The Star Tribune has announced that there is "no crisis" for Minnesota's public-pension system (editorial, April 10). The soothing lullaby sung by the trio of pension administrators and union representatives amid an upturn in the stock market is welcome music to the untrained ear.
We at the Minnesota Free Market Institute agree that Minnesota is not California (and we agree that boomers have not saved enough to retire).
If California is Lindsay Lohan, Minnesota is Miley Cyrus.
The state has been pretty good up to this point, but we are poised to go off the deep end if we do not change our ways.
Applause is deserved for most of the 2010 legislation that began to resolve massive unfunded pension liabilities. But some of the savings are being challenged in a lawsuit brought by current retirees over reductions in cost-of-living adjustments.
And even if the state wins that lawsuit, more work needs to be done.
The state has promised state employees, on behalf of taxpayers, salaries that often exceed their private-sector counterparts, gold-plated health care and a pension that aims to "replace" much of that income along with cost-of-living adjustments.
Unlike with private pensions and 401(k)s, any funding shortfall must be made up by taxpayers -- and in the meantime, the cost of salaries and benefits keeps growing.
Legislators ordered a study on what it would cost to convert from the current defined-benefit system to a defined-contribution system. There is a growing consensus that taxpayers cannot afford to guarantee public pensions while struggling to provide for their own retirements.
Many have not saved enough for old age -- a trend made worse by the perfect storm of high unemployment, sagging wages, and rising prices for housing, gas and food.
These facts argue for lifting, not increasing the state tax burden and aggressively increasing incentives for personal savings so that Minnesotans can make up lost ground.
A draft of the study was released for public comment last week. The actuary's conclusion (that it would cost more in the short term to convert to a defined-contribution plan) did not surprise anyone familiar with pensions.
When you close a guaranteed pension plan, you have to increase funding in the short term to meet its continuing costs while simultaneously funding a new, defined-contribution system for current employees.
With legislators rummaging for every nickel and dime, we do not expect that Minnesota will move away from its current pension system this year.
In the short run, a "hybrid" system that features a defined-benefit/defined-contribution combo may be a more affordable and politically feasible alternative.
There are other things, however, that the Legislature can do this year to bring transparency and accountability to public pensions. For example, we currently allow the state to assume that it will earn 8.5 percent on its investments.
That assumption (some would call it a fairy tale) has come under fire, not just from free-market think tanks like ours but also by the General Accounting Standards Board and investment experts.
Reducing the assumed rate of return to a more defensible number will force the state to revise its aggressive and, some say, risky approach to investing.
The goal should be to enhance Minnesotans' ability to save for retirement -- whether we work for government or the private sector. The best way to do that is to reduce the cost of government.
Kim Crockett is president and general counsel of the Minnesota Free Market Institute.