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Legislators and Pension Plans: The Class Exception vs. The Appearance of Impropriety
Monday, November 1st, 2010
Robert Wechsler
Government pensions are one of the most serious issues facing local and
state governments. Most pension plans are underfunded, and the generous
pensions, the relatively short vesting periods, and the low retirement ages that allow for
at least one more career, not only cost taxpayers a great deal of money,
but seem unfair to those without pensions or with far worse pension
situations.
This is not an area where government officials should want to add apparent conflicts to the mix, but an investigation done by the Ohio Newspaper Association has uncovered a large number of state legislators who are receiving government pensions beyond what they will receive when they retire as legislators, and whose wives and children are also receiving or paying into government pensions plans. And yet not only do these legislators vote (or, in most cases, fail to vote) on pension plan reform proposals, but they also determine the level of transparency in the pension system (very low) and the ethics rules under which their personal interests in the pension plans would be considered a conflict or not.
The principal issue here is the balancing of the class exception against a serious appearance of impropriety. It is a classic instance of law vs. ethics.
Legislators' Pensions
An article in yesterday's Akron Beacon Journal sets out the state of Ohio state legislators' pension conflicts, without inclusion of the uniformed service pension plans, which by law need provide no information whatsoever (in other words, they are above transparency, above ethics). State pension plans include local government officials and employees.
The numbers tell only part of the story. At least as important is how the legislators responded to this investigation by the state's largest eight newspapers. How cooperative were they?
A house member who gets pension payments from two government pension plans "said he would recuse himself from voting on plan changes if he thought he had a conflict. 'I haven't thought about it,' he said."
Another house member who, with his wife, gets payments from two pension plans, said ''I don't think there is any connection to a conflict of interest. If anything, we have a self-interest in righting the system," presumably by safeguarding future benefits. But any self-interest, one way or the other, creates a conflict.
The most upsetting quotes in the article are from the legislative inspector general and executive director of the Joint Legislative Ethics Committee: ''The fact a legislator is a member of any kind of a group does not preclude that legislator from voting on matters that impact that group. ... Every Ohioan is impacted by taxes. There's no way of excluding our legislators from voting on tax policy.'' He added that some conflicts are unavoidable. And he also said that the key issue is whether a bill ''specifically and uniquely'' benefits legislators or their families. ''If the answer is no, they don't have a legal conflict of interest." As if conflicts were only matters of law.
Pension Plan Members and the Class Exception
Are government pension plan members the same sort of class as taxpayers, drivers, and real-estate owners, as these people would have you believe? No, they clearly are not. Nearly everyone is a taxpayer and driver, and most people are real-estate owners. But most people are not government pension plan members. So one has to ask, what's going on?
It is true that, because legislators are all members of the state pension fund, they all are conflicted. But this is not an unavoidable conflict, as the inspector general says they are. Ten states have separate retirement plans for legislators, and ten other states do not provide retirement benefits to legislators at all. So to remove this conflict, all Ohio's legislators have to do is follow the lead of twenty states and choose one or the other of these solutions. By doing this, at least half the legislators would no longer have an "unavoidable" conflict.
What about the class of legislators whose immediate family members are members of government pension plans? For them, the conflict is unavoidable. But something can be done to lessen the appearance of impropriety.
Responsible Ways of Dealing with the Appearance of Impropriety
The legislature could vote to prohibit double-dipping, that is, legislators taking a government pension while getting a legislative salary. This is the situation that most upsets the public and makes them think that legislators are more interested in themselves than in what's best for the public. And yet, according to the article, none of the pension proposals address double-dipping. That makes it appear that, despite the class exception, self-interest is hard at work in the Ohio legislature.
The legislature could also set up an independent body to oversee pensions, which would have no self-interested members. This way, there would be no appearance of impropriety in the proposals brought before the legislature.
The legislature could bring full transparency to all the pension plans, and require that legislators also present a complete picture of the pension situation in their own immediate families. If they want to say the class exception applies, the least they can do is show which legislators are members of the class, and to what extent.
And finally, the legislature could turn over its ethics program to an independent body. When its own ethics director and inspector defends its practices on a purely legal basis (and makes an inappropriate comparison, to top it off), the legislature's ethics process opens itself up to doubt.
This post focuses on state legislators, but it also applies to local legislative bodies, except that they often do not have much control over pension laws. But they can prohibit double-dipping, provide full transparency, and make their ethics programs as independent as possible.
The public has learned recently that there is a pension crisis across the country. The public deserves full transparency on this issue, and as much independence as possible in the preparation of proposals for dealing with it. Voters might decide that they don't want to vote for individuals who are too intertwined with the pension system to be trusted making responsible decisions regarding one of the most important issues facing local governments today. This threat alone might lead to more responsible, rather than self-serving decisions.
