More Public Pension Woes—Constructive Suggestions Wanted

[Leonidas]

Solvency in what? This might work for a private corporation. Public institutions don't have these options.

In regards to teacher pensions: States and school districts, with the power to tax, don't declare bankruptcy.

Public system union contracts are exactly that: legal contracts. You cannot just unilaterally void a legal contract. That would immediately send the whole thing into a court case which you would lose.

You might want to read up on the City of Vallejo Bankruptcy ruling from last year.

U.S. Bankruptcy Judge Michael McManus held on March 13 that when Congress enacted 11 U.S.C. 1113 to limit companies from outright rejection of union contracts, it limited the statute to Chapter 11 bankruptcies. By failing to extend the statute's limits to Chapter 9, which covers municipal bankruptcy, McManus said that cities have broader latitude to break existing union pacts. In re City of Vallejo, No. 08-26813-A-9 (E.D. Calif.).

According to the US Bankruptcy Courts website, Chapter 9 is available to school districts as well.

Only a "municipality" may file for relief under chapter 9. 11 U.S.C. § 109(c). The term "municipality" is defined in the Bankruptcy Code as a "political subdivision or public agency or instrumentality of a State." 11 U.S.C. § 101(40). The definition is broad enough to include cities, counties, townships, school districts, and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities, and gas authorities.

Emphasis added.

 

[Westernskies]

Solvency in what? This might work for a private corporation. Public institutions don't have these options.

In regards to teacher pensions: States and school districts, with the power to tax, don't declare bankruptcy.

Public system union contracts are exactly that: legal contracts. You cannot just unilaterally void a legal contract. That would immediately send the whole thing into a court case which you would lose.

In public systems there is no off-loading pension benefits anywhere, they are required to be handled by the fund structure. There is no one to give them to, especially when the law states that if the fund goes dry, the existing working members cannot pay the benefits out of their contributions(ponzi though that is), that the state must pick up the balance.

There is no measure of productivity in a teaching district due to the fact that the children must be taught. Free and appropriate public education is the LAW. And teachers cannot be fired without cause, again, the law.Z

Agree 100%- all good reasons why the current public pension system is doomed to failure. None of these reasons address performance, accountability, or operating efficiency, just maintaining the status quo for public service employees. I realize we're talking about a government entity, but the numbers are the same- it is a failed business model. How can you expect a pension system to succeed with no financial accountability (what steps were taken to abate this situation?) , insufficient contributions, (employee and employer) insufficient reserves (often brought on by market-speculative private-sector investments) inability to match headcounts to revenues (no employee left behind) , lack of performance monitoring (teachers can't be fired) , poor oversight (how did we suddenly get in this mess?) , etc. Too many promises were (and are being) made that can't be kept when expenditures exceed revenues. Sure, it's the law, but what happens when the money eventually runs out?- and it will.

Another backlash over this is from those relying on private-sector pensions or 401K plans. Many of these plans were especially hard-hit by this latest economic downturn, and folks whose portfolios have dropped 30%-50% are now expected to pay higher taxes to fund public pensions at 100%?

It's going to be interesting...

 

[HsiaoChu]

Agree 100%- all good reasons why the current public pension system is doomed to failure. None of these reasons address performance, accountability, or operating efficiency, just maintaining the status quo for public service employees. I realize we're talking about a government entity, but the numbers are the same- it is a failed business model.

I would be interested in knowing how you would apply a business model to the business of teaching.

If you are simply talking about a business model applied to pensions, I can't agree more. But mixing up that and such a model for teaching is confusing. I have seen over 40 years hard business models applied to teaching without effect. There are many reasons, one of which are that no business is required to produce a 100% super product with no quality control of the basic manufacturing components.

How would you measure performance, accountability, and operating efficiency in regards to educating children? Children are not widgets to be manipulated; they are real thinking caring breathing feeling human beings. This is something that No Child left behind has left behind.

Z

 

[Westernskies]

I would be interested in knowing how you would apply a business model to the business of teaching.

If you are simply talking about a business model applied to pensions, I can't agree more. But mixing up that and such a model for teaching is confusing. I have seen over 40 years hard business models applied to teaching without effect. There are many reasons, one of which are that no business is required to produce a 100% super product with no quality control of the basic manufacturing components.

How would you measure performance, accountability, and operating efficiency in regards to educating children? Children are not widgets to be manipulated; they are real thinking caring breathing feeling human beings. This is something that No Child left behind has left behind.

