The Retirement Heist

[GregLee]

Yes public employee who push for every increasing pension benefits despite being told their plans were underfunded, they deserve some of the blame also.

This is totally wrong. It's not the responsibility of employees to provide the pension benefits they were promised. And besides, your group of public employees who are told their plans are underfunded and yet who "push" for increased benefits is totally imaginary, so far as I know. My pension benefits were set out in the employees' handbook when I was hired in 1971, and Hawaii's state pension fund was fully funded for decades after that, when a future legislature decided it would defer payments into the fund matching those I made from my salary. Was I suppose to exercise my clairvoyance when I was first offered the job and ask, hey guys, can you prove you will always fund this pension you've contracted for? What silliness.

 

[clifp]

Link please to when it was fully funded? It certainly was not in the late 90s when I move here.

Also I bet if you compared the retirements you were promised back in 1971 (today it is pretty clear increase. One simple example your retirements back in 71 was 1.25%/year service today it is 2%/year. I realize that the increase required employee contributions but there weren't enough to support people retiring at 55 with 25 years service. I suspect that 2.5% automatic increase regardless of inflation was not part of the pension that existed back in 1971.

Don't get me started on the host of medical benefits that weren't available back in 1971. You could get hip or knee replacements back then but no way in hell insurance was going to pay for it. Now days I am sure the state springs for these all the time.

 

[ERD50]

Yes public employee who push for every increasing pension benefits despite being told their plans were underfunded, they deserve some of the blame also.

This is totally wrong. It's not the responsibility of employees to provide the pension benefits they were promised. .... Was I suppose to exercise my clairvoyance when I was first offered the job and ask, hey guys, can you prove you will always fund this pension you've contracted for?

I somewhat agree with GregLee on this. On the list of those who 'share the blame', I put the employees far down on the list. Ahead of them are the politicians who agreed to the benefits w/o proper funding, and at the top of the list, IMO, are the Union leaders, who negotiated for the benefits with full awareness that the funding was not adequate, and yet go back to their rank and file and tell them what a great job they did in getting these benefits. And kick the can down the road. And probably get out the vote for the politicians they 'negotiate' with.

It's as if I agreed to sell your car on commission, got you a 'great' price, took my 10% from you while all the while I knew full well the buyer was handing you a forged check.

But employees (public and private) do need to wake up and look at the funding. DD is now an IL municipal employee, and I'm making her aware of just how poorly funded her pension is. I agree that most new employees probably would not be looking at this, but as time goes on it sure should be on their radar. They need to start making waves about it. They are the ones most directly affected - do something!

ERD,
In 2008 and 2009 there was, IMHO, feeling among many that irresponsible and greedy people ....

Thanks for the reply, but I don't see where you answered my question ("Who is 'shifting the blame to the public service worker?") - you just deflected it.

After working over 20 years, putting in many extra hours, and CONTRIBUTING 6% OF MY OWN SALARY to my pension, I don't think the 30% pension I will be getting is excessive. Don't blame me for wanting to receive WHAT I HAVE EARNED. I CANNONT GO BACK IN TIME and do it over again.

First, this is mostly a red-herring ( a common one at that). I've seen very little talk and very close to zero actual action taken towards making any changes to what is already earned. In fact, it is prohibited by the State Constitution here in IL. Some are trying to interpret that as 'no future changes to the plan (like employee contribution %) at any time during their entire career'. So no, I am not blaming you for wanting to keep what you already earned. But ask the employees of UAL, if the fund goes dry - what is to be done? If that happened to me, I'd be plenty mad at those Union leaders I mentioned above that negotiated the contracts w/o also negotiating full funding. I'd protest if I could find a good street for it.

I have no idea if your pension is generous or not compared to the average private worker (not that it is that important, if it was part of the contract, you should get it). But if that 30% is COLAd, and if it is available at 55 YO, that changes the value of that number from what most private employees were getting. Mine is actually closer to 40% for 28 years, (and I doubt you would want to compare the hours put in over that time), so let's say 40% * 20/28 ~ 30%; but.... not COLA'd, so that effectively cuts the value in half, and if I took it at 55 YO, that cuts mine in half again, to 7.5%. Or, looking the the way - yours doubles 2 times to 120% compared to my 30%. Wanna trade? Devil's in the details.

-ERD50

 

[ERD50]

This is totally wrong. It's not the responsibility of employees to provide the pension benefits they were promised. ... Was I suppose to exercise my clairvoyance when I was first offered the job and ask, hey guys, can you prove you will always fund this pension you've contracted for? What silliness.

