June 13, 2016

There’s a move afoot in Raleigh to give state retirees a $69 million COLA increase. That’s nice. Washington has been ramping up benefits for years. Why not Raleigh?

The Carolina Plott Hound website points to an article which shows why a state retirement increase is just tooth fairy politics, Washington style.

Last year, the pension fund earned an investment return of 0.003. That’s 3/10s of one percent. Basically nothing. Over fifteen years, the return is only 5.5%. But the entire balance in the pension fund is based on earning 7.25% and we aren’t making it.

The Central Bankers and politicians running the world from Washington, Brussels and Tokyo are engineering zero or negative interest rates. They’re punishing savers and bankrupting pension funds so politicians can avoid choices and keep binging on debt.

The conservative majority in Raleigh made choices and our economy is growing at the fastest clip in the nation but no state can fight a global, big government, zero interest rate policy. The pension fund isn’t earning enough to expand benefits. Paying for a COLA adds $700 million to an unfunded liability in our state retirement fund that already stands at $3.4 billion. Remember, multiplying even a small COLA over the lifetime of 195,000 retirees adds up quickly.

And if we used more realistic investment return assumptions, our pension fund debt explodes to $34 billion even before a COLA gets passed.

Who’s going to cover a COLA or pay for a $34 billion debt? The tooth fairy?

Democrats will always promise the moon and deliver a cow chip. The conservative majority is better than that. It’s time for leadership, not tooth fairy politics.

Fix the pension fund by giving newly hired teachers and state employees a 401k instead of a taxpayer guaranteed pension that will be as shaky as the ones in Illinois and Puerto Rico if we don’t shape up. Then a COLA increase might make sense.