Public Pension Problems.

[imoldernu]

You may think that if you don't have a public Pension, that this won't affect you.

You might be wrong. What drew my attention to the problem, was a local (greater Chicago) news article that pointed our some major real estate tax increases in some suburbs... required to pay pensions to local employees, because their pension funds were under funded... some by as much as 80%.

Very simply, what happened in many locations, is that the pension funds were poorly managed, and long term projections of needs, were based on the belief that interests rates would remain stable... especially bad, when the plans were last reviewed when interest rates were 7%+' Subsequent politicians are naturally reticent about increasing taxes, so as long as there was money in the fund, the draw downs were ignored. Yes... oversimplification, but what happened.

The problem varied by state and by community, so there are vast differences . Here are are some of the states in the worst case analysis. % funded.
1. Kentucky and New Jersey: 31% funded
2. Illinois: 36% funded
3. Connecticut: 41% funded
4. Colorado: 46% funded
5. Hawaii: 51% funded


Here is one of many articles that lays out the problem.
https://money.cnn.com/2018/04/12/retirement/state-pension-funds/index.html

The current fund shortage is estimated to be $1.4 trillion dollars, according to that April 2018 article.

Federal pension problems seem to be solved by simply increasing the federal debt. Local/State communities that are in trouble don't seem to have that same ability.

Here's the article that triggered the concern:

https://www.chicagotribune.com/suburbs/norridge/news/ct-nhh-norridge-pension-tax-increase-tl-1129-story.html

The amount of tax increase may seem minor, but with the decrease in local taxes that comes from closing business, malls, local retail stores etc., unless communities adopt changes, the problems could grow quickly.

Am sure there are different opinions, different takes on this subject.
The door is open.

 

[athena53]

Yeah, you got it right- overly optimistic assumptions about rates of return, some places allowing "spiking" (pension is a function of last year's compensation and the employee is given all the overtime he/she can handle to beef it up in the final year) and generally kicking the can down the road.

I don't have an answer- public employees generally get paid less than private sector and the tradeoff has always been the generous pensions- it's a rude shock if they're cut. One guy in my neighborhood, a former RR employee, has seen two cuts to his pension, resulting in a total cut of >40%. His house is on the market.

 

[Cut-Throat]

The problem is with Voters believing and voting for what George Bush Sr. used to call "Voodoo Economics".


The Federal Government just this year passed over a Trillion Dollars in Tax Cuts, which it will have to borrow money to Pay for them.

 

[IMATERP]

In North Carolina, State employees hired prior to 2006 (and worked 5 years) receive no cost health insurance at age 60 for the rest of their lives.

Those employees hired after 2006 are required to work 20 years for the State in order to receive the same retiree health benefit.

As of 2021 or 2022. Newly hired NC State employees will no longer be eligible for retiree health benefits.

The moral of this example is that State Govt's do make changes that affect future employees but have difficulties amending benefits which affect employees who previously earned the benefits.

Also, the State of NC has 100% funded their retiree pension payments (excluding benefits) and this was due to the State being mandated to fund their future liabilities.

The real problem with the aforementioned scenario is that new hires do not stay in State Govt for very long due to lower pay than the private sector.

I

 

[brett]

From my perspective the voters in those states are to blame. They failed to hold their elected Government responsible for decades. No different than someone who has 10 credit cards maxed out and finds they no longer have the credit rating to get number 11.

No different in my mind that the states (albeit sometimes different ones than those in the pension crisis) who are at the very bottom when it comes to education funding K-12 and educational attainment. Their best teachers leave the state, school building deteriorate, and school supplies are non existent. Those states typically have the lowest per capita incomes, the poorest health, and some would say the most corrupt Governments and electoral systems. Change only happens when the voters insist on it.

 

[Teacher Terry]

The problem with increasing property taxes too much is that people will leave the state. Nevada has been taking steps to rectify the situation and their position is improving.

