In a letter to the editor of the Milwaukee, Wisconsin Journal Sentinel, RSI's Chuck Reed today said that Milwaukee County Executive Chris Abele misrepresented what is meant by reducing the public pension's targeted rate of return. Earlier this month Abele told public employees that the reduction would have adverse consequences ("County pension contribution to increase," May 4).
"Labeling these increased payments as an "adverse consequence" is mischaracterizing to both public employees and taxpayers," Reed wrote. "By lowering the expected rate of return, both employees and employers are recognizing the true cost of pension benefits and that both groups are responsible for paying these costs.
"Failure to adopt realistic rates of return result in underfunding that can have horrible adverse consequences. Just ask the public employees of Puerto Rico, Detroit, and Central Falls what happens when retirement plans are underfunded and governments run low on money.
"State and local governments carry approximately $4 trillion in pension debt due to systemic underfunding caused in large part by using unrealistic assumptions of market returns. When plans are underfunded, retirees, employees and taxpayers are all at risk.
"The county pension board made a step in the right direction by reducing its target rate to 7.5%; many economists argue that these rates should be even lower. Few pension managers count on 8% returns these days, and more than two-thirds of state retirement systems have decreased their assumptions since 2008.
"Reducing expected rates of return reduces risk of "adverse consequences" for retirees, current employees and future taxpayers. That's a good thing."