Well, let's look at it from another viewpoint, the taxpayer.

You seem to think it is unreasonable for the recipient of the pension (the one most directly affected) to be reviewing the funding of said pension, and should just expect to get it, no matter any external events. OK, but...

then the taxpayer (further removed from this issue) should fully expect that the taxes that they paid each year fully funded the pension in that year, and should cover it, no matter any external events.

So we have one group with somewhat reasonable expectations that no cuts should be made to their benefits, and another group with somewhat reasonable expectations that they shouldn't have their bills increased after-the-fact (or more apples-to-apples, we could call this a 'benefit cut' since a tax increase is money out of their pocket).

Something's got to give, no?

-ERD50

 

[Gumby]

On an individual level, perhaps the taxpayer might have the expectation that his or her taxes are sufficient to pay the bills. But let's be realistic here; every year that the state did not make an adequate contribution to keep the state employee pension plan properly funded, the taxpayers as a group received a tax cut -- their taxes should have been higher to cover the state's legitimate bills that year. It is unfair now to say, in effect, "I'll keep all those prior tax cuts, thank you, and that's just too bad for you, state employee".

 

[donheff]

Well, let's look at it from another viewpoint, the taxpayer.

You seem to think it is unreasonable for the recipient of the pension (the one most directly affected) to be reviewing the funding of said pension, and should just expect to get it, no matter any external events. OK, but...

then the taxpayer (further removed from this issue) should fully expect that the taxes that they paid each year fully funded the pension in that year, and should cover it, no matter any external events.

So we have one group with somewhat reasonable expectations that no cuts should be made to their benefits, and another group with somewhat reasonable expectations that they shouldn't have their bills increased after-the-fact (or more apples-to-apples, we could call this a 'benefit cut' since a tax increase is money out of their pocket).

Something's got to give, no?

-ERD50

I'm not sure I buy the taxpayer was deceived argument. The politicians and government managers that allowed the excesses are in effect an extension of the taxpayer. In other words, our government is us. Only we can force changes in government. And we taxpayers are on the hook for anything we let our Government do, plain and simple. As a taxpayer, the public employee is also on the hook but I don't see why he should be more on the hook than the rest of us. They can vote but many public employees can't actively participate in the electoral process to change the cast of characters.

Edit: I don't mean this to imply that no changes can be made to public pension systems, they can and must.

 

[GregLee]

Link please to when it was fully funded? It certainly was not in the late 90s when I move here.

Shouldn't you be providing some references for your many assertions of fact about funding and benefits? How do you know the Hawaii Employment Retirement System (HERS) was not fully funded in the late 90s? George Berish says it was. At the end of his article linked below, his qualifications are listed:

George Berish is a Fellow of the Society of Actuaries, served on the SOA's examination subcommittee for Modern Portfolio Theory, and served as actuary to many of Hawaii's largest retirement plans, and for several U.S. model Social Security Systems, and Government Retirement System of West Pacific nations (formerly Trust Territories).
Before he retired in 2002, he was manager of Buck Consultants' Honolulu office. He has closely studied the HERS since he was commissioned by the State in the 80's to audit the work of HERS board's actuary. In 2002, he was engaged as the State's expert witness to defend Hawaii's taxpayers against a HERS/union member suit alleging "skimming" and "actuarial unsoundness" -- subsequently dismissed.

Here is a diagram provided by Berish outlining the recent status of assets and liabilities of the HERS:

Note that in 2000, the HERS was fully funded. Berish's article (one of a series on the HERS) is here: Honolulu Civil Beat - Hawaii's Retirement System

 

[donheff]

On an individual level, perhaps the taxpayer might have the expectation that his or her taxes are sufficient to pay the bills. But let's be realistic here; every year that the state did not make an adequate contribution to keep the state employee pension plan properly funded, the taxpayers as a group received a tax cut -- their taxes should have been higher to cover the state's legitimate bills that year. It is unfair now to say, in effect, "I'll keep all those prior tax cuts, thank you, and that's just too bad for you, state employee".

+1 Said it better than I could.

 

[ERD50]

On an individual level, perhaps the taxpayer might have the expectation that his or her taxes are sufficient to pay the bills. But let's be realistic here; every year that the state did not make an adequate contribution to keep the state employee pension plan properly funded, the taxpayers as a group received a tax cut -- their taxes should have been higher to cover the state's legitimate bills that year. It is unfair now to say, in effect, "I'll keep all those prior tax cuts, thank you, and that's just too bad for you, state employee".

