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The city should turn over pensions to the state

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The city should turn over its pension funds to the state. There is no benefit to city residents from having the city's pension plans administered locally. The city pays more for local administration of the pension funds than the state charges.

Also, the city pension trustees have assumed that the funds can earn 8 percent per year. In fact, until 2009 they assumed that their investments would average 8.75 percent per year. This is unrealistic. Of the more than 60 mutual funds offered by Vanguard, only four had returns that averaged more than 8 percent per year over a 10-year period. Most earned less than 6 percent per year over the past 10 years.

Unrealistic expectations are dangerous. They encourage investment advisers to take on high-risk investments. They also systematically underestimate the likely future costs of pension obligations. This encourages the city to offer its employees more generous pensions than its taxpayers can afford.

Placing the pension funds under the control of the state would provide more fiscal discipline than the city has been able to exercise in the past. This would make the current city administration's job harder. But it would be better for city taxpayers.

JACK OCHS
Point Breeze

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