Legislators and Pension Plans: The Class Exception vs. The Appearance of Impropriety
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.<br>
<br>
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.<br>
<br>
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.<br>
<br>
<b>Legislators' Pensions</b><br>
<a href="http://www.ohio.com/news/106396078.html" target="”_blank”">An article in
yesterday's Akron <i>Beacon Journal</i></a> 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.<ul>
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<br>
<br>
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.<br>
<br>
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.<br>
<br>
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.</ul>
<b>Legislators' Reponses</b><br>
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?<ul>
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.</ul>
The house minority leader said, 'I'm not going to deal with that at
all. Apparently, the legislative function has escaped you. I vote for
traffic laws. I vote for real-estate laws that affect me. I'm not going
to get into it.''<br>
<br>
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."<br>
<br>
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.<br>
<br>
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.<br>
<br>
<b>Pension Plan Members and the Class Exception</b><br>
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?<br>
<br>
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.<br>
<br>
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.<br>
<br>
<b>Responsible Ways of Dealing with the Appearance of Impropriety</b><br>
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.<br>
<br>
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.<br>
<br>
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.<br>
<br>
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.<br>
<br>
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.<br>
<br>
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.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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