More Public Pension Woes—Constructive Suggestions Wanted

[ERD50]

Not sure what resemblance this thread has to public pension woes at this point. I know threads can be hijacked and drift, but wow...

At least I'm trying:

We could hire day laborers at a low rate, and they won't expect any (getting back on topic here!) pensions at all.

lets put up or shut up

how many think that pension advisors should be picked base on their score on a standardized test ?

If tests prove anything, this one should be easy since obviously there has to be a correlation between the score and their future performance (not past)
Who is willing to bet their retirement on a test score?

Do you actually think these are hard questions?

Here's the easy answer: If I were responsible for hiring someone to manage the investments of a pension fund, I certainly could put a test together to evaluate their fitness for the position. I'd certainly put more time/effort into it than this post, but right off the top of my head, it would cover questions to determine their understanding of:

1) The role of diversification in a portfolio.
2) Their understanding of risk (both investment and inflation risk).
3) The effect of fees, expenses and transaction costs on portfolio returns.
4) How to tailor risk to fit the age profile of the group.
5) How to adjust that over time.
6) The cons/cons of actively managed funds over index funds ( intentionally loaded question!).

And yes, you could put that in a standardized form, even multiple choice, true/false. And it could weed out inappropriate managers. And it would be part of the process - certainly there would be an interview to evaluate 'people skills', communication skills, etc. I don't think anyone has framed it that a standardized test is the single measurement or has 100% weighting over everything. But that doesn't mean it won't help or that it would not be useful as part of the process.

No NO NO , you don't get to look at the track record
you only get to look at a score on a standardized test

You keep framing things in such improbable ways (like yardsticks to measure temperature) - what's up with that? And you seem to ignore what is being posted. We have talked about track records (performance improvement over time), so why exclude that? And why 'a score'? We talked of comparing scores over time.

-ERD50

 

[HsiaoChu]

Don't call me golly...

I should have said , "Oh, God!"

 

[HsiaoChu]

This measurement isn’t necessary. How about using student performance on standardized tests to measure school effectiveness and then rank teachers within the school based performance criteria specific to that school. This should make it easier to identify the lowest performing teachers.

What do you want to do when you find the lowest performing teachers?

And...... how do you deal with the other parts of the system like the pupil personnel specialists like the school counselors?

 

[W2R]

THe reason we are falling behind other developed nations isn't because our kids are genetically studiper, it's a top-down failiure to adapt, IMO.

IMO it's because of the failure of (many) American mothers to do a good job with their kids during the years before school and the many hours the child has outside of school. Much of this is due to increasing demands on mothers to work, raise kids, and be Supermothers. I know I felt those pressures to an extreme extent and so do many other mothers who strive to do the best for their kids and family with only 24 hours in a day. But are we going to rate mothers and demote those that don't perform well? I don't think so. There isn't much a teacher can do if his efforts aren't reinforced at home.

 

[ziggy29]

Much of this is due to increasing demands on mothers to work, raise kids, and be Supermothers. But are we going to rate mothers and demote those that don't perform well? I don't think so. There isn't much a teacher can do if his efforts aren't reinforced at home.

Agreed, and that goes back to my comment about external socioeconomic factors out of the control of the school and its staff. If a school has a lot of stay-at-home moms (or dads, even) who have the time, energy and financial resources to be engaged in their children's education (as would be the case in affluent suburban schools), it seems obvious that this school will "test" higher than one in a neighborhood where there are a lot of single moms working two jobs to put food on the table who has neither the time nor the energy to be involved. The failure of such a "poor" school to match the performance of the affluent school is not prima facie evidence of failure among the teachers or administrators of the poor school.

 

[Westernskies]

Seattle's employee pension fund has already been hit hard by the recent stock market downturn.

Back on track...

If the pension funds were invested in the market and lost value, shouldn't pension payouts be adjusted to reflect the change in portfolio value? Why should public sector employeees be immune to market swings if they are investing for profits? It's unrealistic and unsustainable, and patently unfair to those of us who lost huge chunks of our portfolios right alongside them. Where is my guarantee of future performance?

 

[FinanceDude]

Back on track...

