Keeping the Pension Fund Scam Alive


The accounting for public-sector pension funds is a scam on both taxpayers and government employees.  There’s no way around that conclusion.  Consider:

Rhode Island’s state employee pension fund made 2.22 percent in investment returns for the budget year that ended June 30, state General Treasurer Seth Magaziner announced Tuesday. 

That was below the pension fund’s internal benchmarks and substantially below the 7.5-percent assumed rate of return set for the pension fund, but Magaziner applauded what he said were good returns in a particularly challenging year for investors.

Comparison with other investors is not good enough.  If we were all running from an avalanche (didn’t want to go back to the lava well twice in one day), saying that you’re in the middle of the group of people racing for their lives is an irrelevant measure.  Middle, front, or back, the only measure that counts is whether your speed is enough to escape death.

The fund has to make a certain amount of money.  If it does not… catastrophe for taxpayers, beneficiaries, or both.

The risk does not lay evenly, either.  Note that Paul Edward Parker’s article highlights the fact that the formula for cost of living adjustments (COLAs) for retirees goes by a five-year schedule, by which the state is doing OK.  As I’ve written many times (here, for one), pensions are a long-term investment, and over the long term — a 10-year average or longer — Rhode Island is behind on its investments.  We can’t afford only to beat benchmarks that are lower than the investment projections that we use to calculate contributions.

Back when the General Assembly passed then-Treasurer Gina Raimondo’s pension reform, I estimated that the game would last about a decade, before it would become apparent, again, that the system wasn’t sustainable.  The stock market boom of the last few years (which I’d characterize as artificial) may have extended that period a little bit… or it may have reduced it, depending on the timing and nature of the correction.  Either way, it wouldn’t surprise me to see now-Governor Raimondo find some way to move on from her current job, rather than seek a second term, so as not to be in the direct line of fire when questions about the pension fund become more difficult than Magaziner is able to spin.


  • Mike678

    You underestimate Seth, his fellow Dems, and the local media. That is understandable in that you deal in facts and we tend to mirror-image in our thinking, e.g., I am ethical so he/she will be also.

    But our politicians deal in smoke and mirrors, thus can spin a story of victory from and defeat–or at least find a scapegoat (Bush). And the uninformed (and the looters) will cheer them on….

  • Fake Guest

    “The stock market boom of the last few years (which I’d characterize as artificial) may have extended that period a little bit”…Now Tiverton’s Walter Mitty fancies himself an economist. I hope you didn’t invest in gold as an alternative like your fellow baggers.

    • ShannonEntropy

      I am an avid gold-bug … heck, I even prospect for the stuff on occasion. My motto is ” It’s *always* a good day to buy gold !! “

      The recent collapse of the price — it’s about to crash thru the $1,100 / oz barrier — is actually Good News for our economy. The single biggest determinant in the price of gold —and of the world’s most important commodity, oil — is not supply & demand, but the strength of the US Dollar

      I am not gonna type the 1,000 words it would take to explain this in detail. But if yer really inner·rested, there is a great new book out that lays it all out for you =►

  • Mario

    I expect Raimondo to run for reelection, but I’ve thought for a while now that next year at this time your last sentence will seem prescient, for a time.

  • ShannonEntropy

    Justin’s 10 year timeline would be up at the end of Gina’s second term … so she prolly will run again

    … and then it’s on to getting rid of that goof-ball US Senator of ours, Sheldon Whitehouse. He will be up for re-election in 2024, which would be nearly perfect for Gina, who will be leaving office in 2023

  • Tommy Cranston

    It should be repeated ad nauseum that the only real pension reform is SS plus a small 401K.