Z

1. Dump the NEA-which does more to protect teachers than it does to promote educational excellence. Quit talking and implement real reforms. Stop dumbing down the curriculum so everyone gets a trophy. Eliminate tax credits for private schools, parochial schools, and charter schools- if you don't want to send your kid to your local school, pay for their education yourself. Parents need more skin in the game before anything is going to change at the local level.

2. Recognize that there are some kids who would be better off getting their GED in [-]prison[/-] an alternative setting than earning a diploma in the classroom. Implement quality control- Clear them out of classrooms so those who want to learn can learn.

3. ...Performance- % of graduates, at a minimum standard.
......Accountability- some teachers need to fail along with their students.
......Efficiency- cost/pupil graduated.

Nothing personal; I know you are passionate about your career and believe that you were probably a great teacher. I agree that kids are not widgets to be manipulated, but neither is the taxpayer footing the bill for our failing educational system.

 

[ERD50]

There is no measure of productivity in a teaching district due to the fact that the children must be taught.

Really? I mean, really?

So a teacher with a masters degree who draws on years of experience could be replaced with a..... hmmm, stapler? And no one could measure the difference?

I've heard this same statement from other teachers. But get them together with a few glasses of wine, and they all will tell you who the good teachers are and who the bad teachers are. I wonder how they can know, since it is supposedly 'unknowable' and unmeasurable, and there is no way you could implement merit raises?

-ERD50

 

[kyounge1956]

I think you misunderstand what I said(I perhaps pulled a Greenspan here). Right now the penalties for early retirement in the PA Teachers fund for example is not severe enough to prevent many teachers from taking early retirement and losing a couple of percentage points off their total salary. I believe its about 2% per year taken early. So if PA teachers were getting a 75,000 payment because they made 100,000 for the last three year(which is easily possible if you were an administrator) and you went out four years early, then that person's retirement benefit would only be dropped to 69,000. I'm proposing that early leaving 4 years early should forfeit 5% per year early so that leaving with a 75,000 per year pension gives you only a 60,000. Now this is a lot of money, and few teachers make that much money unless they are administrators, or superintendents.

Z

I think I understood what you said, but I still don't understand your reason for saying it. ISTM it could be one of two things:

1. The penalty for retiring early should be 5% or so because that's the difference in the actuarial value of the two pensions, or
2. The penalty for retiring early should be 5% or so, even though that is more than the difference in actuarial value between the two pensions.

Which did you mean? and if the second, what difference does it make when people retire, as long as the actuarial value of each pension is the same? If, over a large number of teachers, the cost to the pension system is the same whether a teacher retires after 26 years with a $69K pension, or after 30 years with a $75K pension, IMO there is no benefit to anyone from forcing the first teacher to stick around for another four years.

Or did you mean something else altogether?

 

[kyounge1956]

It seems to me that the obvious solution to pensions is the create a "defined contribution pension." This pension would have the following characteristics.

1) All contributions are held in a separate account in your name.
2) The money is invested by investment professionals. You have no input.
3) When you want to retire, your pension is the actuarially sound life annuity based on your current balance, including a capped COLA.(snip)

What your suggesting for those in the current plans is probably illegal. (snip)

It would certainly require repeal and replacement of a big chunk of the Municipal Code to make these changes to the City of Seattle retirement system. Actually, plenty of government employees have something very similar to what you are describing, a 457b deferred compensation account. You choose the amount you want to save, direct your contributions to the Stable Value Fund, and use your balance to buy an annuity when you retire. But there are at least two reasons a 457 isn't the equivalent of a pension system, even assuming purchase of an annuity. First, a pension system has an employer matching contribution, while a 457 plan (at least mine) does not. Second, there is a limit on contributions to 457 accounts (same limits as a 401k), while contributions to a pension fund are a set percentage of salary. High-earning employees wouldn't be able to replace their current pension with the account you describe, because more money is going into the pension fund on their behalf (contribution plus employer match) than they are legally allowed to put into a 457, especially before age 50. Neither could not-as-high earners like me, who are making maximum contributions to a 457 in addition to the contribution + match that is going into the pension fund in my name.

 

[kyounge1956]

(snip)
One of the ideas that I have not heard is that all public employees go onto SS... why not get everybody on that system... we all know why not... the one you got is a lot better than SS... and it does not cost you any more money... (well, I am assuming here... it did not in Texas)...

