October 10, 2016
The NYT had its second major article in less than a month on the alleged mistreatment of a small public pension fund by the California Public Employee Retirement System (Calpers). The focus of this piece is the bill that the small California town of Loyalton faces from terminating its pension plan for four retirees and converting to a 401(k) system. According to the piece, the city council apparently did not understand the information Calpers gave it on termination costs when it voted in 2012 to end its pension with Calpers. This is unfortunate, but it is not clear that the council’s confusion is an appropriate topic for a major NYT piece.
The prior piece discussed problems involving pensions for six workers for Citrus Pest Control District No. 2. They discovered that there would be substantial costs associated with terminating their participation in Calpers and switching to a 401(k) pension. While that piece, like this one, implied that Calpers has been doing something improper; in fact, the system has provided all the appropriate information to its participants.
It is certainly plausible that these very small systems with no professional administrators may not understand the information given to them by Calpers. In this case, the problem is a lack of sophistication on the part of the people managing these small funds, not Calpers.
Of course, this is the argument as to why a defined benefit system like Calpers is better than a 401(k) type system where individuals have to make their own investment decisions. Most people are not financially sophisticated. As a result they often make bad choices in managing their money. This is especially likely when people pushing various funds are in a position to make large fees by promoting bad choices.
It is striking that the NYT has now devoted a large amount of space to the problems facing a total of ten workers in the California Public Employees Retirement System. It might be appropriate for it to shift its focus to the tens of millions of workers without adequate retirement plans.
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