Public Employee Pensions
Modeling and Data for Decision Making
Building a model to encourage needed negotiations
The structure and sustainability of public employee pension plans is an immediate financial problem facing many locations and levels of government today.
A key element frustrating attempts to grasp the complexity of the problem and the potential effects of proposed solutions is the inability to understandably display the relationships of the many interacting parts.
Novim, in partnership with several foundations, universities and individuals, has constructed an aid to better understanding the problem and formulating possible solutions–an interactive Web site that graphically demonstrates the relationship of major pension factors, allowing a user to explore the effects of possible alternatives.
The on-line model draws from existing aggregated data bases, allowing the application to be easily used in multiple communities. The relationship of variables is transparently displayed and the user is able to modify key assumptions in real time. Financial impact is displayed from the point of view of an entire community–city, county or state, or from the perspective of an individual’s retirement plan.
As with all of its studies, Novim’s approach has been guided and monitored by a select Scientific Study Group comprised of experts drawn from multiple disciplines and specialties.
The copy-righted model is currently hosted on a secure Novim development server, but will ultimately be placed in the public domain, accessible to researchers and the public.
From Project Lead, Keith Carlson
.er”Pension reform” can mean many things to many people. To public employees, it can mean the threat of someone taking away the lifestyle they had planned on in retirement. For public institutions, it can mean the difference between solvency and insolvency (but maybe many years down the road). For everyone, it means conflict. My parents were both California teachers, so when my dad retired, he was able to pick a CalSTRS pension that would keep him and my mom safe for the rest of their lives, and when he passed, my mom still received that benefit. My grandfather worked his entire life as a lineman for Bechtel and received a defined benefit pension just like my parents, which allowed he and my grandmother to migrate up and down the state into their 70s in their trusty travel trailer. I, like many people under the age of 60, have never had a defined benefit pension and probably never will.
This small set of examples from one family show the conflicts that arise with pensions, the conflicts are frequently intergenerational, sometimes interpersonal, and touch on one of the instinctual fears that plague all of humanity – “what will happen to me in my old age?”.
Novim, working with a philanthropic funder interested in pension reform, developed an interactive, web-based model that would allow both sides of the pension issue, pensioners and employers, to examine how public employee pensions react to changes in the parameters and assumptions for that pension. Novim is working to take the conflict out of the pension question. Public employers, like cities and states, can see the impact of questionable assumptions, like rate of return, on the funding (and possibly underfunding) of pension plans. There have been many examples of municipalities going bankrupt from poorly managed pension plan, most famously Detroit MI and Stockton CA. Many other smaller cities, like Central Falls RI have also been forced into bankruptcy from overly generous pensions negotiated during boom times only to fail when a downturn occurs. During these bankruptcies, both sides suffer. With proper planning, open discussions and tools like the Novim public employee pension model, we hope that public institutions will remain solvent and future pensions will not have to worry about their finances in retirement.