Lessons from Tuesday.

Before we get to Wisconsin--and California, because something big happened there regarding pensions Tuesday--let's begin a review of some FACTS:

1) A traditional defined benefit pension system is relatively simple. The actuaries can calculate the average lifespan of a member in the large group of pensioners with great accuracy. Then it becomes a simple matter of mathematics to calculate how much money must be put aside today to pay those benefits promised tomorrow. That is, if anyone bothers to put that money aside. New York has done this with great care, and our public employee pension systems--particularly the teachers' system--are in excellent shape.

2) In every case where you have read about another state's pension system being in trouble, it is because they failed to put aside the required funds that they knew were needed. They used the money for something else in their budget, or simply gave themselves a "tax holiday." That is how pension systems become "underfunded."

3) When you make the apples-to-apples comparison of workers at equal educational levels, the wages and  benefits of public employees LAG those of comparable workers in the private sector. [For hard data, see the 6-part series beginning with Let's lay this myth to rest once and for all.]

4) States are in trouble because there is high unemployment leading to lower tax revenues and higher demand for services such as Medicaid and unemployment benefits. Not because of public employee wages or benefits.

OK, let's talk about Wisconsin. If you recall, Ohio passed similar legislation taking away the collective bargaining rights of public employees. Ohio has a mechanism for voters to overturn a state law, and they said "no" to that law by a huge margin (over 20 points). Maine has a similar mechanism which the voters used to overturn a ban on same-day registration and voting.

Wisconsin does not have this mechanism. The best that opponents of the anti-public employee legislation could do was a recall. Considerable exit polling was done, and one number is HUGE in explaining the results. Six of every ten voters told those polling that they believed that elected officials should only be recalled for some criminal action while in office. This goes a long way to explain why a good number of union members--along with members of their households--voted to retain the governor.

Those who wish to see the Wisconsin election as a validation of conservative principles should be wary. The exit polling showed Tuesday's Wisconsin voters would break 52-43 in favor of Obama over Romney in a national election. 18% of the Obama voters were in favor of retaining Walker, most likely for the reason stated above.

In California, voters in San Diego decided that all new city hires--with the exception of police--will have a 401(k) retirement rather than a traditional pension.

According to a story in the San Diego paper: "The city has a nearly $2.2 billion pension deficit as a result of past decisions to increase pension benefits while underfunding the pension plan in 1996 and 2002. Investment losses exacerbated the problem." [Note the problem was caused by underfunding, not the fact that employees have pensions.]

The story goes on to include a statement by the mayor which is most illuminating: “I think they need to listen to the message from the voters which says, you know, you need to be on the same type of pension as the rest of America.”

Wonderful. Let's all join hands and race to the bottom. It's becoming more clear everyday that the 401(k) cannot fund traditional retirement for the average worker, even when coupled with Social Security. (See What's so bad about 401(k)-type plans?)

Well, at least San Diego has solved their deficit problem. Unfortunately, no, according to the final sentence of the article: "Proposition B doesn’t do anything to eliminate that deficit, but it does take investment risk away from taxpayers and places it on individual employees."