Cross-posted from the AFSCME Blog and writer Clyde Weiss.
It’s a piece of reporting making big waves. In the Sept. 26 issue of Rolling Stone, writer Matt Taibbi lays bare the sordid system by which politicians looted public pensions to finance other priorities, then blamed the retirees for the underfunded pensions.
“Here's what this game comes down to,” writes Taibbi in “Looting the Pension Funds.” “Politicians run for office, promising to deliver law and order, safe and clean streets, and good schools. Then they get elected, and instead of paying for the cops, garbagemen, teachers and firefighters they only just 10 minutes ago promised voters, they intercept taxpayer money allocated for those workers and blow it on other stuff.”
Taibbi says a loophole in the Employee Retirement Income Security Act (ERISA), made this possible. The law, passed in 1974, “was designed to protect the retirement money of workers with pension plans,” he writes.
But lawmakers left out public pension funds from the regulations. That left state and local government officials free to raid or underfund them at their pleasure.
Massachusetts was among the worst offenders, making only 27 percent of its required payments. New Jersey followed with 33 percent.
Another tactic “involved illegally borrowing cash from public retirement funds to finance other budget needs,” Taibbi writes.
These abuses were generally ignored as long as pension funds were in relatively good financial shape. Then the financial meltdown of 2008, caused by Wall Street excesses, created a fiscal crisis that left state budgets in shambles.
“Someone had to take the hit. But who?” Taibbi answers his own question: Public service workers and retirees.
The very Wall Street-backed politicians who raided and underfunded the pension systems in the first place are now “using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities,” he writes.
Read more about the sham pension crisis here.