By Iliya Atanasov, includes “Public pension plans remain massively underfunded, but the standard explanations of the problem-egregious benefits, loopholes and abuse – are the effects, not the root causes, of failures that run much deeper. Pliable accounting rules and weak or non-existent funding mandates are what truly jeopardize the solvency of pension plans and their government sponsors.
When the costs can be hidden and then deferred for future payment, politicians can easily get away with making unreasonable promises without fixing the cracks in the system. … No loophole allowing plan participants to abuse the system is necessary for the undervaluation and underfunding to take root and grow. Tricks like pension spiking and double-dipping just add insult to the injury of plain-vanilla financial mismanagement. The biggest joke of the costing and funding process is the so-called annual required contribution (ARC) that the actuarial valuation is supposed to determine. In reality, there is nothing “required” about the ARC – most jurisdictions can contribute absolutely nothing and face no legal repercussions, at least in the short run. … ”
Read the full article on: Public Sector Inc.