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Pensioners bent over in RI
Old 08-04-2011, 07:08 PM   #1
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Pensioners bent over in RI

Municipal pensioners take a big hit in order to preserve governments ability to borrow money.

Rhode Island Law a Boon For Bondholders - WSJ.com

Watch this spread nationwide in short order.
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Old 08-04-2011, 07:25 PM   #2
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If I had a job with a pension offered, I wouldn't trust that it will be there by the time I retired. Sad, but true.
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Old 08-04-2011, 07:32 PM   #3
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If I had a job with a pension offered, I wouldn't trust that it will be there by the time I retired. Sad, but true.
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Old 08-04-2011, 07:41 PM   #4
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The taxpayers took it good and deep the first time around paying the salaries and overinflated health benefits during these folks working years and they never stopped taking it with the health benefits.

The stock market didn't work out so well the last decade, do you want the taxpayers who made the contributions in the first place to come back, after the duties had been performed and the promises has been fullfilled, and make up the difference that the pension trust's "fund managers" lost?
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Old 08-04-2011, 07:53 PM   #5
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The taxpayers took it good and deep the first time around paying the salaries and overinflated health benefits during these folks working years and they never stopped taking it with the health benefits.

The stock market didn't work out so well the last decade, do you want the taxpayers who made the contributions in the first place to come back, after the duties had been performed and the promises has been fullfilled, and make up the difference that the pension trust's "fund managers" lost?
That's the difference between a defined benefit pension plan and a defined contribution pension plan. In the former the employer assumes the investment risk and in the latter the employee assumes the investment risk.

While I'm pretty conservative and wish that prior administrations hadn't been so stupid with the promises that they agreed to (and were likely foisted upon them by the municipal employee unions) I don't see it as fair to make the individual employees suffer because the city can't keep its promises.
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Old 08-04-2011, 07:54 PM   #6
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I didn't see anything in the article that stated the employees were paid overinflated salaries or health benefits. I could have missed that. I have never been sure why government employees should live as paupers just because they are paid with taxpayer dollars. Besides, it is the politicians that in many cases allowed the employees to unionize, allowed the unions to negotiate just about everything and then agreed to the pay and benefits.

I'd love to see what that town spent all the money on. I assume they had some revenue. I wonder what pet projects, well-meaning programs and non essential services did they borrow money to fund while breaking their promise to their retirees. Right, wrong or indifferent, the politicians made a promise to those people and not keeping it is inexcusable. I have sympathy for the bond holders, but a lot of those pensioners probably have little or nothing to fall back on.
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Old 08-04-2011, 08:20 PM   #7
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I predict that this thread will dispassionately solve this dilemma once and for all. I am quite looking forward to the resolution.

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Old 08-04-2011, 08:23 PM   #8
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If I had a job with a pension offered, I wouldn't trust that it will be there by the time I retired. Sad, but true.
Is there a way for employees (public or private) with DB pensions to insure them? I guess if a lump sum is offered you could take it and buy an annuity, but you'd take quite a haircut. I wonder if there's a straight insurance product that is affordable. I would think there would be a market for such a thing, the problem would be doing the underwriting. Who knows how many of these municipalities will go under, or change the rules?
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Old 08-04-2011, 09:06 PM   #9
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I predict that this thread will dispassionately solve this dilemma once and for all. I am quite looking forward to the resolution.
Well, that would be refreshing. All the other threads on this subject were abject failures.

Bring on Porky, I say!
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Old 08-04-2011, 09:12 PM   #10
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Old 08-04-2011, 09:31 PM   #11
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I predict that this thread will dispassionately solve this dilemma once and for all. I am quite looking forward to the resolution.

Ha
I'm sensing a little cynicism . Besides with the debt ceiling and budget crisis solved it was time to move on...

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Old 08-04-2011, 09:41 PM   #12
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No solution, but I can never understand how government, whether local, state or federal, which regulates all manner of things can never regulate itself. I belong to a homeowners association. It is required to execute regular assessments of financial condition, including reserve funding for long-term expenses/capital improvement. Meanwhile the government merrily spends away despite having all sorts of unfunded expenses (such as pensions and healthcare as the article notes). And most governmental entities would not meet ERISA requirements. Government: "Do as I say, not as I do."
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Old 08-05-2011, 05:54 AM   #13
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I didn't see anything in the article that stated the employees were paid overinflated salaries or health benefits. I could have missed that. I have never been sure why government employees should live as paupers just because they are paid with taxpayer dollars. Besides, it is the politicians that in many cases allowed the employees to unionize, allowed the unions to negotiate just about everything and then agreed to the pay and benefits.

I'd love to see what that town spent all the money on. I assume they had some revenue. I wonder what pet projects, well-meaning programs and non essential services did they borrow money to fund while breaking their promise to their retirees. Right, wrong or indifferent, the politicians made a promise to those people and not keeping it is inexcusable. I have sympathy for the bond holders, but a lot of those pensioners probably have little or nothing to fall back on.
If you want to know the details of the disaster of Central Falls. It is spelled out it pretty amazing detail in the state appointed receivers report right here.