If the pension funds were invested in the market and lost value, shouldn't pension payouts be adjusted to reflect the change in portfolio value? Why should public sector employeees be immune to market swings if they are investing for profits? It's unrealistic and unsustainable, and patently unfair to those of us who lost huge chunks of our portfolios right alongside them. Where is my guarantee of future performance?

They are in Wisconsin.there are 2 buckets, fixed and variable. The variable bucket lost 25% or so in the 2008 meltdown, so in my dad's case. the variable payout amount of his pension went down 25%. It is reset each year. He grumbled but he only has 50% in variable. Mom has always been 100% in fixed so she didn't complain.........

 

[IndependentlyPoor]

I will go back to my days at working at one of the Big 8 firms (yes, I am that old)... when I was a advanced staff, I had to RANK every staff member from 1 to whatever... when I was a senior, all advanced staff and staff... so there could be 50 people I had to rank... It was not easy to say John was better than Sue... but I had to do it... the result... it really was easy to rank the top and the bottom... much harder to rank the middle..

But, when they put all the senior rankings and averaged them out... and also with the managers etc... the top were easily identified and also the 'bad'... the 'bad' got counseling or were asked to go find another place to work...

I don't disagree with most of what Texas Proud said, but I do want to pick at a nit.

I too worked in a mega-corp that had a similar system. All the tech folk had to rank and rate their peers. All in all it was a good thing (although we all hated doing it) because you only ranked those you worked with (there were two lists, one for worked-with and one for worked-really-closely with) and so folks had a good gut feel for who contributed well; whether or not their names appeared on patents or papers.

Systems like this can't work for teachers because teachers don't work together like that. Nobody is in that classroom except the teacher and the students. You could ask the students, and colleges do, but the idea of asking a grade school student to rate teachers is just silly. Even in colleges, such ratings have to be viewed with an eye to which profs are famously easy graders.

If you tried to observe what is going on in the classroom, the mere act of observation would likely distort the results so as to be worthless.

There is an old management aphorism that goes like this: "If you measure it, it will improve." It is meant to be a warning. Two dangers immediately pop into mind.

1. You best be certain that you are measuring what is most important and have incentives properly aligned. If meeting a metric has significant rewards (or penalties for missing) then everything else will go to hell while that metric improves dramatically. I saw this first hand in industry.

One example of this from education comes from the Texas standardized testing program that later grew into No Child Left Behind. A UT/Rice study showed that the testing program significantly raised the dropout rate. Schools were disincentivized to retain poorly performing students. Better to let them go than to have them drag down the average scores.

Now I don't like the general tone of the article I just referenced, but I do think it is on to something.

2. People cheat. They will find a way to make that metric improve regardless of what it was trying to measure.

Another example from education. I don't have a reference here, but you probably remember headlines about principles getting caught using "creative" ways to report scores so that their schools seemed to perform better. (Or perhaps this was also part of the beginning of standardized tests in Texas, I don't remember.)

I too would like to find a way to identify good teachers for reward, and bad teachers to be rid of, but I fear more than a possible unfairness to teachers. I fear we could do serious damage to our school system.

Schooling is really complicated. It involves child development, and we surely can't claim to understand that. Measuring a teacher's performance isn't anything like measuring performance of an engineer. With an engineer, you can look at what he or she has accomplished. With teachers you have to look through one additional level of indirection. With a teacher, you have to look at how a class of students has improved.

I am really afraid of experimenting on a national (or even state) scale. We could be risking a generation of students. Hasn't somebody looked at teacher metrics somewhere? There are lots of independent school districts out there. None of them have tried anything like this? What about private schools, charter schools? What about other countries?

Public education has been around since the 1600s, and mandatory in all states (and free, just to irritate ERD50 ) since the end of the 19th century. ref. here I submit that it has served us well, and that we should be extremely careful about making drastic changes.

Sorry for the rant. My bad mood continues unabated.

Maybe this topic needs its own thread.

 

[MichaelB]

OK, here I will defend the teachers a bit here. There are a lot of cultural and environmental factors that influence the effectiveness of a school and are thus largely out of the control of the teachers. ./.Having said that, it should be possible to measure progress or improvements within any given school. You may not be able to compare a poor inner-city school with a wealthy suburban school, but you should be able to compare any school with its own past history.

Agree 100%.

What do you want to do when you find the lowest performing teachers?

