Occasionally, almost by accident, the Rio Grande Foundation and “big labor” see eye-to-eye on certain issues. A representative of the Communication Workers of America union has an opinion piece in the paper today about the State’s “mismanagement” of worker pension funds. Amazingly, despite the stock market hitting record highs on an almost daily basis nowadays, the unfunded liability of PERA (Public Employee Retirement Association) is growing and is now at $4.8 Billion. Another pension fund the ERB faces liabilities of $7.8 billion and rising. Clearly, the State is not good at managing these retirement funds (and New Mexico is not alone)!
The union thinks this is unacceptable. So do we. As the union rep writes, “We’re demanding that PERA and the ERB get out of high-fee hedge funds and private equity, and start following Warren Buffett’s sage advice: stop trying to beat the market; instead, focus on reducing costs.”
That is a good start. Money managers rarely beat the stock market and paying them big bucks to manage these portfolios is hardly a wise approach.
But that raises a big question:
If the best move is to just invest money in a low-cost index fund, why get the state involved in managing retirement funds in the first place? Why not allow the workers to invest those dollars in their own individual retirement accounts that totally eliminate the state from managing the money and get taxpayers off the hook for multi-billion dollar liabilities (in a time of strong stock market performance) like Michigan did for its teachers recently?