 

[Lakewood90712]

Public Pension Spiking

Yeah, you got it right- overly optimistic assumptions about rates of return, some places allowing "spiking" (pension is a function of last year's compensation and the employee is given all the overtime he/she can handle to beef it up in the final year) and generally kicking the can down the road.

I don't have an answer- public employees generally get paid less than private sector and the tradeoff has always been the generous pensions- it's a rude shock if they're cut. One guy in my neighborhood, a former RR employee, has seen two cuts to his pension, resulting in a total cut of >40%. His house is on the market.

Most jurisdictions eliminated spiking via overtime decades ago. Woe be it to those that have not, both the pensioners and taxpayers who will be getting the fruits of the poisonous tree they have been growing.

Full disclosure , receiving small pensions from both private and non public safety muni gov. The government pension system I am a member of has varied between 70% and 104% funded over the last 20 years. currently at about 80%. Last audit : 78% of benefits were funded by investment income remainder split about 50/50 between employer and employee contributions. 2008-2011 was really ugly on the investment losses. IMO being fully funded can be dangerous with most of the money in variable investments.

 

[Bamaman]

In the 1950's, government employees received top line benefits--insurance, pensions and vacation--to make up with their being paid less than top line salaries.

Then politicians slowly raised salaries to where they were making substantially more money than years past. And many jobs were union where they were being paid absolutely top of the line money. But all the time, the pension programs were not reduced in payouts and in the time worked.

When you get down to it, the politicians paid no attention to what their actuaries were telling them. That there is no where near enough money available in government to pay such defined pensions. And politicians pushed the problem out on those elected behind them--rather than facing the problem at the time.

A prime example of an organization that did make substantial changes was the Tennessee Valley Authority--the largest electrical utility company. In the 1980's, they were the largest construction company in the U.S.--building their own coal fired and nuclear power plants. They topped out around 33,000 employees, and furnished generous retiree healthcare and pensions.

When TVA realized the benefits were unsustainable, they essentially dismantled their construction operations and started subcontracting annual maintenance and construction to outside companies. 5 nuclear powerplant construction was cancelled, and they closed down their huge fertilizer operations. They may have close to 10,000-12,000 current employees now.

But with 1/3 the employees they had in 1980, TVA still doesn't have the resources to fully fund their pension programs and retiree healthcare. I wouldn't be surprised if they're $1 billion short of being fully funded.

While TVA faced their pension and health obligations, they're no where nearly in arrears as the incredibly huge California, Illinois and Chicago governments. Something is going to have to give, as so many governmental entities are simply bankrupt and won't admit it. Eventually, pensions are going to be cut and individuals are going to be hurt.

 

[Chuckanut]

Most jurisdictions eliminated spiking via overtime decades ago. Woe be it to those that have not, both the pensioners and taxpayers who will be getting the fruits of the poisonous tree they have been growing.

Full disclosure , receiving small pensions from both private and non public safety muni gov. The government pension system I am a member of has varied between 70% and 104% funded over the last 20 years. currently at about 80%. Last audit : 78% of benefits were funded by investment income remainder split about 50/50 between employer and employee contributions. 2008-2011 was really ugly on the investment losses. IMO being fully funded can be dangerous with most of the money in variable investments.

My state did also. They also introduced a hybrid plan which is 50/50 DC and DB. They also reduce the expected future return by a bit, IIRC. Maybe 1/2%? As I mentioned before in this site, a while back some of our representatives tried to f[-]inance extra goodies[/-] balance the budget by skipping a pension plan payment. The former governor gave that idea a firm 'No!'. So far nobody has tried to resurrect that idea again.

 

[Texas Proud]

Yeah, you got it right- overly optimistic assumptions about rates of return, some places allowing "spiking" (pension is a function of last year's compensation and the employee is given all the overtime he/she can handle to beef it up in the final year) and generally kicking the can down the road.

I don't have an answer- public employees generally get paid less than private sector and the tradeoff has always been the generous pensions- it's a rude shock if they're cut. One guy in my neighborhood, a former RR employee, has seen two cuts to his pension, resulting in a total cut of >40%. His house is on the market.

