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Growing deficits threaten pensions
Old 05-11-2008, 08:17 AM   #1
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Growing deficits threaten pensions

NBC News - Growing deficits threaten pensions
Accounting tactics conceal a crisis for public workers

Growing deficits threaten pensions - Washington Post - MSNBC.com

Folks the pensions for public workers appear(s) to be in big, big trouble.

It looks like state and local governments will have to start cutting some services in order to meet their obligations to their retirees.

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Old 05-11-2008, 08:49 AM   #2
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This story is a good reminder to factor increased taxes into my ER scenario. DW will be one of those drawing a public pension after working in the public school system. Dealing with these funding shortfalls just keeps getting pushed further into the future. We can rest assured that when the bill finally has to be paid, the tax man cometh
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Old 05-11-2008, 10:03 AM   #3
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It's been the custom in Illinois for decades to grant generous retirement benefits to public sector employees without a funding plan to pay for them. It makes the workers happy and the politicians know that the bill doesn't come due for years, likely after they're out of office. At the state level, Dems and GOP politicians do this with equal fervor as though planning budget disasters was the common denominatior between the parties.
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Old 05-11-2008, 10:29 AM   #4
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What a fun post to read nice and early in the morning.

Trying to freak me out?

Good article, nothing new, but it was accurate. The freak out factor did have me go over to the pension site to re-review the latest financial report though.

If you want to fix blame for why public pensions are so screwed up, part of it is over-generous plans that tried to "shoot the moon" and serve as incentives for hiring and retention. Years of pushing current liabilities away from salaries and benefits off into some distant future pension liabilities that some future politicians will have to deal with are coming home to roost. My employer was parsimonious in the area of salaries when we were at near 100% authorized strength. But they were throwing pension and other after-retirement benefits at us left and right to keep people from retiring and going elsewhere. When that finally started to peter out, they gave in and negotiated a contract with substantial salary increases. But again, they couldn't pay for it and tried to forestall the inevitable by playing games with pension funding.
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Virginia, for instance, has been using an accounting method since 2005 that allowed the state to contribute about $300 million less into its pension funds each year than what its own pension board has recommended. Some pension actuaries called this "highly unusual" and "troubling."
Money that they should have been paying into the pension went to fund salaries.

Contribution as percentage of payroll:
FY City Share Employee Share
1998 16.33 8.99
1999 15.61 9.85
2000 12.43 8.83
2001 12.22 8.79
2002 12.35 8.51
2003 12.11 8.39
2004 12.2 8.79
2005 11.26 8.61
2006 16.53 8.99
2007 18.35 9.33

All of the chickens came home to roost at about the time that the administration that was the most egregious with this financial hanky panky was being term-limited out and the pension system filed a lawsuit against the city for its refusal to make payments as the contract stipulated.
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Old 05-11-2008, 11:11 AM   #5
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they'll either raise taxes or declare bancruptcy.(or do both)
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Old 05-11-2008, 01:07 PM   #6
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An alternate view, with less emphasis on the extreme cases:

Governing Management Letter/Girard Miller/November 2007
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Old 05-11-2008, 01:12 PM   #7
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Defined-benefit ension plans are simply unsustainable with people retiring earlier and living longer, AND with unrealistic expectations about return in the pension funds. Grandfather all the people already participating in them if you must, but I think public pensions should go the way of private pensions and rely exclusively on defined contributions for new hires .
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Old 05-11-2008, 01:27 PM   #8
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unless your the one on the public pension


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Old 05-11-2008, 02:13 PM   #9
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Defined-benefit ension plans are simply unsustainable with people retiring earlier and living longer, AND with unrealistic expectations about return in the pension funds. Grandfather all the people already participating in them if you must, but I think public pensions should go the way of private pensions and rely exclusively on defined contributions for new hires .
Not a problem, all you have to do is raise current salaries to attract the right kind of people. Pay me now, or pay me later, but the price still has to be paid. My previous employer discovered this when they changed pension benefits for new hires (later payment, reduced payout, increased employee contributions, etc.). Salaries keep going up, hiring bonuses are being paid, millions spent in overtime for current employees and ad campaigns to attract new hires and they still are only able to hire 35-45% of their targeted numbers.
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Old 05-11-2008, 05:22 PM   #10
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Originally Posted by ziggy29 View Post
Defined-benefit ension plans are simply unsustainable with people retiring earlier and living longer, AND with unrealistic expectations about return in the pension funds. Grandfather all the people already participating in them if you must, but I think public pensions should go the way of private pensions and rely exclusively on defined contributions for new hires .
Many of them are. The defined-benefit plan I'm under they stopped offering in 1978. What followed was a hybrid of defined benefits and a 457 plan. (The 457 plan is similar to 401K but for city and county employees.) I think, but am not certain, that new hires are entirely on their own with the 457 plan.

But as Leonidas noted, they're having a very hard time attracting and keeping people in an area where a small townhouse costs north of $300K. They want intelligent, dedicated, educated hard-working people with the minimum of a BS degree, require them to work in a 24/7 agency, and be literally willing to "die for the cause". Taxpayers are not going to get that kind of people cheap because every other potential employer out there wants them too.
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Old 05-11-2008, 05:48 PM   #11
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But as Leonidas noted, they're having a very hard time attracting and keeping people in an area where a small townhouse costs north of $300K. They want intelligent, dedicated, educated hard-working people with the minimum of a BS degree, require them to work in a 24/7 agency, and be literally willing to "die for the cause". Taxpayers are not going to get that kind of people cheap because every other potential employer out there wants them too.
Isn't this the Capitalism Conundrum?

