Can we handle the truth?
Ten days ago, the Fort Worth Chamber of Commerce urged the city to revamp its pension, because the exploding costs threaten our quality of life. The op-ed article in the Star-Telegram should have gone further, in my view, but the chamber deserves credit for stoking the conversation.
By the end of the week, it was doing damage control. In a letter to the editor, the chamber president said the piece had been wrongly attributed to Jeff King, the group's volunteer chairman -- and a managing director at J.P. Morgan.
Under the headline, "Chamber correction," President Bill Thornton said the chamber staff wrote the piece and didn't get permission to use King's name or employer.
"We regret any misunderstanding this may have caused," Thornton wrote.
It's embarrassing to publicly admit to ghostwriting a column and failing to get approval. But what about the article's brave ideas: mustering the political will to fix the pension, embracing a painful remedy and paying the fiddler?
They still ring true, and they're too important to discredit over this kerfuffle.
Except that King's boss did exactly that, sending a mea culpa letter to pension plans and investment partners, and including Thornton's correction. J.P. Morgan had received "a number of anxious inquiries," she wrote, and had "to explain this unfortunate incident."
"I can state categorically that this article does not reflect our views or opinions toward public pension plans and their hardworking participants," wrote Mary Callahan Erdoes, CEO of J.P. Morgan Asset Management in New York.
Public pensions have become a third rail of politics, a subject that can hardly be talked about critically, even though they're in critical shape.
Maybe the chamber would have avoided trouble by signing Thornton's name to the op-ed piece. But the reaction is an indicator of the powerful interests allied around pensions and the difficulty of making meaningful changes.
Challenge a public pension plan, and elected leaders face a hostile constituency from the police, fire and other public employees. Workers recognize the value of these benefits, because in Fort Worth, many retire in their 50s with lifetime pensions that approach their top annual pay. So employees will fight hard to protect them -- in elections, in the courts, in public opinion.
There are plenty of financial players with a stake, too. Morgan, for one, manages more than 250 public pensions nationwide. It's understandable that most businesses try to avoid local political debates, but in pensions, big fees are on the table, too.
Participants have reason to be anxious about these public discussions, even if money managers try to assuage them. Their benefits have become so rich and the investment gains so dicey that traditional pensions have become unaffordable.
The plan for Fort Worth employees has an unfunded liability of $432 million over the next 30 years. To shore it up, the city manager proposes contributing 20 percent of employee pay, plus more than 8 percent from employees -- and that alone won't make the numbers work.
Any lasting solution will require both more money and reduced benefits, and there are doubts about securing the latter. While private companies have been able to drop pensions and move to 401(k)-type investments, the public sector is restricted by union contracts, state laws and politics.
Some believe that state laws prohibit changes to pension benefits for anyone already participating. Others say a line can be drawn between vested and unvested employees. Still others argue that changes can be made prospectively, for benefits in future years.
As more cities, states and school districts confront these growing liabilities, the legal issues will eventually be sorted out. But the longer that Fort Worth delays, the bigger the financial hole. That's why it's important for business leaders and others to speak out, and give elected officials some cover.
In its op-ed piece, the chamber recalled its own pension problem in 2002: "There was a clear choice: Either drown in the financially toxic benefit plan or embrace a painful remedy," the article said.
The chamber elected to freeze its pension, which stopped employees from accruing more benefits and started the process of paying off the obligations. The plan will be dissolved, as scheduled, later this year.
But the chamber didn't prescribe the same tough medicine for Fort Worth. It endorsed a more generous idea, first floated by the city manager, to create a defined contribution plan for new hires only.
The City Council will tackle the pension issue this month, and changing it for new hires would be a start on reform. But will that generate meaningful savings, or at least prevent blowing a hole in future budgets?
If the city boosts its contribution as proposed, it will be paying in almost twice as much as other public pensions. In the private sector, when companies drop pensions, the vast majority choose the most substantial approach.
In a study of 286 frozen pensions, 85 percent used a so-called hard freeze, which stops employees from accruing additional benefits. Just 13 percent restricted the changes to new hires only.
A hard freeze generally has an immediate positive impact by reducing funding requirements, says the Center for Retirement Research at Boston College. The December 2007 report is titled, "Why are companies freezing their pensions?" and one statistic tells all.
Before 2000, pension sponsors had been contributing about $30 billion annually to fund their plans. Then the market tanked, and the contributions soared to $45 billion in 2001, and $100 billion in 2002 and 2003.
"Market volatility suddenly made defined benefit plans considerably more expensive, with major implications for the sponsors' cash flow and financial condition," the report says.
The volatility isn't any better today, and the financial impact keeps growing.
Mitchell Schnurman's column appears Sundays and Wednesdays. 817-390-7821