Lots of public employees are already in the Social Security system. I am (local government employee in Washington state), and so is my mother (retired schoolteacher, taught in NY, CA & WA and was in SS in at least one of these). Which government entities' employees are not in SS?

 

[Spanky]

3. ...Performance- % of graduates, at a minimum standard.
......Accountability- some teachers need to fail along with their students.
......Efficiency- cost/pupil graduated.

Good measures. I might add academic performance per (test scores, % of students taking and passing advanced classes, proficiency in key areas (math, English, sciences). Administrators must also be accountable. Cost per student per year.

 

[Rustic23]

Education, a favorite topic, when I went to high school there was one principle, one ast. principle, two counselors that were also teachers, and two secretaries. This was a large Houston school with over 500 kids/graduates in the senior class. I was at the middle school that my daughter taught at recently. They had one principle, one ast principle, one principle for each of the three grade levels, one ast principle for each grade level, one counselor for each grade level, a security staff, as nursing staff, one secretary for each principle, and a few others floating around the office. This for a school with about 500 8th graders.

The problem with education is, it is run by educators!

 

[HsiaoChu]

s.

So I had it in the back of my mind -- work as an aide for 10-15 years, then work to get teacher certification and become a teacher for the last 5 years. The pension benefit would be the same as if she were a teacher for the entire 20 years even though her contributions to the plan were based on an aide's pay for most of it.

This is what I would call a badly run pension plan---IMO, of course. In Pennsylvania, you have to be a tenured professional staff member to be vested in the system. Aides are not part of the public school retirement system, nor are para's. Like you described this is just a pattern for abuse of the system.

Z

 

[HsiaoChu]

I think I understood what you said, but I still don't understand your reason for saying it. ISTM it could be one of two things:

1. The penalty for retiring early should be 5% or so because that's the difference in the actuarial value of the two pensions, or
2. The penalty for retiring early should be 5% or so, even though that is more than the difference in actuarial value between the two pensions.

Which did you mean? and if the second, what difference does it make when people retire, as long as the actuarial value of each pension is the same? If, over a large number of teachers, the cost to the pension system is the same whether a teacher retires after 26 years with a $69K pension, or after 30 years with a $75K pension, IMO there is no benefit to anyone from forcing the first teacher to stick around for another four years.

Or did you mean something else altogether?

Since I'm not an actuary by even the remotest stretch of the imagination, I defer to your well thought out and described position regarding this. I'll assue that you are correct.

My point is that after 27 years many teachers are burned out, and at the moment with the incredibly stupid rules of NO CHILD LEFT BEHIND law, which by political fiat has simply removed the normal curve, has accelerated this. While those not working in education might see not any problem with removing everything but reading and math from an elementary child's curriculum, this is very debilitating for the education of children, and even more so for professional teachers. I personally know about 10 teachers in my system who are the best in the system who are leaving earlier that they wanted to do so because of this kind of pressure.

I agree that its no benefit to force sticking around. After a certain number of years you become suddenly burned out. But many have to stick around because the difference between a defined benefit plan that for the rest of their lives is a significant % down, means something over time. I can't understand that from a pension standpoint, paying the retired teacher $69k A YEAR as opposed to $75K a year multiplied by maybe 100,000 teachers(600 million dollars per year) wouldn't fail to help the system.

Agreed though, it may not help the education of children to have teachers who no longer care. And, caring is a significant part of being an effective teacher.

Z

 

[Westernskies]

The problem with education is, it is run by educators!

...and the NEA, which values membership over stewardship.

 

[Texas Proud]

Wow -- if there was no fluctuation of principal, that sounds like an even better deal than the G fund...

It is... no reduction in principal....

 

[Texas Proud]

Well actually, I have paid into social security for almost 155 quarters, too. Some public plans deny their members from having SS taken out of their paychecks. Beyond me why. But I paid into the ss system out of paychecks with two employers since 1971.

Z

A lot do not... my sister was a teacher and also had 40 years (maybe 41...)... and she only paid SS on her part time wages when she was young... so I am surprised that you did...

 

[Texas Proud]

Lots of public employees are already in the Social Security system. I am (local government employee in Washington state), and so is my mother (retired schoolteacher, taught in NY, CA & WA and was in SS in at least one of these). Which government entities' employees are not in SS?

A large number in Texas....

 

[Bestwifeever]

A large number in Texas....

Illinois teachers....

http://www.progressillinois.com/quick-hits/content/2010/04/05/teachers-look-again-social-security

 

[HsiaoChu]

A lot do not... my sister was a teacher and also had 40 years (maybe 41...)... and she only paid SS on her part time wages when she was young... so I am surprised that you did...