At some point, you gets what you pays for.
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Old 05-11-2008, 07:08 PM   #12
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But as Leonidas noted, they're having a very hard time attracting and keeping people in an area where a small townhouse costs north of $300K. They want intelligent, dedicated, educated hard-working people with the minimum of a BS degree, require them to work in a 24/7 agency, and be literally willing to "die for the cause". Taxpayers are not going to get that kind of people cheap because every other potential employer out there wants them too.
I agree that you have to pay what the market demands to get a product and if certain public sector employees are scarce and command high salaries to attract them, so be it. That's how our economy works. But pay it in current salaries, that is "pay as you go." Don't do it with promises of overly generous pensions payable by the next generation many years from now........
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Old 05-12-2008, 08:35 AM   #13
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I agree that you have to pay what the market demands to get a product and if certain public sector employees are scarce and command high salaries to attract them, so be it. That's how our economy works. But pay it in current salaries, that is "pay as you go." Don't do it with promises of overly generous pensions payable by the next generation many years from now........
Personally I agree. But that is not the deal I was offered. The taxpayers, via their duly elected representatives, offered that deal because the taxpayers either didn't care, didn't want to bother crunching the numbers, or like the politicians, would rather foist the cost on to the next generation.

In any event, a deal is a deal, and I fully expect the contract to be honored. Fortunately, we had a union (formed at a time when we were getting 2% raises while private sector raises were routinely 10%) and that contract is in writing. If the former employer tries to back out they will lose the lawsuit that will inevitably follow.
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Old 05-12-2008, 09:29 AM   #14
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Personally I agree. But that is not the deal I was offered.
I was really suggesting that things be changed going forward. Simply draw a line in the sand, change the rules and move forward. That's what is happening in the private sector today. But continuing to offer future benefits to be paid by the next generation just to avoid having to pay now is just plain wrong.
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In any event, a deal is a deal, and I fully expect the contract to be honored.
I'd say public sector pensions, and changes to them, should be as sacred as SS. Either both can be changed over time or neither can be changed over time. Like SS, public pensions will probably be safe for those already collecting. Those still working may find changes made concerning credit they earn going forward.

Just curious, in your public sector job do/did you pay into SS or is your job one of those excused from participation?
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Old 05-12-2008, 10:00 AM   #15
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Not a problem, all you have to do is raise current salaries to attract the right kind of people.
Today, benefit are more important that pay,so just raising the salary isn't going to do it.

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Pay me now, or pay me later, but the price still has to be paid. My previous employer discovered this when they changed pension benefits for new hires (later payment, reduced payout, increased employee contributions, etc.). Salaries keep going up, hiring bonuses are being paid, millions spent in overtime for current employees and ad campaigns to attract new hires and they still are only able to hire 35-45% of their targeted numbers.
There's a reason for that........
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Old 05-12-2008, 10:26 AM   #16
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Today, benefit are more important that pay,so just raising the salary isn't going to do it
I've been retired for a coupled of years, so my data isn't completely up to date. But, the Megacorp I worked for found that recruiting was not negatively impacted when they withdrew retiree medical benefits and defined benefit pensions for new hires. An agressive starting salary and competitive 401k match (vs other employers) seemed to do it for today's young folks.
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Old 05-12-2008, 10:39 AM   #17
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http://sfgate.com/cgi-bin/article.cg...BA6E10JVID.DTL
Vallejo, CA declares Chapter 9 bankruptcy; more cities to follow?
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By declaring Chapter 9 bankruptcy, the city hopes to freeze its debts and gain time to renegotiate its police and fire contracts, which comprise about 74 percent of its $80 million general fund budget. It also hopes a judge will void part or all of the contracts, allowing the city and unions to start from scratch.
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Old 05-12-2008, 11:33 AM   #18
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http://sfgate.com/cgi-bin/article.cg...BA6E10JVID.DTL
Vallejo, CA declares Chapter 9 bankruptcy; more cities to follow?
More cities to follow - that is not a good sign.

Too bad the local and state governments can not print money like the federal government or that they do not have a Social Security Trust Fund to dip into.

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Old 05-12-2008, 11:41 AM   #19
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Ran a report on California last night. The govinator is looking to slash all kinds of stuff to make the budget. Otherwise they will have to go do some borrowing by Sept. The democrats want to raise taxes I love this state.

Still paying for Davis blowing the surplus
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Old 05-12-2008, 11:54 AM   #20
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... that is not the deal I was offered. The taxpayers, via their duly elected representatives, offered that deal because the taxpayers ... would rather foist the cost on to the next generation ... In any event, a deal is a deal, and I fully expect the contract to be honored.
I'm currently having some work done on my basement. Since I figure the kids play down there more than I do, I just drew up a contract with our builder that my kids will pay him with interest in 20 years. As their legal representative, and since there's a contract, I don't see any problem.

Of course you want what you were promised, and you should probably get it, but if pain comes down the road I don't see why anyone should be immune.
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