State pension inflation protections start to get cut

[Running_Man]

Colorado and Minnesota have elected to cut cost of living increases. If these withstand court challenges this will spread like wildfire to other public pensions. Colorado is arguing the actuarial problem in the future means for the good of all retirees cuts to present retirees is legal. Illinois which gets 3 % annual increases very similar to Colorado's 3.5% is right behind waiting the results of the litigation.

Payback Time - In Budget Crisis, States Take Aim at Pension Costs - NYTimes.com

[traineeinvestor]

If it's a choice between reducing payments now and having even bigger cuts at some point in the future then it's the right thing to do. In a lot of states tax increases and other spending cuts just wont be enough.

[ziggy29]

I hope we can figure a way out of this. I am really uneasy about retroactively changing the deal folks thought they were getting after 10, 20, 30+ years of working in good faith. (Yes, it happened to me, but I don't want to be partially responsible for others getting screwed as I did.) But on the other hand some of these plans are flat-out unsustainable. Maybe we need some two-tier or three-tier changes depending on age and years of experience. Those farther into it probably need more protection from changes from those just starting out.

At the minimum I think any government agency considering cutting pension benefits on those already in the plan should completely stop enrolling new hires into DB plans before cutting anything. At least new hires in the future will know the "deal" is different and can take it or leave it with no pension.

[donheff]

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Originally Posted by ziggy29 I hope we can figure a way out of this. I am really uneasy about retroactively changing the deal folks thought they were getting after 10, 20, 30+ years of working in good faith. (Yes, it happened to me, but I don't want to be partially responsible for others getting screwed as I did.) But on the other hand some of these plans are flat-out unsustainable. Maybe we need some two-tier or three-tier changes depending on age and years of experience. Those farther into it probably need more protection from changes from those just starting out. At the minimum I think any government agency considering cutting pension benefits on those already in the plan should completely stop enrolling new hires into DB plans before cutting anything. At least new hires in the future will know the "deal" is different and can take it or leave it with no pension.

+1 It seems strange to me that taxpayers blame "them" (the distant government) for engaging in retrospectively bad contracts with workers rather than themselves. If we expect ourselves and our peers to stand by our promises we should certainly expect the governments we elect to do so. I suspect that some of the loudest voices calling for governments to reneg never bothered to vote in the first place. Or worse, cheered the government actions that led to the present state of affairs.

[Spanky]

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Originally Posted by donheff +1 It seems strange to me that taxpayers blame "them" (the distant government) for engaging in retrospectively bad contracts with workers rather than themselves.

We are to be blamed for actions taken by the government just because we elected them? If so, for what is the government accountable?

[ziggy29]

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Originally Posted by Spanky We are to be blamed for actions taken by the government just because we elected them?

At least partially, especially when we keep re-electing the same bunch and hoping for different results.

[donheff]

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Originally Posted by Spanky We are to be blamed for actions taken by the government just because we elected them? If so, for what is the government accountable?

I am not saying that governments are not accountable, just the opposite. Governments should stand by their contracts. And we, who are responsible for putting the Governments in place, should demand that they do so. States retroactively renegging on the benefits contracts employees worked under for 30+ years is no different than states telling small businesses that have already delivered contracted services that they will be paid 85 cents on every dollar owed them. I hope the courts take a close look at the programs the states put in place. If they were vague enough that COLAs are not really guaranteed - fine, make some reasonable changes. If the COLAs were clear and iron clad, pay up. Make your changes prospective, not retroactive.

[BUM]

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Originally Posted by ziggy29 some of these plans are flat-out unsustainable.

BINGO! Reality is finally setting in. Sacred cows are slowly being turned into hamburger.

[Leonidas]

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Originally Posted by ziggy29 At least partially, especially when we keep re-electing the same bunch and hoping for different results.

And certainly when we keep electing the sort of folks who keep telling us the same old lies about being able to increase services while reducing (or at least not increasing) our tax burden.

Politicians are experts at one thing, and one thing only: How to get people to vote for them.

Maybe it's different in the private sector, and maybe all state and local governments are not the same, but most of my former employer's policies and compensation scheme were the result of decisions made in crisis mode. I can point out just about any section of the policy manual, the SOP manual, or our various contracts and tell the story behind why that decision was made. Too many decisions were made with the mindset, "Oh crap, this is broken, we need a fix right now."

When it comes to my compensation, and my retirement package, it's the culmination of two kinds of decisions. 1) When the economy was good and qualified applicants were few and far between - the city threw money at the problem. 2) When the economy sucked and the budget was tight - the city made decisions that saved money this year, but set itself up for huge future obligations.