I disagree a bit on your stmt about pay.... I would say that professionals get paid less but blue collar and clerical get paid more...


Also, most of the professionals that I know of do not work more than 40 hours unless they are in some kind of executive position..

 

[Texas Proud]

Another big problem with the pensions is that long ago some of the unions and other people got voters to agree that pensions could not be reduced put into their state constitution..... and nobody wants to be the person who tries to get the constitution changed...


Illinois is a great example from what I read.... they keep passing laws to change the pension but when taken to court they lose and have to go back to the old way... so, instead of passing a law change the constitution... but that will not happen since the politicians in place do not want to do it..

 

[brewer12345]

Demographics matter as well. For example, Colorado has a growing population and economy and the state govt is aware of the problem. Various fixes were being worked on last I saw and there has generally been an attitude of shared sacrifice to fix the problem: retirees give up some inflation adjustment, current employees either get a little less or pay a little more for it, the state kicks in some additional tax money. In contrast, look at a place like NJ: declining/stagnant population, the tax burden is already maxed out for the populace, the govt has its head in the sand (many years of skipping contributions), and the atmosphere of rapacious corruption continues unabated.

 

[MarieIG]

The problem with increasing property taxes too much is that people will leave the state. Nevada has been taking steps to rectify the situation and their position is improving.

True, there comes to a point where the property tax is prohibitive. We are facing that now.

 

[pacergal]

I worked in public health. 36 years ago, the benefits outweighed the lower pay. About a dozen years ago, the government changed the pension system for new hires. It stabilized a bit. Our system raised pay, but not enough to keep new hires. They can get much higher salary outside, despite the pension. I couldn't keep people much longer than 2 years, not even long enough to vest in their pension.

 

[gerntz]

I don't have an answer- public employees generally get paid less than private sector and the tradeoff has always been the generous pensions-

The wealthiest USA metro area by far is DC - 15-20% more than the 2nd one & way above average. Just where do the most public employees in the USA work? Take a wild guess.

As for states, I'm not aware of a state capital where the incomes are lower than the state as a whole. Perhaps NY. And which city in a state way more often than not has the highest concentration of public employees?

Net, I'm not buying.

In some poor counties in the country, the school systems are the primary income generator.

 

[Bestwifeever]

I am not blaming public sector people for this but I recently heard two retiring Illinois teachers talking about the 300 sick days each had accumulated over their careers. Per this article (https://www.illinoispolicy.org/reports/unpaid-sick-leave-spikes-illinois-teachers-pension-benefits/) an expensive policy:

Under current pension rules, teachers can accumulate up to two years of unpaid sick leave. Upon retirement, that sick leave is applied to teachers’ years of service, which in turn boosts their pension benefits.

In total, over 73,000 retired teachers and other school workers are taking advantage of this perk, which will cost taxpayers nearly $3.4 billion over the next three decades.

 

[brett]

Prior to retirement I worked for a company that often hired employees away from the public sector. Most came across for salary increments of 20-30 percent. Some higher.

My customers and competitors we doing exactly the same. Often with stock options as well. The result was that in my area the public sector could not keep the stars. They left for more money, more opportunity in the private sector. In some cases the public sector had to augment this lost talent by engaging outside consultants at top dollar.

I believe that some public sector jobs do pay higher than industry, others simply do not. Especially for certain professional or specialized files.

 

[Chuckanut]

I am not blaming public sector people for this but I recently heard two retiring Illinois teachers talking about the 300 sick days each had accumulated over their careers. Per this article (https://www.illinoispolicy.org/reports/unpaid-sick-leave-spikes-illinois-teachers-pension-benefits/) an expensive policy:

That's a far better deal than I got with my left over sick pay.

OTOH, my pension is about 90% funded, maybe a bit less now that the market is down from where it was earlier this year.

 

[Teacher Terry]

In Nevada you cannot raise your pension in ways mentioned in this thread. I would agree that clerical and blue collar staff do much better than professionals in regard to pay.

