In a ‘watchdog report’ in today’s Milwaukee Journal-Sentinel, Jason Stein lays Wisconsin’s and Illinois’ pension plans side-by-side, and compares their funding status. He celebrates how well-funded the Wisconsin plans are, and how that (easy) comparison celebrates the legacy and “thriftiness” of the plan designers.
Not so fast.
We try to track pension funding closely, at Truth in Accounting, and Wisconsin indeed appears to sport one of the best-funded public pension systems in the nation.
But we try to take a holistic view, leading to our bottom-line “Taxpayer Burden” measure of overall fiscal health. Pensions are certainly a big part of the overall pie, but they aren’t everything. Retirement health care funding is nearly as important, and pension funding also has to be viewed in light of other resources outside of state government retirement plans.
One of the more interesting reasons to fear focusing on government pension funding too closely as a measure of fiscal responsibility deals with “pension obligation bonds.” Governments can issue bonds and put the proceeds into pension plans. Voila! The plan is funded, but is the problem fixed? Not in terms of the government’s overall fiscal health. In fact, some critics of this practice decry how it can be way of leveraging the risk of pension plan health, given that proceeds are often invested in riskier investments.
Pension plan funding, of course, does matter for overall fiscal health. Looking across the 50 states, there is a strong relationship between pension funding and Truth in Accounting’s “Taxpayer Burden.”
But it is interesting to see how Wisconsin stacks up on both of these measures. Wisconsin ranks second out of the 50 states in how well funded its pension plan is. But on our “Taxpayer Burden,” Wisconsin ranks nowhere near the top (only 24th).
This is worth looking into further. Other things equal, yes, pension funding matters. And Wisconsin’s plans may have some unique features worthy of learning about. But Wisconsin’s pensions may have succeeded in important part because they carved out an elevated position, relative to other state obligations.