Today, Education and Labor Committee Republican Leader Virginia Foxx (R-NC) spoke on the House floor to warn about severely underfunded pension programs and that relying on taxpayers for bailouts is not a solution:
Republican Leader Foxx’s remarks:
“At the state and local levels, public employees are often promised defined benefit pension plans that are subsidized through the tax code and exempt from ERISA’s funding, notice, and disclosure requirements.
“Too often, state and local governments have not kept their end of the bargain and are failing to fund employee pensions adequately.
“The numbers suggest public employee pensions are dangerously underfunded. Economists estimate that state pension plans are collectively underfunded by as much as $5.8 trillion.
“According to the Center for Retirement Research at Boston College, public pension plans have on hand an average of just 75 cents for every dollar expected to owe retirees in future benefits.
“Simply put, there is not enough money set aside to meet retirement obligations.
“This raises serious questions about the promises that public employers make and the practices they use to address underfunding.
“I am especially concerned with recent news reports that some states and localities—rather than making responsible decisions to manage their plans—are adopting a risky practice: betting on the stock market with borrowed money.
“According to the Wall Street Journal, in 2021, more than 100 state, city, and county governments borrowed money for their pension funds and invested in stocks and other investments.
“Nearly $13 billion in pension obligation bonds were sold last year, which is more than in the prior five years combined.
“Here’s the problem with issuing pension obligation bonds—they can backfire.
“Investing with borrowed money can increase returns when markets are rising, but it makes losses more severe in down markets.
“This is especially concerning given the recent struggles in the stock and bond markets.
“According to recent reports, public pension funds have lost 10.4 percent on average in 2022.
“When investments using borrowed money don’t perform as hoped and returns fall below the bond interest rate, the city, state, or county winds up paying even more than if it hadn’t borrowed in the first place.
“In light of recent multi-billion-dollar taxpayer bailouts of private sector pension plans, there is no question where state and local governments will turn when investments fall short and trillions in pension payments come due.
“I urge public employers to make decisions to fund their pension plans responsibly.
“Plans should not be gambling with the retirement savings of the hardworking men and women who depend on these pensions.”
Watch Foxx’s floor speech here.