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Public sector retirement gaps
Old 02-18-2010, 06:11 AM   #1
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Public sector retirement gaps

There's a lot of these public pension underfunding articles.

I don't understand how any elected official will "make the tough choices" and reconcile - politically safer to "put your head in the sand".

Some day this has to blow up - maybe its now....

FT.com / US / Economy & Fed - US states face $1,000bn retirement gap

US states face a funding gap of at least $1,000bn for the retirement benefits they have promised teachers, firefighters and other public sector employees, threatening already strained budgets, according to research released on Thursday.
The Pew Center on the States found that, at the end of fiscal year 2008, states and localities had set aside $2,350bn to pay for pension, healthcare and other non-pension benefits, such as life assurance, that were estimated to cost $3,350bn.
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Old 02-18-2010, 07:46 AM   #2
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Too many of us in this country have come to accept our politicians buying our votes with our money. There is not a bottomless vein of cash waiting to be mined with taxes, and I hope that more people are waking up to this fact as the chickens come home to roost on this issue.

That said, I'm the happy recipient of a local government pension that was higher than I expected because my former employer screwed up and kept promoting me, and because the politicians tried to circumvent their labor problems by not increasing salaries (and raising taxes) by enticing existing employees through pension enhancements that could be had if they only stayed at work "a few more years". Golden handcuffs is the phrase I like the best to describe it.

Those politicians were term-limited out at the same time that "a few more years" in the future suddenly became today. People on both sides of the issue woke up to realize that things had to change, and many changes were made. I grabbed my pension and was out the door while I was still snugging up the straps on the parachute.

Similar situations exist all across the country, but in differing ways. These pensions, and their associated problems, are a patchwork as different politicians and labor representatives tried to copy other plans while putting their own interpretation into it. Similarities exist but not everything is the same. Some of those pensions are in serious trouble, some are a little scary but might get a pass if the economy doesn't crater again, and still others are doing okay.

The last mayor made some needed changes, and the new incoming mayor is talking the same way. Right now the issue is a new labor contract, and salaries affect pensions so I'm watching carefully. Both the mayor and the union are saying good things that make me want to believe they understand that they will have to be realistic in their negotiations.

From the mayor:
Quote:
"They can read the headlines just as well as you and I can. There is less money flowing into the city coffers. And I think it would be foolish for either side to expect to go in and see a lot of new money flowing into this contract."
From the union president:
Quote:
"For us to be competitive in the hiring market, we will have to stay competitive in the wage market. Because of the budget shortfall, certainly we're going to have to work smart. We may have to defer some things. That's what the negotiation process is all about."
Who knows what will go on in the private sessions. The union did back one of the mayor's opponents during the recent election, and she made a comment to the union president (that got picked up by the media) that expressed her displeasure, "You better hope your guy wins." I don't think there will be much in the way of frivolous goodies being passed out in the next contract.

I'm like most other people receiving a pension in that my opinion is that "we made a deal" and I lived by my end of the bargain. I worked for the sucky wages they wanted to pay and wore the golden handcuffs they were passing out. Just because the peoples' elected representatives screwed up doesn't mean I should have to pay the bill. As citizens and taxpayers we are all responsible for the decisions made by our elected officials, even when those decisions aren't so smart. As a group we did vote them the power to make those decisions on our behalf. But I'm a realist and I don't want to learn what happens if the city goes bankrupt. There is a moral obligation there that I expect the city to respect while it goes about fixing the fiscal issues.

(Like the pic of the pooch you have as an avatar btw)
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Old 02-18-2010, 08:06 AM   #3
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The first thing they need to do is stop offering the DB pension plans to new hires in areas where retention isn't critical. It may not work for police or for fire or for teachers, but it would work for a lot of other disciplines. The sooner we do that, the sooner we can protect and make good on the promises already made. We have made NO obligations to those not yet hired and they can choose to accept or decline future employment offers knowing that they won't get the pension.

At the very least, the promises need to be sustainable for future generations -- no more of this "3% at 50" stuff which give people a 90% pension for life starting at 50 (and probably with lifetime health insurance). The feds addressed this pretty well when they replaced CSRS with FERS. State and local governments should do the same. These are absolutely killing state and local budgets and, as painful as it is, we need to suck it up and make good on these promises that have already been made (never mind that many of us in the private sector saw those "promises" taken away). But again, that's no reason why we should compound the problem by putting more new hires into these unsustainable plans.

