The rise of modern commerce, money incomes, banking, etc. made possible saving and investing for a non-working retirement, a great social and economic development. For an individual, the idea is simple. You save money from your regular income and invest it prudently. If you do so long enough, you expect the account to grow big enough that you can retire and begin to draw it down over your remaining years.
An individual can plan his retirement by setting the amounts saved from each pay check and then making assumptions about how well his investments will do, how long he will live and thus how long he must work to accumulate enough to cover his remaining post-work years.
Things may work better or worse than planned, but the individual makes his decisions about how much to save, how long to work, how to invest and how much to draw in retirement. So, he can’t, for example, assume high investment returns to allow him a short working life with modest savings followed by a long prosperous retirement. Well, he can assume all that, but there’s no one to cover the risk that his assumptions are not reasonable or otherwise do not work out. So, he has to live with the fruits of the decisions he makes.
However, when an employer offers a collective pension plan to its employees, decisions on managing that plan are made by a board representing the employer and the workers. The choices made apply to all employees, who thereby lose control to the agents running the pension.
This is where trouble arises – that is, when agents make the decisions for the employees and for the stockholders of the firm or the taxpayers (for public agencies). Essentially, the agents for both sides need to convince their principals – the employees and the stockholders or taxpayers – that they got them the best deal possible.
The first question these agents face is whether the pension should be a defined contribution (DC) plan or a defined benefit (DB) plan. In a DC plan, the level of benefits retirees get is determined by the contributions and the actual investment returns realized by the plan. If the investments turn out well, it’s a golden years retirement. If not, retirement life style may range from modest to desperate.
In a DB plan, however, the various risks of the plan (mainly investment results) are shifted from the plan participants with whom they naturally and fairly lie to the employer and thus to the stockholders or taxpayers. Having participants carry those risks is fair because the sum of their current pay and the employer’s contribution to the retirement plan is the current value the employer pays (and the employee receives) for the current service rendered. In accounting terms, the matching principle is satisfied.
Employee agents want to shift the risks to the employer so they can tell employees that they will be taken care of for life.
One of the classic failures of management in the private and public sectors is that agents for the stockholders or taxpayers, being naturally conflict averse and inclined to believe in their ability to project investment returns, have widely given in to employees and created many DB plans. In part, this failure results because when the optimistic investment return projections are not realized, these agents will already have retired from the board and so it is difficult to hold them meaningfully accountable.
Almost inevitably, agents for the two sides make many optimistic assumptions about future returns and thus avoid requiring realistically high contributions from current employees and stockholders or taxpayers to the DB plans.
Eventually, the unsustainability of the assumptions game comes out as the DB plans collapse financially. This is what previously caused many private pensions to switch to DC plans, and it’s why public pensions all over the country are in trouble.
It’s also why the Controller’s office will propose in the next legislative session a bill to let Nevada public employees on a voluntary basis get control of their own pensions.
Ron Knecht is Nevada Controller. Geoffrey Lawrence is Assistant Controller.
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Ten years from now, you probably won't remember Christopher Suprun.
Suprun was chosen by the Texas Republican Party for the Electoral College. For most of our nation's history, this has been a procedural and honorary duty conferred upon loyal activists within the political parties when their presidential candidate carried their state.
But now Mr. Suprun is creating his 15 minutes of fame via a column in the New York Times in which he says he will not vote for Donald Trump and calls on other electors to follow suit. Of course, the Times' far-left management and readership are thrilled as they thrash about for any way to invalidate election results they don't like.
They claim the Electoral College was intended to be a deliberative body and should again become so. Since Trump’s election, our leftist friends have also discovered that the Constitution intentionally places strict limitations on the powers of the presidency. How convenient! We've warned continuously about the consolidation of power for decades, spanning both Republican and Democrat administrations, without previously finding a receptive audience from them.
It's only partly true that the Electoral College was ever a deliberative body. Originally, voters didn't vote directly for president, but chose from among a slate of electors who would subsequently meet together in their respective states and cast their own votes for president. This gave the electors some level of discretion in representing their constituents, but the entire Electoral College never actually met together and deliberated, since the Constitution specifically requires that electors meet within "their respective states."
Further, the scope of agency granted to electors in the early republic was fundamentally different than today. In the early days, suffrage was restricted to property-owning males. The prevailing view of the founders was that taxpayers should control the direction of government in much the same way that stockholders directed corporations. Most taxes were based on property and each married couple was viewed as a single accounting unit, which was the basis of their rationale for restricting suffrage to property-owning men.
Coincidentally, this cohort tended to be more highly educated and informed than the general population. Similarly, the allegiances and affiliations of prospective electors were widely known among this elite group. So when voters chose electors, they generally knew with whom they were aligned.
It's fortunate that we now vote directly for president, because it would be difficult for voters to know the personal affiliations of prospective electors in a nation nearly 100 times as large and with universal suffrage. That's why electors are now chosen directly by the parties, making their affiliations unquestioned.
