A common criticism of Social Security choice (and defense of the Social Security status quo) is that there are dishonest actors in private markets who would put people’s private account assets at risk of (in the words of the AFL-CIO) “corruption, waste and Enron-ization.” These critics argue that society is much better off keeping Social Security in the honest, benevolent hands of Uncle Sam.
What must these critics be thinking about today’s NYT above-the-fold article on teacher pension fund shenanigans in New Jersey? The lede says it all:
In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.
Like many state and local government pension systems, New Jersey’s is woefully underfunded compared to the benefits it will have to pay in the future. (This situation will make headlines in the coming years, as state and local governments begin to disclose their pension fund and retirement benefit system shortfalls in accordance with a recent GASB requirement.) In New Jersey’s case, the shortfall is more than has been publicly acknowledged, however: “an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars.”
Talk about the Enronization of retirement benefits…
What should be especially troubling to SS choice opponents is that New Jersey has a number of “good government” provisions on its books, including one requiring any new state spending be paid for using a specified revenue source. When the state sweetened its pension benefits a few years ago, lawmakers supposedly complied with the law. Moreover, New Jersey officials told the NYT that there is no impropriety in the pension fund’s accounting — everything (including the apparent misstatements) is on the level.
So, despite “the right” legal safeguards, despite accounting mandates, despite the existence of a special interest (aka the state’s teachers’ union) with strong incentive to make sure the teachers’ pension fund is healthy, and despite the fund’s handling by supposedly honest, benevolent government, New Jersey’s teachers’ pension fund is “in dire shape, with a serious deficit.”
Choice opponents do have a reasonable concern that bad actors in investment markets could harm private accounts. But they fail to acknowledge that bad actors (and even non-bad actors) can — and do — harm public pensions. Wouldn’t it be sensible to allow people to put their public pension nest eggs in many different private investment baskets (some of which may be susceptible to bad actors) instead of keeping those eggs all in one Social Security basket (also susceptible to bad actors)?
At the very least, wouldn’t it be sensible to give people a choice of which bad actor risk they’d rather run?