession of 2008).
When Reason examined the unfunded liabilities of several pension systems in its blog, it also did not take into account the Gross Domestic Product (GDP) of the economy compared to pension debt, which is akin to only looking at one side of an equation. Even if pension debt were to increase, an increase of the GDP alongside it means pension systems will not face enlarging debt.
The NCPERS research found that “public pension debt is sustainable in perpetuity if a stable ratio of debt to GDP is maintained.” So far, despite the economic downturn, these systems are not at risk of having an unstable ratio of debt to GDP, so they will be able to continue paying out benefits during the recession and beyond.
2. Claim: Pensions are a burden to taxpayers and this burden increases during economic crises.
Another favorite straw man of pension skeptics is that pensions place undue fiscal weight on the vaunted and highly respectable American taxpayer. The Center Square, a publication that previously criticizes public pensions, shared an article last month which falsely claimed that states are dealing with a “public pension crisis nationwide” and “that elected officials’ repeated financial decisions [on pensions] created significant debt burdens for their residents.”
This argument does not hold up to the facts for several reasons. As we’ve written before, “the vast majority of pension plans were well-funded before the current economic downturn, and will survive the economic slowdown because all pension plans invest for the long-term.” Furthermore, the “independent reviews of state budgets” the article mentions in support of its claims consist of “some of the most notable pension critics opposed to public workers’ retirement security, including the Pew Charitable Trusts, the John Locke Foundation, Truth in Accounting, and the Cato Institute.”
Additionally, public pensions are actually a benefit for taxpayers. In 2016, according to the National Institute on Retirement Security (NIRS), pension spending supported $202.6 billion in taxes for federal, state, and local governments. This spending will only become a more valuable source of tax revenue during the current economic crisis, as many states depend on income and sales taxes that will fluctuate depending on the economy.
3. Claim: Let states eat cake – or, in other words, let them go bankrupt.
In one of the most egregious examples of gaslighting, on April 22, Senate Majority Leader Mitch McConnell cited public pensions to suggest that state governments should “use the bankruptcy route” instead of seeking financial assistance from the federal government during the economic downturn.
As we’ve covered before, under the U.S. Bankruptcy Code, states can’t file for bankruptcy due to the constitutional issues that might arise. The vast majority of public pensions are also well-funded and can withstand the economic downturn, so they are not causing fiscal problems. Finally, if states were able to declare bankruptcy, “retired public employees who dedicated their lives to serving the public could see their earned benefits effectively frozen, leaving them destitute in retirement.”
According to the National Association of State Retirement Administrators (NASRA), “approximately one-fourth of employees of state and local government participate in a public retirement system in lieu of Social Security,” so Senator McConnell’s remarks understandably caused many people to wonder whether their retirements were at risk. They can be assured that states being able to declare bankruptcy is not an option a state government can even consider taking during this economic crisis.
Any time these claims surface, they should be taken with a grain of salt in light of the actual facts about public pensions and their ability to provide a secure and dignified retirement.