Alternatively, where it isn't done already, we should consider turning the pension plans over to the unions and let them guarantee the payouts, not the taxpayer. The public employer would put in some fixed, agreed-upon amount that is actuarially sound based on the negotiated benefit levels, and their liability would be done. I've found most union-run plans to be a lot more solvent and well-run than those run by bureaucrats anyway. But what we can't have is a bottomless and endless taxpayer guarantee that requires an 8-9% return on plan assets as far as the eye can see.

I want to protect the benefits of those who have already been promised them. But it's a promise which, at least in some occupations, we can't afford to keep making to another generation.
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Old 02-18-2010, 08:47 AM   #4
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Alternatively, where it isn't done already, we should consider turning the pension plans over to the unions and let them guarantee the payouts, not the taxpayer. The public employer would put in some fixed, agreed-upon amount that is actuarially sound based on the negotiated benefit levels, and their liability would be done. I've found most union-run plans to be a lot more solvent and well-run than those run by bureaucrats anyway
No way that I trust my union to run the pension. Nice guys and gals, and I like what they do for me most of the time, but there are good reasons why they shouldn't be in control of the pension.

I really like the system we have here, in which the pension is controlled by an independent body that is a quasi-governmental agency. The board consists of a mix of active employees, retirees, and representatives from the city. That independence is important, IMO, to protecting the pension from outside interests that would like to control a few billion dollars. The city certainly can't be trusted with it. And the few times that a union official has run for pension office (to "fix" some "problem" they saw, or imagined), they have not been elected by the members. I never had a problem voting for an individual for a union office and then voting against him for the pension board.
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Old 02-18-2010, 09:00 AM   #5
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Originally Posted by ziggy29 View Post
The first thing they need to do is stop offering the DB pension plans to new hires in areas where retention isn't critical. It may not work for police or for fire or for teachers, but it would work for a lot of other disciplines. The sooner we do that, the sooner we can protect and make good on the promises already made. We have made NO obligations to those not yet hired and they can choose to accept or decline future employment offers knowing that they won't get the pension.
I definitely agree with the parts I highlighted. (I'm skeptical that "retention" is any more "critical" in public sector jobs than private sector jobs.)

The advantage of DC plans is that it's very hard to shift costs into future periods.
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Old 02-18-2010, 09:03 AM   #6
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No way that I trust my union to run the pension. Nice guys and gals, and I like what they do for me most of the time, but there are good reasons why they shouldn't be in control of the pension.
I don't mean they would make the financial decisions -- not being experts in the money management field, they probably shouldn't be. But they would be at least partially responsible for bringing the right people to manage it and for deciding how to handle shortfalls.

There's no reason a government and a union couldn't set up a similar "independent quasi-governmental agency" to oversee the plan if both sides saw fit to do so in the collective bargaining process. The main point, really, is that taxpayer liability should not be bottomless if the plans overpromise and the market underdelivers despite good-faith contributions by government employers. This "unlimited liability" in shortfalls is threatening to bankrupt scores of cities nationwide. If that means scaling it back in the future to assume a responsible 5-6% ROI instead of a fairly reckless 8-9% -- or no longer giving out the "3% at 50" deal to new hires -- so be it.
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Old 02-18-2010, 10:04 AM   #7
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This is really not a problem. Just keep increasing taxes on people who haven't seen seen the light and gotten a government job. Eventually, all jobs will be governemnt jobs, and everyone will be well paid, well insured, and well pensioned. Turns out the Bolshies were right!

Ha
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Old 02-19-2010, 04:30 AM   #8
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Many jurisdictions have already dealt with the issue. The DB retirement plan that I have no longer exists although they will continue paying for it for another 40 years or so. The issue has already been to court and essentially the court said "A deal's a deal. Pay up." But there is an end to it as the retirement system they have now bears no resemblance to the one I have.

But there was a down side to it as well. Back in the early 80's when private industry folk were getting 10% annual or more raises I got... zilch. Or maybe 2%.

Being literally next door to Washington, DC they watch what the feds do and tend to follow that example.

As in so many other things in life "You pays your money and takes your chances".
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Old 02-19-2010, 07:52 AM   #9
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But there was a down side to it as well. Back in the early 80's when private industry folk were getting 10% annual or more raises I got... zilch. Or maybe 2%.
Got ya beat, we actually got paycuts. There had been a long promised 3% raise in 83-84, and within a few months they decided to take it back, by cutting everyone 3%. Do the math and you see that not only did we lose the raise, but wound up losing more than we had before the raise.
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