Bubba
Jun 02, 2010
Doug - minor, but you don't get it. We can't afford pensions. heck, I wish I could ditch my 401k too and get a nice juicy pension. Who wouldn't want one?
I bet you are either a union employee or a politician
Larry Littlefield
Mar 24, 2010
Two kinds of people have been getting richer over the past 30 years. The top executives who sit on each others' board and vote each other a rising share of private sector earnings, even as dividends dwindle. And today's seniors, the richest in history, who demanded lower past taxes and higher public retirement benefits. The richest of those are public employees, who control state legislatures the way the executives control corporate boards.
Everyone else is getting poorer, and much of the cost of the enrichment of the powerful is deferred, ensuring they will be poorer still.
I do not believe younger generations have a moral obligation to pay for what older generations promised themselves but were unwilling to pay for, and are willing to cut for future hires and future generations. That includes municipal bonds.
Tough Love
Mar 24, 2010
State & City Budgets are stressed all over the nation with supposed one-time “fixes”. Let me tell you something … this isn’t going to be a one-shot fix. Most States, cities, & towns have a FUNDAMENTAL structural problem which MUST be addressed.
Long ago, Civil Servant “cash” pay was quite a bit less than Private Sector pay in comparable jobs. This justified a better pension & benefit package.
Per the US Gov’t BLS, cash pay alone is now higher in the Public Sector than in the private sector. This justifies AT MOST comparable (but certainly NOT better) pensions & benefits.
More valuable Public Sector pensions comes from multiple sources: (1) higher formula per year of service, (2) basing pensionable compensation on the final 1 year instead of 3 or 5 years of service, (3) including post retirement COLAs, (4) arbitrary end-of-career promotions or excessive raises to “spike” the pensionable compensation, (5) allowing the soon-to-be retired to load up on overtime includable in pensionable compensation, (6) including payouts of unused vacation, unused sick days, uniform, parking, and other miscellaneous “allowances” in pensionable compensation, etc.
In MOST Corporate Pension Plans NONE of the above are included. Why? Because the cost would have to be paid for by the employer, and none of these being really justified, employers are not foolish enough to waste THEIR money this way.
In the Public Sector ALL, of the above are generally included/allowed. Why? Our Politicians aren’t spending THEIR money, their spending YOUR money (via your taxes) while they curry favor for campaign contributions and election support.
Sometimes, Corporate Sector Pension Plan sponsors realize that the plan is no longer affordable, so they reduce cost via formula reductions, increases in the retirement age, etc., for NEW employees and for FUTURE years of service for CURRENT (yes CURRENT) employees. This is ROUTINE in the Private Sector and is allowed by ERISA (the Federal Law that governs Private Sector Plans).
Just as in the Private Sector, CURRENTLY EMPLOYED workers in the Public Sector have already “accrued” pension benefits for PAST service. To this will be added benefits for FUTURE years of service. However, in the Public Sector (and there are variations from State to State) the ability to reduce the pension formula for FUTURE years of service for CURRENT employees is “questionable”.
Of course, the employees and their Unions say it cannot be reduced for anyone already employed (even for those very recently hired). There are many variations, e.g., NJ’s Office of Legislative Service said that cannot be changed only for current employees who already have 5 years of service. In some States, the rules that govern such potential Plan changes are in the State Constitution. In others, in Laws/Regs., and in others via Court Case law.
One important consideration in examining the DIFFICULTY in reducing pension for (FUTURE years of service ONLY) for CURRENT employees is that the legislators, judges, and staff (such as in the NJ example above) that “opine” that such reductions are not allowed are THEMSELVES participants in these same pension Plans and would be negatively impacted by such formula reductions.
Hence, they are hardly disinterested parties, but come with a built-in conflict of interest. These persons should not be making decisions that favor THEM (as beneficiaries of their own decisions) but add to the taxpayers’ burden.
The financial situation across the country is getting more dire, and the ROOT CAUSE must be addressed. Stated another way, we must once and for all, address the STRUCTURAL imbalance between income and expenses.
Way too much focus has been placed on the government entity’s neglect to “fully fund” the Plans. This is certainly true (to varying degrees across the nation). What is often given short-shrift is the “expense” side of the income statement. No one ever says …gee … funding a VERY generous pension plan is VERY expensive, and then moves to the logical next questions, that being, is it too expensive BECAUSE it is too generous and perhaps we such make it less generous.
But what exactly is “too generous”? Well, given that “cash” pay in the Public Sector now exceeds that of the Private Sector in comparable jobs, maybe a Public Pension Plan that is more than MARGINALLY higher is too expensive.