 

[brewer12345]

Prior to retirement I worked for a company that often hired employees away from the public sector. Most came across for salary increments of 20-30 percent. Some higher.

My customers and competitors we doing exactly the same. Often with stock options as well. The result was that in my area the public sector could not keep the stars. They left for more money, more opportunity in the private sector. In some cases the public sector had to augment this lost talent by engaging outside consultants at top dollar.

I believe that some public sector jobs do pay higher than industry, others simply do not. Especially for certain professional or specialized files.

That has been my experience as well.

 

[Winemaker]

The problem is with Voters believing and voting for what George Bush Sr. used to call "Voodoo Economics".


The Federal Government just this year passed over a Trillion Dollars in Tax Cuts, which it will have to borrow money to Pay for them.

2018 Federal tax receipts are at an all time high, so it isn't the tax cuts that are causing the problem. It's the spending.

 

[stepford]

2018 Federal tax receipts are at an all time high, so it isn't the tax cuts that are causing the problem. It's the spending.

Chicken, meet egg.

 

[Cut-Throat]

2018 Federal tax receipts are at an all time high, so it isn't the tax cuts that are causing the problem. It's the spending.

No they're Not !! --- Not sure where you get your news from, but it is completely False! - So yes, the Tax Cuts are a Major Part of the Problem!


https://www.bloomberg.com/opinion/articles/2018-09-14/tax-cuts-are-costing-the-u-s-treasury-money



Has Revenue Risen in 2018? | Committee for a Responsible Federal Budget

**********************************************************
"While individual income tax receipts have increased in nominal dollars since last fiscal year, this statistic paints a misleading picture in a number of ways. Specifically, it ignores reductions in other sources of revenue, doesn't account for inflation, and relies in part on revenue raised by last year's tax code. Considering the entire tax code and focusing specifically on this tax year shows that total revenue has declined between 4 and 9 percent.
Whereas individual income tax revenue has risen by 7.9 percent in the first ten months of fiscal year 2018 compared to the first ten months of fiscal year 2017, corporate tax revenue has fallen by over 28 percent. In total, nominal revenue has increased by only 1 percent – well below the rate of inflation."

 

[athena53]

I am not blaming public sector people for this but I recently heard two retiring Illinois teachers talking about the 300 sick days each had accumulated over their careers. Per this article (https://www.illinoispolicy.org/reports/unpaid-sick-leave-spikes-illinois-teachers-pension-benefits/) an expensive policy:

I coulda cleaned up on that provision- every employer I ever had in the private sector had "use it or lose it" sick days. I never took more than maybe 5 days in a calendar year except the year DS was born and then worked till the day before he was born even though I could have taken 4 weeks before at full pay. Never took "mental health" days and never took them when DS was sick (employers didn't permit it).

I know this is pretty common with teachers- another example of promises made by one group to be funded decades later after they're gone.

 

[OldShooter]

Prior to retirement I worked for a company that often hired employees away from the public sector. Most came across for salary increments of 20-30 percent. Some higher.

My customers and competitors we doing exactly the same. Often with stock options as well. The result was that in my area the public sector could not keep the stars. They left for more money, more opportunity in the private sector. In some cases the public sector had to augment this lost talent by engaging outside consultants at top dollar.

I believe that some public sector jobs do pay higher than industry, others simply do not. Especially for certain professional or specialized files.

Yes. This is the basic mechanism that causes the quality of the public employee workforce to be lower than the national average workforce. Even if the government starts with a normal Gaussian distribution of talent, the right hand side of the distribution, the high quality people, are often recruited away. On the left, however, no one can be fired so the distribution of employee talent ends up skewed towards the low quality, left, side. This is just math. No political or ideological thinking is necessary. This observation would also lead one to predict that the age of the government workforce is higher than that of the national workforce, and indeed it is.

Re the pension problem, this is old news. Illinois and Chicago are almost certain to go bankrupt. California may, too. Those who continue to live in these states will foot the bills and the retired public employees, who are really not to blame for counting on what they were promised, will suffer.