And...... how do you deal with the other parts of the system like the pupil personnel specialists like the school counselors?

I’m saying that schools can be measured and teachers can be measured. Every single school employee can be measured. They can be rated, ranked, compared, promoted and fired. Any organization that does not do this on a regular basis will fail.

I only jumped into this thread on this point because of my belief that professional performance can and must be measured and refreshed. Naysayers will focus on unmeasurable aspects of performance instead of identifying reasonable alternatives, and that this last reflects an institutional “self-preservation + full employment” attitude (IMHO).

Back on track...

If the pension funds were invested in the market and lost value, shouldn't pension payouts be adjusted to reflect the change in portfolio value? Why should public sector employeees be immune to market swings if they are investing for profits? It's unrealistic and unsustainable, and patently unfair to those of us who lost huge chunks of our portfolios right alongside them. Where is my guarantee of future performance?

Yes. Voters may begin to pay more attention to the contracts being executed in (our) their name. Already happening in Illinois – for new employees. I’m not so sure how long people will put up with a two tier system, though. Taxpayers may soon engage some of the same crafty MBAs and lawyers that helped transform corporate pension financing to look at options here - with a likelihood of similar results.

 

[ziggy29]

They are in Wisconsin.there are 2 buckets, fixed and variable. The variable bucket lost 25% or so in the 2008 meltdown, so in my dad's case. the variable payout amount of his pension went down 25%. It is reset each year. He grumbled but he only has 50% in variable. Mom has always been 100% in fixed so she didn't complain.........

To me, that's the best way for a couple to work it. One spouse goes for higher pay and growth potential but with less job security and a 401K-based retirement, and the other takes the secure job, benefits and a pension. You get both the high potential of the market and the private sector together with the security of government work under one roof.

 

[ERD50]

I don't disagree with most of what Texas Proud said, but I do want to pick at a nit.

I too worked in a mega-corp that had a similar system. All the tech folk had to rank and rate their peers. All in all it was a good thing ...

Systems like this can't work for teachers because teachers don't work together like that.

Perhaps, but that just means we need to find a better measurement tool - it's not a reason to not measure it at all.

1. You best be certain that you are measuring what is most important and have incentives properly aligned. If meeting a metric has significant rewards (or penalties for missing) then everything else will go to hell while that metric improves dramatically. I saw this first hand in industry.

Very true. But I hardly think that the appropriate response is to scrap the system. That's a bit like saying that because some bridges have fallen down, we should just stop building bridges, and dismantle the ones we have.

Measuring a teacher's performance isn't anything like measuring performance of an engineer. With an engineer, you can look at what he or she has accomplished.

It might seem so on the surface, but after thinking about it some, I feel just the opposite. It is actually very tough to measure how well a design engineer did, unless you assign 10 engineers to the same project, let them work in a vacuum, and compare their results. Whose to say that one project was really more challenging than another, or that the outcome was better/worse than a different project (my TV power supply is designed better than your GPS touch screen surface? how do you compare?), or that the outside support on that project was better or worse than someone else?

But randomly assign 20 students in the 3rd grade to 5 teachers in the same school, and compare test scores as the year progresses (it may still need to be relative, student-to-student measures). I think you'd have a pretty good idea if there was a significant difference in teaching ability. It could at least raise a flag, and maybe with some investigation some non-teacher issue is seen. Now at least you know what you need to work on.

I am really afraid of experimenting on a national (or even state) scale. We could be risking a generation of students.

IMO, we already are risking a generation of students to the status quo. I'm really afraid of not experimenting. And it can be done step-wise, with little risk. You don't have to jump in with both feet.

Hasn't somebody looked at teacher metrics somewhere? There are lots of independent school districts out there. None of them have tried anything like this? What about private schools, charter schools? What about other countries?

According to Emeritus: There is simply is no research base that shows that can use student performance on standardized tests to demonstrate individual teacher influence on long term educational goals. So there ya' go.

Public education has been around since the 1600s, and mandatory in all states (and free, just to irritate ERD50 )

Ya mean people are actually reading my drivel? . Actually, you can say it's free all you want, just allow me to send you the portion of my property tax bill that goes to that 'free education'! Deal?

Sorry for the rant. My bad mood continues unabated.