That's one way to view it. Another would be (paraphrasing you) that the public employees contribution should have been higher to fully fund the pension, and that they were effectively getting a pay raise w/o that contribution. It is unfair now to say, in effect, "I'll keep all those prior contributions I could have made to fund the pension thank you, and that's just too bad for you, state taxpayer".

I'm not saying one view is really more correct than the other, but I do lean towards the idea that it was the public employees pension, they were closer to the issue and have more responsibility than the average taxpayer with their own retirement issues to worry about.

I'm not sure I buy the taxpayer was deceived argument. The politicians and government managers that allowed the excesses are in effect an extension of the taxpayer. In other words, our government is us. Only we can force changes in government. And we taxpayers are on the hook for anything we let our Government do, plain and simple. As a taxpayer, the public employee is also on the hook but I don't see why he should be more on the hook than the rest of us. They can vote but many public employees can't actively participate in the electoral process to change the cast of characters.

I agree to a point - but the public workers had an extra level of representation there with their Union leaders. Add to that the fact that the Unions contribute to the politicians campaigns and get out the vote for them and I'd say it is clear that the deck is/was stacked in favor of the public employee compared to the average taxpayer, and hence the public employee should take more of the responsibility.


-ERD50

 

[MichaelB]

Ahead of them are the politicians who agreed to the benefits w/o proper funding, and at the top of the list, IMO, are the Union leaders, who negotiated for the benefits with full awareness that the funding was not adequate, and yet go back to their rank and file and tell them what a great job they did in getting these benefits. And kick the can down the road. And probably get out the vote for the politicians they 'negotiate' with.

-ERD50

So the employee representative is more in the wrong for asking than the elected or appointed leader is for approving? Sorry. The Governor, Mayor or City Council member is in charge, and they are well supported by auditors and financial professionals. When they commit to spending of any type that is not properly funded they are being duplicitous.

Employees and their unions are just one of many constituents that benefit from the City or State largess. Contracts to businesses, tax breaks, zoning exceptions are among the many actions that the politicians engage in, along with salary and pension, that lead inadequate public finances. To condemn one and not the others is not objective.

The elected political leadership is absolutely responsible for lousy public finances, followed by the unquestioning electorate.

 

[rescueme]

When I start seeing references to Fox News in a thread, it's coming dangerously close to the precipice (and the Pig). It's sort of like our version of Godwin's Law, I think.

This has mostly been a good thread so far. Let's not derail it with blatant ideological and partisan sludge.

Let's dial into MSNBC and see what they have to say on the subject ...

BTW, Fox shows include Glee, Bones, and House. I assume you are also against those?

Strictly news (per your reference)? Try dialing into Shep once in awhile. He blows the "big 3" away as far as news coverage, IMHO.

I know I'm going to get another "note" from the admins (what else is new), but when one comments on a preconceived idea (e.g. prejudice), I do get a bit nasty...

 

[ziggy29]

That's one way to view it. Another would be (paraphrasing you) that the public employees contribution should have been higher to fully fund the pension, and that they were effectively getting a pay raise w/o that contribution. It is unfair now to say, in effect, "I'll keep all those prior contributions I could have made to fund the pension thank you, and that's just too bad for you, state taxpayer".

I wasn't aware that these plans allowed employees to "suspend" their pension plan contributions just because the state did. Am I missing something?

Just because the state was derelict in its duties to fund the pension plan each year as a component of employee compensation doesn't mean the employee did the same.

 

[MichaelB]

Let's dial into MSNBC and see what they have to say on the subject ...

BTW, Fox shows include Glee, Bones, and House. I assume you are also against those?

Strictly news (per your reference)? Try dialing into Shep once in awhile. He blows the "big 3" away as far as news coverage, IMHO.

I know I'm going to get another "note" from the admins (what else is new), but when one comments on a preconceived idea (e.g. prejudice), I do get a bit nasty...

He didn't say "Fox", he said "Fox News". And yes, that would apply to all cable news.

 

[ERD50]

Originally Posted by Gumby
On an individual level, perhaps the taxpayer might have the expectation that his or her taxes are sufficient to pay the bills. But let's be realistic here; every year that the state did not make an adequate contribution to keep the state employee pension plan properly funded, the taxpayers as a group received a tax cut -- their taxes should have been higher to cover the state's legitimate bills that year. It is unfair now to say, in effect, "I'll keep all those prior tax cuts, thank you, and that's just too bad for you, state employee".

