To the editor:

A few corrections to Steven Malanga’s story [“The Pension Fund That Ate California,” Winter 2013]. First, Utah did not convert to a completely defined-contribution system; it adopted a hybrid defined-benefit and defined-contribution plan. It reduced taxpayer exposure and spread future risks among employees—but not entirely.

Second, the author neglected to point out that when the market was doing well, the rate employees paid remained the same, and all the savings went to the governmental entities. Thus, when the market underperformed, the increased costs were borne entirely by the government because the employees had not shared in the bonus during the “good” times. Malanga either neglected to give the reader the whole story or was not sufficiently informed.

Mark Meaker
Providence, UT

To the editor:

The author actually misses one of the most egregious and exploitative unions in the state: the police captains. I guess it’s a taboo topic, but they have pensions that cannot be ignored. They earn a large portion of their pension payment tax-free if they retire on disability. I find it appalling that a police captain can sit behind a desk or in front of a television, hobnob with politicians, and keep the ranks in order and then raise his salary to a low- to mid-six-figure level—and retire and receive half or more tax-free. But thanks to Steven Malanga for doing good research and providing facts, not innuendo or speculation.


Steven Malanga responds:

Mark Meaker clearly didn’t read my story very closely. He claims that since workers did not “share” in the benefits of the robust market in the 1990s, they should not have to pay more now for their benefits. But workers did share in the benefits. As I point out, the justification used by the Cal- PERS board for the 1999 pension enhancement that dramatically increased benefits was that workers deserved a piece of the big investment gains of the 1990s. Of course, what’s wrong with that idea is that defined-benefit pensions are a contract in which workers’ benefits are protected at their current levels. So what the CalPERS board was arguing (and what Meaker contends) is that workers should share in the upside when the stock market does well but bear no risk on the downside. But if workers want to share in the market’s benefits, they should demand individual-investment accounts and defined-contribution retirement plans. Those would also require bearing risk on the downside.

Utah’s plan gives employees the option of choosing a defined-contribution pension or a hybrid system that includes both 401(k)-style and defined-benefit pensions. In any case, the reform limits the government’s pension cost to about 10 percent of payrolls.

I appreciate JimmyG’s letter but also make the excuse that there simply wasn’t room to cover every mess in the state’s pension system, including disability-pension abuse. I agree that it can get your blood boiling to see how the system is often gamed—but beware of legislators who fix this kind of inequity and then claim that they’ve done pension “reform.” That’s not enough to solve the state’s problems.


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