Ah, it wasn't a rant, IMO. You made some good points (even if I disagree with a few).

Maybe this topic needs its own thread.

Or maybe it's time for it to die out - I'm wasting entirely too much time on this!

-ERD50

 

[Westernskies]

What do you want to do when you find the lowest performing teachers?

And...... how do you deal with the other parts of the system like the pupil personnel specialists like the school counselors?

EXACTLY what happens in the private sector:

1. Offer performance coaching
2. Monitor performance against measurable goals
3. Dismiss those who do not improve to a reasonable performance level.

Why is the concept of cradle-to-grave employment regardless of performance so ingrained in education? Why does the profession believe that they should be exempt from any sort of performance measurement? And why are educators so protective of inept peers? The fact that people who think this way are educating kids who have to go out and compete in the real world scares the heck out of me.

BTW, I have a close relative who has a PhD in Education- He loves to quote the NEA playbook ad nauseum, and like several responders here, avoids answering questions directly, or offers obtuse explanations about how anyone outside of the educational system isn't intellectually capable of understanding why they cannot be possibly be graded themselves.

 

[kyounge1956]

Back on track...

If the pension funds were invested in the market and lost value, shouldn't pension payouts be adjusted to reflect the change in portfolio value? Why should public sector employeees be immune to market swings if they are investing for profits? It's unrealistic and unsustainable, and patently unfair to those of us who lost huge chunks of our portfolios right alongside them. Where is my guarantee of future performance?

No, they shouldn't. It's a defined benefit pension, which means the benefit amount is calculated based on a formula, not on what the fund may have earned or lost any given year. It is not only public sector employees who enjoy that immunity, it is anyone with a defined benefit pension—and some private sector employees do still have them—or an annuity. If an insurance company has bad investment returns this year, are they allowed to cut payments to people who bought annuities in the past? If annuities are not inherently unrealistic and unsustainable, there is no reason to suppose that defined benefit pensions are. If defined benefit pensions are "patently unfair", then so are annuities. They are both a series of promised payments, based on a formula, rather than tied to investment returns.

Comparing a DBP to a retirement portfolio is comparing apples and oranges. If you compare apples to apples, public employees got no more guarantee on our portfolios than anyone else. There was a period last year when the balance in my 457 account was dropping, even though I was making maximum contributions plus over-50 catchup. That was frightening, but it wasn't unfair. Anyone who has the same type of account was vulnerable to the same type of loss.

 

[Westernskies]

It's a defined benefit pension, which means the benefit amount is calculated based on a formula, not on what the fund may have earned or lost any given year.

I understand how a defined benefit pension plan works, (a fundamentally flawed premise without adequate year-to-year funding in place and/or periodic adjustments based on plan income.) but I firmly believe that pension funds should stay out of the stock market, where losses are possible and should be presumed probable. If they want the upside gain they need to be in a financial position to assume the downside risk as well. Don't play if you can't pay. Plan members need to approve and accept that their money is at risk if it is going to be invested in the market. That is the way the market works, which is at odds with the way DBP's promises of how future benefits works- Promising Apples, but investing in Oranges. DBP plan payouts should be based on actual funded contributions, not based on the premise of future earnings in investments subject to market fluctuations. Invest in your own city's muni bonds or treasury securities, but stay out of private sector investments, since private pensions are not afforded the same payout guarantees.

No one else gets a guarantee of investment earnings; why should public sector employees? That is what happens when the DBF funds lose money in market speculation and the taxpayers (who probably suffered the same losses) have to step in and fund the shortages. "Gee, sorry we lost your DBF pension funds in the market crash, but don't worry- we'll get your share from what your neighbor has left..."

 

[Leonidas]

No one else gets a guarantee of investment earnings; why should public sector employees? That is what happens when the DBF funds lose money in market speculation and the taxpayers (who probably suffered the same losses) have to step in and fund the shortages. "Gee, sorry we lost your DBF pension funds in the market crash, but don't worry- we'll get your share from what your neighbor has left..."

So, what we have here is a guaranteed annuity in which the employees are required to participate, in which the plan's funds are paid out to retirees and the remainder is invested in some vehicle as directed (usually) by some politicians. The retirement age and annuity payments are decided (usually) by politicians who all too often make those decision based on how many votes it will garner to keep them in power. And, the taxpayers (through their tax dollars) are the ultimate guarantors.