+1 Said it better than I could.

Actually, I will challenge this from one other angle, then go to work on my honey-do list

It would be different if they raised the taxes in 'real time' to fund the pensions. In that case, taxpayers would have a more realistic opportunity to raise the issue, complain about the higher taxes, and look into the issues behind them. And then, maybe they would push for adjustments. To do it after the fact would be like:

Say you buy a big screen TV for cash. You have every right to expect that you paid your money and that was that. Ten years later, the company is going out of business, and traces it back to the fact that it cut prices on its products years ago and didn't fund R&D and now they don't have compelling new products. So heck, since you got a deal on that TV years ago (it didn't include enough R&D expenses), the company can go back and retro-actively charge you that higher price for the TV.

I don't think you would go for that (you'd laugh and tell them to pound sand). But isn't that analogous to your view that taxpayers were getting a 'deal' at the time, and now it's time to pay up?

-ERD50

 

[ERD50]

I wasn't aware that these plans allowed employees to "suspend" their pension plan contributions just because the state did. Am I missing something?

Just because the state was derelict in its duties to fund the pension plan each year as a component of employee compensation doesn't mean the employee did the same.

I'm just saying that would be one way to fully fund the pensions, through increased employee contributions. The funding is a combination of employee and taxpayer (employer). Somebody needs to fund it, and the employees are somebody.

-ERD50

 

[GregLee]

You seem to think it is unreasonable for the recipient of the pension (the one most directly affected) to be reviewing the funding of said pension, and should just expect to get it, no matter any external events. OK, but...

Do I really think that? I've just reviewed what I posted most recently, and I don't find anything saying or implying I think public employees should not review funding of their pensions. Hawaii public employees, through their unions, did such reviews and were well aware of the machinations of the governor (Lingle) and legislature when the pension fund starting falling behind. You will see a reference in my post above to a 'HERS/union member suit alleging "skimming" and "actuarial unsoundness"' in 2002, unfortunately unsuccessful.

 

[ziggy29]

Let's dial into MSNBC and see what they have to say on the subject ...

BTW, Fox shows include Glee, Bones, and House. I assume you are also against those?

Well, I think it's obvious Glee, Bones and House are programs on the Fox television network -- and that Fox News is something else entirely. Which means your point makes no sense whatsoever.

I just think this has been a surprisingly good thread for the most part, and references to "Fox News" (among other things) tend to cause them to decay into partisan political free-for-alls. Didn't want to see that happen here. It has nothing to do with being "for" or "against" anything.

 

[ziggy29]

Say you buy a big screen TV for cash. You have every right to expect that you paid your money and that was that. Ten years later, the company is going out of business, and traces it back to the fact that it cut prices on its products years ago and didn't fund R&D and now they don't have compelling new products. So heck, since you got a deal on that TV years ago (it didn't include enough R&D expenses), the company can go back and retro-actively charge you that higher price for the TV.

I don't think you would go for that (you'd laugh and tell them to pound sand). But isn't that analogous to your view that taxpayers were getting a 'deal' at the time, and now it's time to pay up?

I'd say you could also make a similar analogy that retroactively made employees pay more to keep their same promised level of pension benefits to make up for what their employer didn't contribute in years past.

 

[Gumby]

That's one way to view it. Another would be (paraphrasing you) that the public employees contribution should have been higher to fully fund the pension, and that they were effectively getting a pay raise w/o that contribution. It is unfair now to say, in effect, "I'll keep all those prior contributions I could have made to fund the pension thank you, and that's just too bad for you, state taxpayer".

No. The state had bills in the amount of $xxx in a particular year. Some of bills were for economic development grants, some of the bills for building public amenities like parks and roads, etc., some of the bills were salaries for current state employees, and some of the bills were for required contributions for the employee pension plan (as calculated by the actuaries). Because the elected public officials refused to raise taxes to cover all the bills, they had to short something. They chose to short the pension plan contributions. They could have shorted road construction or economic development or something else. They chose the pension contribution because the other things would be immediately noticeable. It had nothing to do with the level of employee contributions. It had to do with choices by the people we elected and their cowardice in not doing the right thing and raising taxes. Using your logic, we could just as easily go back to the road paving company and say "we paid you too richly, you'll have to give us some money back."

 

[Mulligan]

If I am reading the chart correctly, Greg, I would be worried that the accrued liabilities have increased more than the assumed 8% return on assets, the past decade. I say that only in that reaching just the 8% mark is hard enough. I know our pension just got it's accrued liabilities in line with 100% funded status using the 8% return assumption by reducing our COLA this year.