Robert Wechsler
Director of Research-Retired, City Ethics
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This is not an area where government officials should want to add apparent conflicts to the mix, but an investigation done by the Ohio Newspaper Association has uncovered a large number of state legislators who are receiving government pensions beyond what they will receive when they retire as legislators, and whose wives and children are also receiving or paying into government pensions plans. And yet not only do these legislators vote (or, in most cases, fail to vote) on pension plan reform proposals, but they also determine the level of transparency in the pension system (very low) and the ethics rules under which their personal interests in the pension plans would be considered a conflict or not.
The principal issue here is the balancing of the class exception against a serious appearance of impropriety. It is a classic instance of law vs. ethics.
Legislators' Pensions
An article in yesterday's Akron Beacon Journal sets out the state of Ohio state legislators' pension conflicts, without inclusion of the uniformed service pension plans, which by law need provide no information whatsoever (in other words, they are above transparency, above ethics). State pension plans include local government officials and employees.
-
All 132 legislators are members of the state pension fund, would benefit from keeping the fund solvent, and would be
harmed were the pensions reduced or the required service time increased
17 of the 99 House members draw state pensions while earning a minimum of $60,584 and building additional retirement income. The equivalent figure for Senate members was not provided.
Spouses, children, or other household members of 54 legislators (41%) are in one of three state pension systems that provide any information about their members.
Nearly half of the lawmakers have multiple ties to the pension systems, with party participation almost exactly equal: 33 of 65 Democrats and 32 of 67 Republicans.
The numbers tell only part of the story. At least as important is how the legislators responded to this investigation by the state's largest eight newspapers. How cooperative were they?
-
The newspapers sent a questionnaire to each lawmaker on Oct. 1 seeking
information about his or her pension memberships and the number of
immediate family members — children, spouses and parents — who were
participants in a state pension plan. The legislative leadership,
speaking for its members, declined to answer the survey.
A house member who gets pension payments from two government pension plans "said he would recuse himself from voting on plan changes if he thought he had a conflict. 'I haven't thought about it,' he said."
Another house member who, with his wife, gets payments from two pension plans, said ''I don't think there is any connection to a conflict of interest. If anything, we have a self-interest in righting the system," presumably by safeguarding future benefits. But any self-interest, one way or the other, creates a conflict.
The most upsetting quotes in the article are from the legislative inspector general and executive director of the Joint Legislative Ethics Committee: ''The fact a legislator is a member of any kind of a group does not preclude that legislator from voting on matters that impact that group. ... Every Ohioan is impacted by taxes. There's no way of excluding our legislators from voting on tax policy.'' He added that some conflicts are unavoidable. And he also said that the key issue is whether a bill ''specifically and uniquely'' benefits legislators or their families. ''If the answer is no, they don't have a legal conflict of interest." As if conflicts were only matters of law.
Pension Plan Members and the Class Exception
Are government pension plan members the same sort of class as taxpayers, drivers, and real-estate owners, as these people would have you believe? No, they clearly are not. Nearly everyone is a taxpayer and driver, and most people are real-estate owners. But most people are not government pension plan members. So one has to ask, what's going on?
It is true that, because legislators are all members of the state pension fund, they all are conflicted. But this is not an unavoidable conflict, as the inspector general says they are. Ten states have separate retirement plans for legislators, and ten other states do not provide retirement benefits to legislators at all. So to remove this conflict, all Ohio's legislators have to do is follow the lead of twenty states and choose one or the other of these solutions. By doing this, at least half the legislators would no longer have an "unavoidable" conflict.
What about the class of legislators whose immediate family members are members of government pension plans? For them, the conflict is unavoidable. But something can be done to lessen the appearance of impropriety.
Responsible Ways of Dealing with the Appearance of Impropriety
The legislature could vote to prohibit double-dipping, that is, legislators taking a government pension while getting a legislative salary. This is the situation that most upsets the public and makes them think that legislators are more interested in themselves than in what's best for the public. And yet, according to the article, none of the pension proposals address double-dipping. That makes it appear that, despite the class exception, self-interest is hard at work in the Ohio legislature.
The legislature could also set up an independent body to oversee pensions, which would have no self-interested members. This way, there would be no appearance of impropriety in the proposals brought before the legislature.
The legislature could bring full transparency to all the pension plans, and require that legislators also present a complete picture of the pension situation in their own immediate families. If they want to say the class exception applies, the least they can do is show which legislators are members of the class, and to what extent.
And finally, the legislature could turn over its ethics program to an independent body. When its own ethics director and inspector defends its practices on a purely legal basis (and makes an inappropriate comparison, to top it off), the legislature's ethics process opens itself up to doubt.
This post focuses on state legislators, but it also applies to local legislative bodies, except that they often do not have much control over pension laws. But they can prohibit double-dipping, provide full transparency, and make their ethics programs as independent as possible.
The public has learned recently that there is a pension crisis across the country. The public deserves full transparency on this issue, and as much independence as possible in the preparation of proposals for dealing with it. Voters might decide that they don't want to vote for individuals who are too intertwined with the pension system to be trusted making responsible decisions regarding one of the most important issues facing local governments today. This threat alone might lead to more responsible, rather than self-serving decisions.
Robert Wechsler
Director of Research-Retired, City Ethics
---
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