When we voters fall for the lie of, "I can increase services and cut your taxes" it's like believing the car salesman who asks, "If I can (insert unfulfillable promise here), will you buy this car today?"

One of the biggest political sins I ever committed during my career was to try and deal with budget and personnel shortages by realigning my personnel to better meet priorities. The reaction was swift, and the best thing I was told was "I would have made the same decisions if I were in your situation, but you just can't do that." So I was forced to go back to not being able to do the job any better than at about a 60% success rate just so my superiors could perpetuate the big lie that we really could do more with less.

We can all point to the various big and medium sized cheeses in different governments who have padded their retirement nests, but the real deal here is that much of this problem is the result of the big lies being told. You can cut waste and inefficiency, but at some point somebody has to tell the truth: "We can't do all of these services without raising taxes. Or, we can cut back on some of the services and do our core job for less. But you can't have both."

The big lies work because voters keep voting for the people who tell them.

[Pete]

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Originally Posted by Running_Man Colorado and Minnesota have elected to cut cost of living increases.

Shame on them for not being smart enough to tie increases to some sort of inflation index. They should live by their agreements.

[ziggy29]

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Originally Posted by Pete Shame on them for not being smart enough to tie increases to some sort of inflation index.

A lot of folks smarter than many of us thought long-term market performance would be enough to keep these things solvent and strong. As it turns out, if the investment markets are sufficiently bad for a sufficiently long time, anything can get into trouble if it makes promises based on future assumptions.

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They should live by their agreements.

I agree, which is why they should stop entering into new agreements in most cases. But we should do everything reasonably possible to honor the "agreements" already made, at least to the extent it doesn't break us.

[Bimmerbill]

I certainly hope these initiatives don't pass legal muster. I doubt these employees will retroactively get pay raises to make up for the reduction in their total compensation.

I know when I work I consider total compensation to include salary, bennies, etc.

[Goonie]

(NOTE: The following is just my opinion! I've tried my very best to keep the following post from being politically charged...hopefully I've succeeded. But being a retired public employee, I have a major stake in all of this prattle, and am not very good at being soft spoken when politicians try to shift blame from themselves and their cronies, onto the backs of those who now provide or have provided services to the public. This will be my one and only statement on this topic...otherwise I'll end up saying too much and get the boot.)

I believe that before the crooks politicians start axing pension benefits, they should FIRST AND FOREMOST start axing THEIR blatant wasteful spending. A very recent case in point....our local state senator drove 130 miles form his home to the state capitol in Springfield, where he boarded a state helicopter to fly to a grand-standing publicity stunt 26 miles from his home. The "event" was supposedly to see about taking action on an ongoing problem that he has absolutely NO jurisdiction over in the least, and even less knowledge of. His local constituents were not too happy with him about it either!

That is a very small drop in the bucket of our state's fiscal woes, but every drop adds up to an ocean!

Likewise our former, now impeached, governor refused to stay even ONE night in the governor's mansion in Springfield. He opted instead to commute, by state aircraft, to his home in Chicago. At a cost (IIRC) of approximately $5000 per trip....each way!

Those are just two examples of gross wasteful spending, so how many thousands or tens of thousands examples are out there constantly running uncontrollably amuck?!

It's just so much easier to point their finger at the employees, and say "Hey, look at those evil b@st@rds that are draining all of money out of the state coffers, and hoping to be able to retire at some point before they die!"

And to the politicians that say they will cut taxes and still provide current or better services.....B.S. It ain't gonna happen...no way...no how!!! In Illinois state income tax is a flat 3%. The current governor (who took over when the former was impeached last year) wants to increase it from 3% to 4.5%....and it will still be lower than many other states. He states that that will help get finances stabilized.....no increase in services, but rather less cuts in current services. His challengers say they won't raise taxes, but will increase services. One is trying to be truthful, and one isn't.....but sadly, in Illinois politics, truth ain't likely to win an election!

[Texas Proud]

Goonie.... you last statement is right on... because the vast majority of voters are stupid... and want someone else to pay for it...


As to the theme of this thread... I am also one who would like to keep promises IF WE CAN...

But we CAN change the pension plan right now and keep our promise .... the private sector has done it a lot... your benefit is worth X $$s right now... we will honor that in the future.. but any NEW benefits will come under this NEW plan...

Soooo, if you are a public servant.. and have worked 25 years... you get your 25 years worth of pension.. will all the bells and whistles... but if you work year 26 you get "this" new one.... same for someone who has worked 5 years... 5 and the old and how ever many years at the new...

Now, I can live with a 'let's grandfather someone who had X years or at Y age...'.... but starting a new system now is critical for a lot of places... If the local budget will take ALL taxes to pay pension costs.. then what is to pay for services It could happen... compounding is a bitch...