IN PA, there is no law that prevents it. So.... it is taken out of our paychecks by our employers. And actually, I'm pretty sure that I read it int he regs, the law only applies to employers taking it out. I think people are welcome to pay into the SS system on their own, and get the same benefits.

 

[HsiaoChu]

Once you get 120 quarters in the system, you are called permanent. And you will always be eligible for the benefits no matter what.

 

[FinanceDude]

Solvency in what? This might work for a private corporation. Public institutions don't have these options.

Taxpayers and state and local govts can get to solvency if they want to, most don't want the political fallout from trying to do just that........

In regards to teacher pensions: States and school districts, with the power to tax, don't declare bankruptcy.

What if the taxpayers refuse to pay increased property taxes? That has happened in our community, and the school has been making cuts because of it. Despite all that, the school district is one of the best in the state, and the elementary school my son attends just won a national Blue Ribbon School award, one of only 8 in the state and 300 nationally.....its not as dire as the union would lead us to believe.........

There is no measure of productivity in a teaching district due to the fact that the children must be taught. Free and appropriate public education is the LAW. And teachers cannot be fired without cause, again, the law.

Performanced-based teacher pay has been discussed ad nauseum forever in this country. Teacher's unions almost universally have fought it tooth and nail. Public education is not "free". Until there is a useful tool to measure teacher performance, you will continue to have issues.........

 

[ziggy29]

This is what I would call a badly run pension plan---IMO, of course. In Pennsylvania, you have to be a tenured professional staff member to be vested in the system. Aides are not part of the public school retirement system, nor are para's. Like you described this is just a pattern for abuse of the system.

I don't think it's necessarily bad that the paraprofessionals (including the aides) get to participate in the TRS; after all, in a very real sense they are educators. The problem only comes if someone earns a "late career promotion" and gets a pension that effectively credits them with being in a much higher "pay grade" for the duration.

If it included, say, some inflation-adjusted "average salary" such that someone with 20 years as an aide and 5 as a teacher got a pension that was effectively "weighted" to be 80% of an aide's pension plus 20% of a teacher's pension, that would be reasonable. But there are a lot of ways to play various types of spiking games in some plans. This isn't "spiking" per se, but it is a way to game the system in a way that provides people more benefit than they've earned with their service and contributions to the plan.

 

[W2R]

Expressed as a percentage, what is the ratio of a brand new teacher's salary compared with that of a teacher with 20 years' experience?

 

[HsiaoChu]

Expressed as a percentage, what is the ratio of a brand new teacher's salary compared with that of a teacher with 20 years' experience?

Good question. While we're at it I'd also like to know......

And expressed as a percentage, what is the ratio of a brand new doctor's salary compared to a a doctor with a specialty and 20 years of experience?

And expressed as a percentage, what is the ratio of a brand new corporate executive compared to an executive up the ladder and with 20 years of experience?

And expressed as a percentage, what is the ratio of a brand new lawyer at the bottom of the corporate ladder with a lawyer with 20 years of experience in trial litigation?

And expressed as a percentage, what is the ratio of a brand new CFP with one who has been in the business for 20 years?

All of these are important comparisons.

Z

 

[W2R]

Good question. While we're at it I'd also like to know......

And expressed as a percentage, what is the ratio of a brand new doctor's salary compared to a a doctor with a specialty and 20 years of experience?

And expressed as a percentage, what is the ratio of a brand new corporate executive compared to an executive up the ladder and with 20 years of experience?

And expressed as a percentage, what is the ratio of a brand new lawyer at the bottom of the corporate ladder with a lawyer with 20 years of experience in trial litigation?

And expressed as a percentage, what is the ratio of a brand new CFP with one who has been in the business for 20 years?

All of these are important comparisons.

Z

My goodness. I was just inquiring as to the specific example that ziggy29 has been talking about for months as being a bit inequitable. I don't understand how the other comparisons you suggest pertain to that. I guess I'll back out of the discussion NOW. (tiptoe-ing away)

 

[ziggy29]

My goodness. I was just inquiring as to the specific example that ziggy29 was saying is inequitable.

Actually in my example (15 years as an aide, 5 as a teacher) the appropriate comparison would be between 5 years experience versus 20, not zero versus 20.

I believe that's about 70%. It's not like their pension doubles by being on a pay scale twice as high, but they do get a decent kicker and more than they should relative to what they paid in.