 

[ERD50]

Contracts to businesses, tax breaks, zoning exceptions are among the many actions that the politicians engage in, along with salary and pension, that lead inadequate public finances. To condemn one and not the others is not objective.

I didn't know I had to be all-inclusive in each post. No problem, I condemn all the things you mentioned, and more. I think I've complained about those exact issues in many other threads. I don't feel that I'm not being objective about it, it just isn't the topic of this thread.

The elected political leadership is absolutely responsible for lousy public finances, followed by the unquestioning electorate.

I'll stand by my assertion that the Union reps fit in there. I said ahead of the politicians, but I'll accept 'equal to' or 'right behind', but IMO, definitely ahead of the electorate (I don't get to sit at a table and negotiate with the Gov), and I put the public employees ahead of the electorate.

So the employee representative is more in the wrong for asking than the elected or appointed leader is for approving?

see above

Sorry. The Governor, Mayor or City Council member is in charge, and they are well supported by auditors and financial professionals. When they commit to spending of any type that is not properly funded they are being duplicitous.

Employees and their unions are just one of many constituents that benefit from the City or State largess.

Agreed, but not really relevant to the thread, unless we start a thread on overall govt abuse.

GregLee - I'll re-read your posts later, sorry if I misinterpreted you, but I gotta run now - later!


-ERD50

 

[ERD50]

Because the elected public officials refused to raise taxes to cover all the bills, they had to short something. They chose to short the pension plan contributions. They could have shorted road construction or economic development or something else. They chose the pension contribution because the other things would be immediately noticeable. It had nothing to do with the level of employee contributions.

Is this really true? I don't know, and don't have time to look it up now, but I was under the impression that IL made the contributions each year as required. They didn't 'short' that contribution and shift the money elsewhere, AFAIK. Now, it's true that those contributions were too low to fully fund the pension (or we would not be having the conversation). What I am saying is, the Union leaders had the responsibility to go to their rank and file, and explain that the pension was not being fully funded. And that they had two choices - ask the State (or whatever municipality is involved) to raise their contribution level, or ask the rank & file if they are willing to raise their contribution level (or a combo). Doing neither was kicking the can down the road.

And the Union reps, their rank & file, and the politicians were ALL closer to this than the general electorate, and should take more of the responsibility.

-ERD50

 

[GregLee]

If I am reading the chart correctly, Greg, I would be worried that the accrued liabilities have increased more than the assumed 8% return on assets, the past decade.

Clearly, Berish agrees with you, and that is a problem that he constructed his diagram to highlight. In another of the articles he wrote on the HERS, he makes a series of recommendations for amending the system, among which is:

Require the actuary to certify that "actuarial assumptions", taken as a whole, represent the actuary's "best estimate": That is universally required of actuaries who service plans of non-government employers, but not of the HERS actuary. For example, the most powerful "assumption" is that the HERS fund will earn an average investment return of 8 percent, yet the actuary's report says it is "Set by the legislature" (I suspect that will come as a surprise to most lawmakers who cannot be blamed if they assumed it was recommended by the actuary — or at the very minimum the endorsed by the actuary).
Honolulu Civil Beat - A Way To Save Hawaii's Government Employees' Retirement System - Article

By the way, I recall seeing elsewhere that the 8 percent assumption has now been changed to a 7 3/4 percent assumption. Not a sufficient change, but a step in the right direction.

 

[Gumby]

Is this really true? I don't know, and don't have time to look it up now, but I was under the impression that IL made the contributions each year as required.

I don't know about IL. In my state they did not make required contributions for years.

 

[GregLee]

They chose to short the pension plan contributions. They could have shorted road construction or economic development or something else. They chose the pension contribution because the other things would be immediately noticeable.

I agree with what you've said, but I'm not, myself, of the opinion that the governor and the legislature did something stealthy and nefarious in Hawaii when they "borrowed" from the state pension fund. Hawaii has a balanced budget requirement in its constitution, and when times are tough and tax revenues fall, that makes it difficult for the state to meet its obligations to provide for the health, education, and welfare of its citizens. I don't think it was kept secret in the early 2000s that the state was using temporary changes to its pension contributions to fund other programs. And I don't see anything wrong with that, so long as, later, the state will restore the funds that it earlier failed to contribute. Now, the time has come to start putting back that money, and that is being done.