[headingout]

Ditto those who say the root cause is the public. Until we are collectively smart enough to elect honest politicians who can speak realistically about what government services cost, then we will continue to see "back door" taxation through debt, inflation, and low growth rates. I am continually amazed at the strong anti-government streak in this country when it comes to paying taxes, but as soon as the discussing shifts to health care or disaster response, for example, there are legions of folks who think the government should be doing more (for them).

[52andout]

Headingout, you hit the nail on the head. I knew an artist who did everything she could to avoid paying taxes selling her wares. One day she said "the government should provide us free healthcare." Where did she think the government got their money? Total disconnect.

Back to the push for no COLA in pensions, retirees today not only have taken a blow on investments, home prices have plummeted (but not their property taxes). There is also no COLA for Social security for 2010. I think grocery store prices are higher. Anybody who thinks gas prices won't go up with a cascading effect on consumer goods raise their hand.

[haha]

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Originally Posted by donheff +1 It seems strange to me that taxpayers blame "them" (the distant government) for engaging in retrospectively bad contracts with workers rather than themselves. If we expect ourselves and our peers to stand by our promises we should certainly expect the governments we elect to do so. I suspect that some of the loudest voices calling for governments to reneg never bothered to vote in the first place. Or worse, cheered the government actions that led to the present state of affairs.

Certainly the loudest voices raised against modification of these unsustainable retirement programs are those who are receiving the money and their dependents. Something tells me that one's stance on this issue depends heavily on whether s/he is a net payer of govt pensions and bennies, or a net receiver.

Why is it that any corporation can change its retirement plan, discontinue health benefits, or do just about anything it wants short of going out and shooting the retirees, and yet an even better set of benefits is a sacred contract when it is going to public retirees?

Anyway, there has never been a "contract" that is not subject to modification, or breaking. How about the Treaty of Versailles?

Ha

[Texas Proud]

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Originally Posted by haha Certainly the loudest voices raised against modification of these unsustainable retirement programs are those who are receiving the money and their dependents. Something tells me that one's stance on this issue depends heavily on whether s/he is a net payer of govt pensions and bennies, or a net receiver. Why is it that any corporation can change its retirement plan, discontinue health benefits, or do just about anything it wants short of going out and shooting the retirees, and yet an even better set of benefits is a sacred contract when it is going to public retirees? Anyway, there has never been a "contract" that is not subject to modification, or breaking. How about the Treaty of Versailles? Ha

That is what I kind of said in my post... you honor the contract... but you also say... 'we are not canceling the contract going forward, here is our new offer'... the public servant has the option of staying where they are under the new contract or moving to greener pastures... and like you said... it has happened to many of us in the private sector...

There were many companies during the downturn who STOPPED MATCHING 401(K) contributions... that was supposed to be the replacement of pensions... but they said 'sorry, not this year'.... I agree, unfair to the worker who thought he had it... but legal to do...

They did not 'take away' something that was promised... you still had all the matching they gave.... they just said 'not right now'... if you read the rules... they never promised to pay forever....

And that is what I am saying can be done by all the gvmts who are having problems... if it was in the past... you get it... but starting TODAY... this is what you will earn going forward... and I think a cash balance account is the way to go... it is then a KNOWN amount...

[dex]

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Originally Posted by Texas Proud That is what I kind of said in my post... you honor the contract... but you also say... 'we are not canceling the contract going forward, here is our new offer'... the public servant has the option of staying where they are under the new contract or moving to greener pastures... and like you said... it has happened to many of us in the private sector... There were many companies during the downturn who STOPPED MATCHING 401(K) contributions... that was supposed to be the replacement of pensions... but they said 'sorry, not this year'.... I agree, unfair to the worker who thought he had it... but legal to do... They did not 'take away' something that was promised... you still had all the matching they gave.... they just said 'not right now'... if you read the rules... they never promised to pay forever.... And that is what I am saying can be done by all the gvmts who are having problems... if it was in the past... you get it... but starting TODAY... this is what you will earn going forward... and I think a cash balance account is the way to go... it is then a KNOWN amount...

Good points and that is usually how union contracts work. A contract comes to an end and the parties negotiate a new one - usually previous benefits are continued.

What no one answers is the question - What to do if the changes are not made. Very easy to say honor the agreement.

[Gumby]

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Originally Posted by haha Anyway, there has never been a "contract" that is not subject to modification, or breaking.

Indeed, if you and I are contracting parties, you are free to breach if you like. I am then free to take every legal action I can to harm you for your perfidy. Since I am a mean and vindictive SOB, I will ensure that it costs you more than you can save by breaching.