It is tempting to blame this on politicians but as best I can tell the only politicians were a full time Mayor and handful of part time city council members. Many of whom I think were/are city workers. I haven't read the whole report but read enough to realize that much of the downfall of Central Falls is due to featherbedding by city workers and a way to generous pension plan which allowed city worker to retire at 50-65% after 20 or 25 years of service while only contributing 7% of their pay (and less in earlier years). While it is true that current pension were relatively modest 30K or so, the average income for the town is only 22K with many residents living below the poverty line.

The town had 19,000 resident in roughly 6,700 households the total area for the town is tiny 1.3 square miles so the place is primarily multiplexes and apartments. Looking at the police department is instructive as example of feather bedding. In a department of roughly 40 cops, they had 1 chief, a Major, a Captain, 6 Lieutenants, 6 Sargents. This seems top heavy to me but more importantly they failed to do a good job making the city safe with crime rates significantly above the State or Federal level. Certainly their staffing level would support having a cop every few blocks.
The union instituted a number of work rules and staffing requirements that drove up the cost to the city.

However, ultimately the what killed the city was the pension, since there were more retirees than workers. The report said that the city would be required to allocate 5 years of revenue while providing NO SERVICES (trash, cops, firefighters, inspectors etc) to fund the unfunded liability. Just paying the actuarial required payment to keep current would require an increase of 50% in property tax (they were already raised 25% and the tax per assessed valuation was almost double due to falling property values). To put another way paying the pension would require collecting 7% of all of the median income earned in the city.

It is worth noting that state took over the failing school system 20 years and over the last 20 years has providing more than $600 million or $31,000/resident in funding. If Central Falls was paying for their kids education (instead of the other residents of Rhode Island) the situation would be far worse.

Central Falls is worse than most places but I fear it the proverbial canary in the coal mine.
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Old 08-05-2011, 07:50 AM   #14
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If a company plan goes belly up employees get some relief through ERISA which, IIRC, is backed up by us the taxpayers. Public pensions are not covered probably because it was assumed they are already backed up by the taxpayers. As long as these public employees get benefits commensurate with ERISA that would seem fair. In most cases they do better but when it comes to small municipalities it would seem public employee pensions are at greater risk than private since the taxpayer base is not sufficient to provide backup.
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Old 08-05-2011, 08:00 AM   #15
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If I had a job with a pension offered, I wouldn't trust that it will be there by the time I retired. Sad, but true.
Ironically, when I hired into MegaMotors in 1981, everyone told me, "Kid, don't waste your money on contributing to the pension". I took their advice for 10 years before I started to contribute. That decision costs me $20K a year today. The good news is that I did contribute to my own personal pension plan (a forerunner to the 401(k)).

So, ya basically never know, but ya gotta plan for the worst.
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Old 08-05-2011, 08:25 AM   #16
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If I had a job with a pension offered, I wouldn't trust that it will be there by the time I retired. Sad, but true.
This is why I was more than happy that 401k were all the rage when I started working in 1990. As a result, my retirement traveled with me across three jobs, and I am now financially independent.
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Old 08-05-2011, 08:58 AM   #17
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I have had a few opportunities to participate in an employer sponsored defined benefit program. In all cases, the company went out of business before any benefit to me would have been vested. I'm glad I have my 401k instead. I suppose a government entity has a better chance of long term survival, but it's a lot to expect that a private employer will stay in business (and I will stay employed by them) long enough to get paid whatever "pension" benefit they are promising. If I relied solely on such a promise my plans would be devastated when they failed to deliver.
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Old 08-05-2011, 09:08 AM   #18
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The people I know who live near Central Falls (but go out of their way not to drive through it) are surprised only that it took this long for the town to self-destruct.
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Old 08-05-2011, 09:55 AM   #19
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I haven't read the whole report but read enough to realize that much of the downfall of Central Falls is due to featherbedding by city workers
I didn't read it all either, but while I agree that the unions were way too powerful there, that doesn't negate the responsibility of the elected officials to do their jobs and be the guardians of the peoples' money.
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...a culture of government that has allowed this fiscal crisis to occur without adjusting revenues or expenses or engaging the community in a dialogue about the financial and other challenges the City faces.
Or their jobs as supervisors of the employees' pension funds:
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...prior generations of policymakers failed to make contributions to these trust funds and often allowed employees to make insufficient contributions as well.
I think the people of Central Falls did a terrible job in choosing their elected representatives.
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Old 08-05-2011, 09:58 AM   #20
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If a company plan goes belly up employees get some relief through ERISA which, IIRC, is backed up by us the taxpayers. Public pensions are not covered probably because it was assumed they are already backed up by the taxpayers. As long as these public employees get benefits commensurate with ERISA that would seem fair. In most cases they do better but when it comes to small municipalities it would seem public employee pensions are at greater risk than private since the taxpayer base is not sufficient to provide backup.
Unless I missed something in these posts, there is "insurance" on defined benefit plans. It's called PBGT for Pension Befefit Guarantee Trust" and is specific to defined benefit plans. You can Google it to get all the details.
Too much for me to read but it mentioned that there are about 630,000
people currently covered by the PBGT due to some 3500 benefit plans that went belly up.

Edited: Intended for this post to reply to samclem and not donheff.
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