Above, I enumerated 6 items which make Public Sector Plans more expensive. Few people not educated in pending funding understand just how VERY valuable (and hence EXPENSIVE) these differences are. One thing is certain, the Public employee Unions know. That’s why they fight tooth-and-nail to stop changes.
Here is an accurate comparison of the costs of Public vs Private Sector retirement packages (pension plus retiree healthcare, if any) …. The value (i.e., cost to purchase the pension/benefit package) at the time of retirement of the employer-paid (i.e., Taxpayer) share of the typical (non-safety) worker’s retirement package is 2-4 times that of employer-paid share of the comparable (in pay, years of service, and age at retirement) Private Sector worker, and that multiple increases to 4-6 times for safety workers (policemen, firemen, corrections officers, etc.).
I’ll bet you had no idea that this HUGE disparity exists. Given that it does, and given that Public Sector “cash” pay by itself is higher, is it surprising that States, cities, towns are being so squeezed to fund this? Not at all.
So what is the solution? Of course Civil Servants deserve “fair” pay as well as “fair” pensions & benefits, but “fair” should mean COMPARABLE to what their Private Sector Taxpaying counterparts get. Right now, this is anything but true.
The EXPENSE side of the income statement has been neglected far too long. To reach a “structural balance” we need to reduce current pensions (as well as retiree healthcare subsidies) in the Public Sector to a level comparable to that of the Private Sector. A few more progressive States & Cities (or perhaps, those in the greatest financial pain) know they must look at this and are beginning the baby steps.
But the BIG problem is the conflict-of-interest conundrum that reducing pensions for CURRENT employees will (in many cases) reduce there own pensions. So, they ONLY propose plan reductions for NEW employees. To be fair, this may be happening not because they just “cave” on addressing such reduction, but because they really believe it is not possible.
A disinterested party might look a bit harder. Perhaps we need to get opinions from outside this circle, e.g., from university scholars. Or perhaps challenges should be brought in the Federal Court system where the conflicted parties are no longer the decision-makers.
Not addressing the huge cost of future accruals for current employees is wishing-away current financial reality. The dire financial problem is here NOW. Reducing pensions ONLY for NEW employees will have little impact for 20-30 years until they begin to retire. We will never make it. But also, given that most (objective) observers agree that current pensions & benefits are overly generous (compared to Private Sector plans … while appropriately taking into account compensation levels), why should we CONTINUE to layer on MORE excessive pension accruals?
It’s been said that the first step in getting out of a big hole is to STOP DIGGING. Well, every day we allow the current plan to continue, the hole gets deeper.
Somehow we need to find the way to reduce pensions (not for PAST) but for FUTURE years of service for CURRENT employees. That, along with a significant reduction in the retiree healthcare subsidy just MAY save us.
Publius
Mar 22, 2010
Only the ability to transfer the costs to the future made such useless socialist enterprises as the War on Drugs possible. Without the WOD and the attendent crime it generates, the pension problem would be a lot less severe. Time to figure out what is really a necessary government function.
Mar 21, 2010
We are already reducing our benefit costs by reducing the medicare rates - fewer doctors to take care of the retired. I believe we should be more proactive by shipping a box of donuts and a carton of cigarettes to each union member every week after retirement.
More seriously, what do you think will happen in the states with high taxes? As the boomers with wealth retire, you can be sure that there will be a migration to low tax states leaving the new poor working stiff to fund those costs. You should also expect crappy roads and education. The latest NJ budget is just a preview. States like the GS, NJ, and CT will continue to have trouble.
At least moving to DC plans mean that costs are recognized when incurred. The typical DB plans screws over the young, the mobile, and those paid by small employers. I wonder what percentage of US employees that is? The sooner DB plans are replaced the better. They are an anachronism from the 1950's. I would love to see a mandatory 6% 401(k) contribution for every employee and match by employer with immediate vesting. I like to think that the average US worker is not clueless and irresponsible.
Mar 13, 2010
To Anonymous who responded to my comments:
Your response if full of jealousy and bitterness, and fails to address the issues. I am sorry for that. Your response, though, is chock full of misstatemnts that need to be corrected. First, all government workers do not get annual cost of living increases. In my case, I haven't in 3 out of the last 5 years. My medical package is good, but I pay a premium of $1,400 per month to cover my wife and son. My employer pays $0. Further, many government workers in law enforcement, such as myself, do not particpate in Social Security, so we will not receive any Social Security benefits upon retirement. My paid off time is 15 vacation days a year, after working at the same job 20 years. It is telling that you have no response to facts, but engage in rambling diatribe that reveals not my selfishness but yours. But, hey, if you can convince fellow voters in your area to install the type of government you apparently want, more power to you. I just think that most people, after seeing the dismal state of American's retirement savings, and the coming collapse of Social Security, won't embrace your idea---which is, why don't we all join and race to the bottom together. Unfortunately, the facts are on my side, unhinged emotion on yours.