But the change in format also implies a change in the scope of agency granted to the electors. And this is the real hang-up for those now trying to subvert this year's election results.
Agency is a centuries-old field of law that codifies the legal rights and obligations of parties to a principal-agent relationship or third parties transacting with an agent.
Most of us have been agents in some capacity. As employees, we are agents of the firm we work for, but we are only permitted to create obligations on the firm insomuch as we have been given authority to do so. Authority to bind the principal can be express or implied, but this determination is governed by the context, history and commonly observed business practices in a particular industry. Further, we also must follow the direct orders of those we represent, or they may rightfully fire us and end the agency.
Considering the political history, the scope of agency given to presidential electors no longer includes discretionary powers to vote for a candidate of their personal choice. As the collective principal, voters now expressly confirm their desire by directly choosing a specific candidate they intend the elector to support.
If Mr. Suprun were to exercise such wanton behavior in a business setting, his employer might legally repudiate his actions and he'd be personally liable for their consequences.
We don't believe in subverting elections, even when we dislike the outcome. And we certainly disdain anyone who abuses their agency to support such an effort.
We look forward to Mr. Suprun and his enablers disappearing in history’s rear-view mirror.
Human Progress v. Self Immolation
We are humanists and, so, optimists.
Against us in the political sphere stand environmentalists and other anti-humanists. These folks see not progress, but threat, in seemingly everything done by man.
We see man as being born into an uncertain and challenging world. In a state of nature, earthquakes, tornadoes and other disasters combine with infections and shortages of food, shelter and other basic resources to threaten man's very survival. But over centuries, humans have applied their intelligence to shape the world around them.
Today, we can not only satisfy our most basic physiological needs, but we also enjoy leisure and convenience of which our ancient ancestors could never have dreamed. The human experience to us is a history of triumph built upon the gradual progress of ideas.
To the anti-humanists, though, nearly every creation of man is a pollution, an insult to the pristine natural state of Earth. With their view, economic development cannot be seen as a continued upward march toward increasing fulfillment of human aspirations, but instead as a growing contamination of some prehistoric and metaphysical ideal in which humans were supposedly harmonious with Earth. Those who espouse this view are inevitably pessimists about the future, even though famine, disease, and human misery were ubiquitous during the period of their conceptualized ideal.
This anti-humanist theme is apparent to greater or lesser degrees in nearly all leftist policy prescriptions. Not every practitioner rises to the level of doomsayer Paul Ehrlich, whose book "The Population Bomb" either implicitly or explicitly endorses ideas like mass sterilization and genocide to drastically reduce the number of humans – although many do.
For instance, HBO pundit Bill Maher says, "...the planet is too crowded and we need to promote death." Planned Parenthood founder Margaret Sanger said, "The most merciful thing that the large family does to one of its infant members is to kill it." Sierra Club executive director David Brower said, "Childbearing [should be] a punishable crime against society, unless the parents hold a government license."
Proponents of ObamaCare stridently made the case for death panels so bureaucrats could ration treatment – i.e., deny some care – to elderly people.
So a policy agenda that ranges from health care to the environment to social issues all stems from a common motivating theme: self-immolating resentment of humans.
But we see this theme even when it is less explicit. Last week, an article in the Wall Street Journal detailed a proposal in Virginia for a new tax on homeowners based on the area of "nonpermeable surfaces" on their property. The issue is that human structures like concrete, asphalt and roofing create streams of storm water runoff. These streams alter the pre-human pattern of water flows and therefore must be “mitigated.”
Nevermind that these materials make human life safe and better and commerce possible. Without such surfaces, there would be little wealth or income for governments to tax.
When Ron was young and foolish, he acted that way and promoted many such ideas he now opposes. The turning point for him was in graduate school when he encountered "The Problem of Social Cost" by economist Ronald Coase.
Coase described farmers along a railroad track who felt the railroads owed them money because of occasional field fires due to steam locomotives. The farmers believed the railroads imposed social costs on everyone else and should be forced to pay compensation. Prior to Coase, economists overwhelmingly agreed. But Coase observed that if the railroads hadn't been built, those farms would never have existed in the first place. So, it was wrong to assume willy-nilly that the railroad owed compensation. The issue is much more complex.
We believe that balance that maximizes economic growth – and thus human wellbeing – should be the heart of public policy. And the lust among our adversaries for government to regulate, tax or completely prohibit every action, creation or idea that promotes growth is wholly misguided.
Most projects using steel, concrete and energy provide tremendous benefits to everyone and not just those directly involved in their creation. When we make policy on everything from population growth to water run-off restrictions, we should give full credit to the social benefits as well as the social costs of private activity.
Ron Knecht is Nevada Controller. Geoffrey Lawrence is Assistant Controller.