And this is different from Social Security how?

Stop - that was rhetorical - I understand that the government stands behind those magical bonds it buys with SS funds with "full faith and credit". But in principal, the government is indemnifying the money invested in your government pension plan with tax dollars.

There is no market for those bonds, they're just promises. The Great White Father Who Camps Along the Potomac is just moving money from one pocket to the other, all while telling you, "I got it dude, don't worry about a thing."

And what's happening in Greece? The government made promises it couldn't keep on public pensions for political reasons. When the bills came due they want their neighbors to bail them out.

So, are we saying that our federal politicians are that much smarter that they'll never wake up like a sailor on leave in some cheap motel and find the girl is gone, the pockets emptied and realize some bad choices were made when it was all good the night before?

 

[HsiaoChu]

So, are we saying that our federal politicians are that much smarter that they'll never wake up like a sailor on leave in some cheap motel and find the girl is gone, the pockets emptied and realize some bad choices were made when it was all good the night before?

Of course..... that part was never in doubt. There's never been a benevolent, smart, focused, honest caring human government in this history of human civilization. Power corrupts, and the more power is available, the more corruption you have.

If you gave me the power of invisibility and the ability to teleport myself from place to place, I have no doubt that I will have a really great difficulty taking anything I want from any one at any time I want to do it. As much as I;d like to use that power only for good, I seriously doubt whether that would be possible under any circumstance where I remain human.

 

[Emeritus]

I understand how a defined benefit pension plan works, (a fundamentally flawed premise without adequate year-to-year funding in place and/or periodic adjustments based on plan income.) but I firmly believe that pension funds should stay out of the stock market, where losses are possible and should be presumed probable. If they want the upside gain they need to be in a financial position to assume the downside risk as well. Don't play if you can't pay. Plan members need to approve and accept that their money is at risk if it is going to be invested in the market. That is the way the market works, which is at odds with the way DBP's promises of how future benefits works- Promising Apples, but investing in Oranges. DBP plan payouts should be based on actual funded contributions, not based on the premise of future earnings in investments subject to market fluctuations. Invest in your own city's muni bonds or treasury securities, but stay out of private sector investments, since private pensions are not afforded the same payout guarantees.

No one else gets a guarantee of investment earnings; why should public sector employees? That is what happens when the DBF funds lose money in market speculation and the taxpayers (who probably suffered the same losses) have to step in and fund the shortages. "Gee, sorry we lost your DBF pension funds in the market crash, but don't worry- we'll get your share from what your neighbor has left..."

Why should bank have a guarantee that a consumer will pay a Mortgage or credit cards if for example the consumer loses a job? How about cutting state bond payments when the state loses tax revenue? Why should those bond holders be paid?

More directly why should a state employee who has no control whatever over the fund investments be expected to take any of the risk? In the real world obligations range from the absolute to the contingent.

Pensions are in roughly the same category as state bonds.

 

[HsiaoChu]

Why should bank have a guarantee that a consumer will pay a Mortgage or credit cards if for example the consumer loses a job? How about cutting state bond payments when the state loses tax revenue? Why should those bond holders be paid?

In many places in Europe, if you lose your job, you still get to stay in your house and you just don't have to pay rent. It is assumed that the landlords are wealthy people who really don't need this rent money. It encourages people not to actually look for a job if they lose it because as long as they don't have one, they don't have to pay any rent.

I agree. If I have to take a hit on my income and tough times come and my employer makes me have a cut in my pay, then I should be able to reduce my bank cards by the percentage of loss of income. To heck with the contract that I signed with the bank. They should have to suffer some of my pain too.

My daughter believed that when she lost her job she didn't need to pay her federal college loan anymore. But if she'd kept it with the Feds, they would have said, "Oh your poor destitute newly graduated college person, let us know when you get a job again and can start paying again." But she'd switched to a private lender with a better rate, and they said, "Oh you poor destitute newly graduated college person, let us know when you get a job again, but in the mean time: you still owe us your monthly payment or we're gonna put you in Jail." And they almost did.

One of the first courses that new law students have to take is contract law. Contracts are central to fair western law. Violation of contracts at the whim of those whose financial condition has changed, without going through some other legal procedure, would destroy all of law and send us all into third world dictator lawlessness.