Mar 12, 2010
Doug, as usual people like you are blind to the true cost of your benefits. Just a few examples to dwell upon.
Using your numbers the tax payer contributes 16.9% a year to your retirement. The private sector contributes around 6% to Social Security and maybe 3% to a 401k. Government workers are using their clout to take from those of us that do not have and give to themselves.
Because of built in COLA (automatic cost of living increases) government workers never pay any new tax increases to pay for these obligations because all tax increases are built into the COLA.
Throughout a career in government the public employee receives medical packages often 200 to 300% better than the average private sector worker, again taking from those that do not have so that you may have. By taking so much from the private sector, so you may have while we do not, your selfishness generally eliminates the ability of those of us in the private sector (who pay for your benefits by force of law) to save for our own retirement because we give it to you.
Governments lucrative vacation, sick and holiday packages, often 2 to 3 times better than the private sector, also allows the government worker to further erode the ability of the private sector employee to save for their retirement because we are too busy funding the government workers time off.
Government workers average pay scale, at all but the highest levels of government, is consistently more than the private sector. While this may not have been the case in the past it is now the case with the average government employee today.
The real solution to the problem is to eliminate all government retirement programs and make all government employees part of the Social Security system and then give them matching 401k plans that are no greater than the private sector. Your medical plans need to be reduced to what the private sector gets (I have to pay $500 a month for a catastrophic plan that is no where near as good as the public sector) and your paid time off needs to be brought in line with the private sector. By reducing your paid time off, the taxpaying public would get more hours of actual work from government employees so we would need less of them, saving more dollars.
The real question I have is "Why do government feel they have the right to take from those of us that do not have and give to themselves?" I cannot now and never will understand how your avaricious need justifies taking from single moms or dads, retired workers on fixed incomes, blue collar workers, fixed income grandmas, etc., to pay for your exorbitant benefit packages.
Since 80 to 85% of all taxes collected go to pay for your salaries I am now off to work to pay 35% of my income to you so that I cannot retire at 30 years of work, so that I can pay $500 a month in medical bills, so that I can get 22 paid days off this year while you get 45, 50 or more.
Alan Boisvert
Mar 12, 2010
States cannot go bankrupt for two reasons. First there is no bankruptcy chapter for states. The second reason is that they are sovereign. Mississippi's default was a sovereign default, not a bankruptcy. The creditors had no recourse which would have been provided by a bankruptcy court.
Doug
Mar 12, 2010
Well I don't have 10 pages to respond to this article, a few salient facts debunk its thrust.
The FACTS are that the State of California pays less in contributions as a percentage of payroll than it did 30 years ago. Then, it paid 19.6% as a percentage of payroll--in 2009/10 it will pay 16.9%.
http://www.calpersresponds.com/myths.php/myth-pension-costs-increased-by-2000-percent
The percentage of California general fund revenue required to fund the pension system has remained at about 3.5-4% for the past 20 years, and was higher in the 1980s.
(see page 18)
http://www2.co.fresno.ca.us/9200/attachments/agendas/2008/020608/Item%2016%20020608%20Summary%20of%20Retirement%20System%20Survey.pdf
and
http://www.calpersresponds.com/myths.php/myth-pensions-are-high-costs-for-state-government
The whole "myth and facts" section on CALPERS website at the links above refutes very effectively Mr. Ingrassia's article.
Finally, the real problem in America is not the DB plans, but rather the DC plans that Mr. Ingrassia so feverently touts. The real crisis is that Americans who rely on DC plans will either descend into utter poverty when they retire, or keep working until they die. DC plans simply do not work as a retirement vehicle for the vast majority of Americans, because of both inability to invest effectively, and because they simply cannot save/invest enough to finance a dignified retirement. See, for example, the story from this very week documenting that nearly half of all Americans in a DC plan have only $10,000 saved for retirement.
http://www.ebri.org/pdf/briefspdf/EBRI_IB_03-2010_No340_RCS.pdf
DB plans may need to be trimmed in some instances, but any person without an idealogical bone to pick, such as Mr. Ingrassia, will acknowledge that DB plans are far superior to DC plans in providing a secure, dignified retirement.
Rory McGregor
Mar 11, 2010
In reference to your statement that no state has ever gone bankrupt please note that the state of Mississippi defaulted in the 1800's and has never paid back those bonds.
