I don't think Andy Rotherham wants retirees to have a life of poverty or any such thing, but his latest post does not resolve our disagreement. Andy suggests that my rejection of privatization ducks the issue of a pension funding crisis. Not true.  A handful of pension programs have serious long-term funding problems, but these issues cannot be solved through privatization.

The only way to fix broken pension funds is to cut benefits or increase funding (by getting better investment returns or more revenue). Privatization only changes where you place the risk. The overall return on investments in private accounts is typically lower than in an actual pension system. So privatization would, all else being equal, lead to a diminishment of benefits without fixing the funding problem.  Privatization puts all the risk--and the consequences of having a broken pension fund--on the worker, which does lead to state savings, but it amounts to a backdoor benefit cut.

I’m reminded of Ezra Klein’s discussion of free trade and pareto optimality, where the reality of the issue is very different from abstract conception. But even in the abstract, pension privatization doesn’t make all that much sense. I want to ask Andy if he believes there is a real risk that the Connecticut legislature is going to dramatically cut the benefits for retirees? If so, a private account hedges against that risk. So has Andy invested in gold and does he have an ample supply of canned goods? That this, rather than the risk of market failure, would be his greater concern strikes me as absurd.

Andy also writes:

"I've never completely understood why we don't do more to aggregate intrastate, health care for teachers to increase leverage and why the unions don't push harder for that."

We actually do this a lot. Aggregation reduces administrative costs and gives you bargaining power. The strategy is called "getting bigger." It’s a watchword here in the AFT Research Department. We do, however, disagree with those specific proposals that call for our members to take big hits as part of the process. And aggregation can be an attempt, in crisis, to use a healthy insurance plan to subsidize a failing one.

But the AFT is deeply involved in efforts to create larger purchasing pools for employee health care. Both the AFT and NEA have worked with the Heinz Foundation on this issue in the past. Creating a single, statewide purchasing pool for healthcare was a major issue for our affiliates in Montana and Minnesota this past year. In Minnesota we estimate that our proposal would save a bit more than 4% in total cost ($223 million over six years), with 10% of the savings ($23 million) coming from broker commissions. For some reason (or maybe 23 million reasons), opponents killed it this year. I have hope that we'll get it done next year.

Last note: Does Andy think building bargaining power with brokers and streamlining administrative costs is a good thing for health care, but that moving in the other direction is the way to go for pensions?