Z

 

[Emeritus]

One of the first courses that new law students have to take is contract law. Contracts are central to fair western law. Violation of contracts at the whim of those whose financial condition has changed, without going through some other legal procedure, would destroy all of law and send us all into third world dictator lawlessness.
Z

It's just a little more complicated than that. A contract is an agreement that the law will enforce. Certainly not all agreements (or terms of agreements) are valid contracts. A law can certainly explain which terms of an agreement are enforceable and and which ones are not. The problems usually arise when the legal meanings of the terms are changed after the contract is agreed to and/or performed.

 

[ziggy29]

I agree. If I have to take a hit on my income and tough times come and my employer makes me have a cut in my pay, then I should be able to reduce my bank cards by the percentage of loss of income. To heck with the contract that I signed with the bank. They should have to suffer some of my pain too.

Let's turn this around. If you put $100K into a CD and the bank is having tough times and earnings are way down, should they be allowed to make you "share their pain" by taking some of your principal? It would be OK for them to return only (say) $75K to you because they hit on "tough times" and think it's only fair that you suffer some of their pain?

 

[HsiaoChu]

Let's turn this around. If you put $100K into a CD and the bank is having tough times and earnings are way down, should they be allowed to make you "share their pain" by taking some of your principal? It would be OK for them to return only (say) $75K to you because they hit on "tough times" and think it's only fair that you suffer some of their pain?

Or a real one: In 1983(or back when the interest rates were unbelievable and people thought we were turning into Germany in the 30's) my aunt took advantage of the 15% bank interest rates on CD's and bought two 30,000 buck CD's for a 30 year term. What possessed her bank to offer that rate at 30 years is beyond me. When she died in 1995, interest rates were down to ABOUT 5%. They were so happy that they didn't have to keep paying her $9000 a year which she was just rolling letting it ride. God did she make an awful amount of money on that bank over those 13 years.

But they should have been able to say, "Hey Louisa, I'm sorry interest rates have dropped, so I'm sorry we're converting your CD's to an adjustable rate."

Z

 

[Emeritus]

Or a real one: In 1983(or back when the interest rates were unbelievable and people thought we were turning into Germany in the 30's) my aunt took advantage of the 15% bank interest rates on CD's and bought two 30,000 buck CD's for a 30 year term. What possessed her bank to offer that rate at 30 years is beyond me. When she died in 1995, interest rates were down to ABOUT 5%. They were so happy that they didn't have to keep paying her $9000 a year which she was just rolling letting it ride. God did she make an awful amount of money on that bank over those 13 years.

But they should have been able to say, "Hey Louisa, I'm sorry interest rates have dropped, so I'm sorry we're converting your CD's to an adjustable rate."
Z

Something does not make sense. Her death did not eliminate the CD obligation. It goes to the estate

 

[Texas Proud]

Something does not make sense. Her death did not eliminate the CD obligation. It goes to the estate

I agree.... but I bet someone wanted the actual money and to heck with the CD... or there was a [-]stupid [/-][-] person [/-] someone who did not knoow any better running the estate... hope I am not stepping on someones toes....

 

[Texas Proud]

I think some here actually do think that the pension plan should give less than promised... I am not one... I just think that we should stop digging....

As for some of the arguments on reduced payments... it does happen all the time... when a bank fails, the acquiring bank has the right to stop paying on a CD that is to high... when company goes under and it can not pay the pension, the PB?? (can't remember right now) pays out what IT says it will... and that can cost some people a lot of money... and also when a company goes to BK, they can also pay cents on the dollar on their debt... what does all of these have in common BK...

Now, if a city wants to do it... then I think they should... but it will cost them a lot in the long run... but if there is NO WAY to pay what is promised, then that should be the course of action taken... just like everybody else who has a pension, a CD or a bond... you do have the risk of the entity going belly up...

 

[Westernskies]

I agree. If I have to take a hit on my income and tough times come and my employer makes me have a cut in my pay, then I should be able to reduce my bank cards by the percentage of loss of income. To heck with the contract that I signed with the bank. They should have to suffer some of my pain too.

I'm stupefied... are you actually advocating unilateral contract modification for convenience?