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# Writer Malanga has it Wrong: Riordan Pension Reform Plan Focuses on What Can Be Achieved
August 22 2013
Written by Richard Riordan and Tim Rutten.
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BACK TALK ***-*** In his response to our New York Times op-ed piece proposing a national Public Employee Rescue and Reform program, veteran financial journalist [Steven Malanga](https://ded2209.inmotionhosting.com/~citywa9/recent-posts-lead-stories/5537-riordan-s-big-pension-reform-idea-bailout) expresses a number of important cautions and rightly so.
It’s possible, though, to let a preoccupation with *might* go wrong obscure our perspective on could be achieved, if things go right. For example, throughout his response, Malanga argues that we are proposing that Washington bail out distressed public employee pension funds.
However, we wrote that the “program essentially would function as an insurance agency. It would *not* bail out distressed local retirement programs. Instead, cities—and perhaps states—could sell new municipal bonds to cover their pension liabilities with the federal government guaranteeing repayment to investors.
Each participant will pay fees amounting to a kind of insurance premium into the program, guaranteeing no monetary risk to the federal government.” In order to obtain this insurance “the cities would have to agree to a list of pension and retiree healthcare reforms.”
Malanga is anxious that it would be too easy “to negotiate away the proposed ‘reforms’ until they become meaningless.”
That’s a legitimate concern, particularly because it was the inability or reluctance of so many cities to bargain effectively with their employees’ unions that created the current crisis. That’s why we insist that there be no insurance without reform, but leave the list of what those might be essentially open-ended.
Malanga likes Prof. Joshua Rauh’s proposals that existing pension benefits be frozen and new employees be directed into defined contribution rather than defined benefit plans. Others may have other, even more sweeping ideas. That’s why the precise list ought to be open to negotiation by lawmakers, as we suggest.
Malanga also is skeptical about the one reform we do argue ought to be included on any list, which is an agreed upon discount rate according to which all public pension funds would base their projected returns on investment. Malanga worries—again with reason—that “the devil is in the details.” It certainly is, which is why whatever number ultimately is set, the process of reaching it ought to be transparent and able to withstand rigorous scrutiny. We thought that was implicit in the idea of “negotiated” reforms, but perhaps we should have been more explicit.
As we wrote, “Lawmakers doubtless will differ on what (the reforms) ought to be,” but we think Washington is the place where there’s the best chance for working them out in as open and rational a forum as possible.
Malanga implies that the big cities’ employee unions are in such “desperate straits” that they’re in no position “to dictate” terms. In fact, in most of our large and in many mid-sized cities, the unions’ influence over municipal and state government remains strong enough to block any reform to which they’re adamantly opposed. If that happens under the system we propose, their cities won’t be eligible for insurance.
A point we didn’t make, but one worth adding, is that if they back track on reform, they would lose their insurance. Over time, the unions will come to see that, without that insurance, the cities won’t be able to afford any pensions or health insurance for their employees.
*(Richard Riordan was mayor of Los Angeles from 1993 to 2001. Tim Rutten is an American journalist and worked for the LA Times from 1971 to 2011.)*
*-cw*
CityWatch
Vol 11 Issue 68
Pub: Aug 23, 2013
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