Welcome to The CPA Journal Archives

Visit cpajournal.com to read the very latest from The CPA Journal


Public Pensions, Broken Promises—Redux

Mary-Jo Kranacher, MBA, CPA/CFF, CFE

My editorial for The CPA Journal's September issue addressed the difficult choices that some local governments were facing regarding public pensions. This topic, more than most others, seems to have touched a nerve with the Journal's readers. A few even took the time to express their views on this subject. You can read their letters to the editor on page 15.

One letter chastised me for failing to disclose my union membership: “If you are in fact a member of a government or private union, that should be disclosed; since you are a professor at York College, that would seem to indicate that you are.” Mea culpa! in the interest of full disclosure, as a faculty member of a public university—The City University of New York (CUNY)—I am a dues-paying member of CUNY's Professional Staff Congress, the union that represents the faculty and professional staff of the university. Let me also point out, however, that I am a taxpayer who would like to believe that our government will keep the promises it makes to its citizens.

Some of the comments from our readers indicated that they were less than happy with politicians who cave in to union demands just to get reelected. This is something on which we can all agree.

For the record, I do not hold the position that “if you get a government job you have the right to have everything taken care of, including your retirement.” I do believe that once a contract is negotiated and agreed to by all parties, that contract should be honored, unless, or until, new provisions are negotiated and agreed to by the parties. Changes to the original agreement, however, are generally applied prospectively, not retroactively.

That said, some of the comments from our readers indicated that they were less than happy with politicians who cave in to union demands just to get reelected. This is something on which we can all agree. The writer of one letter declared, “The politicians have two mandates: Get elected and get reelected.” I share the writer's frustration, but I am at a loss to recommend who should approve public worker contracts if not our elected leaders. And if such politicians are giving away the store by approving overly generous contractual provisions, why does the voting majority continue to reelect them?

Was It Preventable?

Comments were made by some about the funding gimmicks certain governments have employed, such as overstating the expected rate of return to reduce the amount payable in a given period. And fingers have been pointed in the direction of CPAs—as one individual put it, “CPAs who seem to ignore what is in front of them for the sake of retaining a client.” But what are the parameters of a CPA's responsibility? Should CPAs have known that the estimates used for the rate of return on pension investments were materially flawed or fraudulent? With the benefit of hindsight, it's easy to see that many state and local governments shortchanged their pension funds during good times and bad. Add to that the market volatility that has had a devastating impact during this ongoing economic crisis, and the combination has fueled a potentially explosive fiscal problem.

My September editorial focused on the situation unfolding in Central Falls, Rhode Island. But many more municipalities may be facing the same dilemma as Central Falls in the not-too-distant future, and we all may have some difficult choices to make. Will our society choose to honor its promises to its citizens? Will our citizens be willing to forgo personal gain for the public good? Stay tuned to see the next cliffhanger episode in this long-running soap opera. As always, I welcome your comments.

Mary-Jo Kranacher, MBA, CPA/CFF, CFE. Editor-in-Chief. ACFE Endowed Professor of Fraud Examination, York College, The City University of New York (CUNY) mkranacher@nysscpa.org.

Search for archived articles, authors, and topics below:


Login or create a new account