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By Sean Forbes
July 28 — The two would-be vice-presidents have both served as governors, so what’s their record on the public pension plans covering their state employees?
Sen. Timothy M. Kaine (D-Va.) didn’t focus much on public pension matters during his term as Virginia’s governor from 2006 to 2010, until the Great Recession smacked his state's pension system.
Gov. Michael R. Pence (R-Ind.), however, has been much more actively interested in his state’s plans, primarily from an investment perspective--a policy that could smack his state's pension system.
Kaine’s focus on the Old Dominion’s public pensions came at the end of his term and in the wake of the 2008-09 financial crisis.
In his 2010-12 budget request, he proposed that state employees begin contributing to their retirement plans. Virginia’s government had handled contributions on its own since 1983. Kaine also recommended raising the retirement age for newly hired state and local employees from 50 to 55.
“This is not what we hoped to announce, but these changes are necessary to manage through this very difficult fiscal situation,” Kaine said in December 2009, presenting his final budget to the state’s General Assembly.
What began with a suggestion to have employees make small contributions toward their retirement would later morph into a new plan design under Kaine's successor in Richmond, Gov. Robert F. McDonnell (R).
Virginia’s secretary of finance, Richard D. Brown, told Bloomberg BNA July 28 that the recession did contribute to a re-analysis of the pension system, but McDonnell went further. “Two years down the road the whole system was revamped” into a hybrid pension model, with defined contribution and defined benefit aspects, Brown said.
In a policy speech on July 14, Pence recommended that the Indiana Public Retirement System make a $500 million investment over 10 years on early-stage and midmarket in-state companies.
Alicia Munnell, director of the Center for Retirement Research at Boston College, told Bloomberg BNA July 27 that Pence’s pension investment ideas don’t make for good policy, because it can lead to “crony capitalism” as well as bad returns.
Investing in-state has another drawback besides a tendency toward political favoritism, Andrew G. Biggs, a resident scholar at the Washington-based American Enterprise Institute, told Bloomberg BNA July 27. There is some evidence that targeted in-state pension investments can get decent returns, but if the state’s economy goes south, then so does the pension system, he said.
“In order for there to be a stimulus effect, you have to be investing in projects that otherwise would not get funded,” Biggs said. “At best it’s kind of a wash, at worst you are funding projects that shouldn’t be funded."
The Hoosier state governor has signed off on 13th pension check legislation in lieu of cost-of-living-allowance increases to pension payments, but that was because of Senate intransigence on COLAs, two House legislators on either side of the partisan fence told Bloomberg BNA.
Pence had been concerned about 13th checks drawing down the assets in the Indiana Public Retirement System, Rep. Charles Burton (R) told Bloomberg BNA July 27. Burton said he met with Pence soon after he took office to present his COLA idea, to which the governor was receptive. “That tells me that he listens. He is a conservative, he’s interested in paying the bills and making sure we’ve got money in the bank, and frankly I like that,” Burton said.
Rep. David Niezgodski (D) said that he and Burton worked closely to push COLA increases because they keep up with inflation and so over the long-term, they would provide a better benefit for retirees. He said he was disappointed to not get the COLAs through the Senate.
Niezgodski also echoed Burton's observation that Pence is a listener, but wasn’t complimentary.
“I would almost have to say ‘asleep at the switch’ would really have to be the one phrase that makes the greatest sense,” Niezgodski told Bloomberg BNA July 27. “Because while members of the majority Republicans have been trying to do a lot of things that alter people’s pensions—and not for the better—there’s really nothing that comes back from Gov. Pence. He doesn’t really have recommendations.”
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