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banyon
04-10-2011, 02:37 PM
The Great American Ponzi Scheme
Do we want public pensions? There are compelling reasons why we do
http://images.businessweek.com/mz/11/15/600/1115_mz_79pension.jpg


By Roger Lowenstein
BW Magazine

http://www.businessweek.com/magazine/content/11_15/b4223078651500.htm

In San Diego, fire stations are suffering brownouts. Library hours have been cut by a quarter, youth programs reduced by half. There are fewer cops on the street but more potholes, and because trimming of the city's 30,000 palm trees has been reduced, pedestrians face more risk of being knocked silly by a falling coconut.

The city has budget problems, just like every other major American metropolis. But as San Diego girds for a mayoral election next year, the biggest issue isn't the overstretched budget or the atrophy of local services. It's pensions. Councilman Carl DeMaio, who is running for mayor, is backing a ballot initiative to phase out the local pension system for city workers. Jerry Sanders, the current mayor, backs a weaker version. Rebecca Wilson, outgoing chief of staff for the system, which manages benefits for 20,000 members, worries that DeMaio's will pass. "People are very anti-pension," she says.

Why this is so in San Diego—and Trenton, Madison, and countless other cities and states—has something to do with the size of public employee pension checks and something to do with the evolution of the public and private workplace. Benefits in San Diego are undeniably sweet—firefighters and police can retire at age 50 after 20 years of service, other vested employees at age 55. A firefighter who retires after working 25 years collects a pension equal to three-quarters of his salary—again, a very good deal, although civil servants in San Diego don't qualify for Social Security and roughly half of their pensions reflect the sums that they, the employees, have been contributing.

The benefits are generous, but they're hardly so rich as to put the nation's seventh-biggest city—and the world's 33rd-richest, according to PricewaterhouseCoopers—at risk of bankruptcy. So how did pensions get to be Public Enemy No. 1? To understand the anger, it helps to answer a more substantive question: How did a conventional vehicle for retirement savings become a time bomb in public budgets?

San Diego provides a revealing case study. It costs a sum equivalent to 11 percent of the city payroll to keep the pension current each year. In other words, for every dollar that San Diego pays out in salary, it accrues 11 cents in future pension liabilities. If San Diego only had to set aside that 11 cents, people wouldn't mind. But it doesn't. It has to put 41 cents into the pension plan for every dollar of payroll. That's because the city fell far behind on funding its pension plan, which has been further depleted by successive Wall Street crashes. San Diego's future pension obligations are currently underfunded by one-third, according to a spokesman for the city's retirement system. Like a home dweller who skipped years of mortgage payments, the city has seen its servicing costs skyrocket: Its annual pension payments have jumped from $68 million in 2002 to $231 million.

The story's the same around the country. City officials in Costa Mesa, Calif., have informed nearly half of municipal workers that they can expect to be laid off in September. Fiscally strapped Republican governors such as New Jersey's Chris Christie and Wisconsin's Scott Walker, and even true-blue Democrat Andrew Cuomo in New York, are furiously trying to restrain pension costs. U.S. public pension systems are underfunded by about $1 trillion, according to the National Association of State Retirement Administrators (NASRA), and some estimates put the figure as high as $3 trillion. The gap is due to a bitter dispute regarding the proper rate at which to discount future pension liabilities. States arguably have used rates that understate their debts, although the question of what exactly is the proper discount rate is not easily resolved. The deficit, in any case, is huge—indeed, it dwarfs the losses suffered to date by the federal government in the mortgage crisis.

How the system became so underfunded owes in part to the perverse mathematics of pension plans and in part to the nature of public employment. This is not to say that pensions themselves are perverse. When people complain about Social Security being a "pay-as-you-go" system, they're lamenting that, rather than accumulating savings, Social Security is essentially a transfer scheme; the money comes in from current workers and goes to retirees. Pensions are more prudent: Benefits grow with each year of an employee's service, and funds are contributed annually, so that the increase in the future liability is matched by a rise in invested savings. The burden of contributing is shared by both employer and employee. Relative contributions vary widely—in Massachusetts employees contribute 11 percent of their salaries, the state less than 3 percent. In New York, employees with 10 years' service contribute nothing, a plum bestowed by the legislature in 2000, at the tail end of the high-tech bubble. Simultaneously, in California many localities were allowed to contribute zero, the expectation being that investments would levitate to the sky.

CHRONIC EXUBERANCE

The virtue of a conservatively tailored pension plan is that contributions, appropriately invested, will be sufficient to pay the promised benefits in perpetuity. The vice arrives, firstly, from that modifier, "promised." Unlike that of a 401(k), a pensioner's annual stipend is guaranteed. If the fund is insufficient, the responsibility to make up the deficit falls solely on the employer. The government—the taxpayer—is the party at risk.

Human nature being prone to exuberance, the problem of pension insufficiency (or irrational expectations that lead to insufficiency) has proved chronic. In 1913, New York City commissioned a report on the finances of its then-depleted police pension fund. The authors, stretching to paint the picture in dire terms, warned that, from that moment to the distant year 2000, pensions for policemen would total $375 million. As it turned out, by the waning years of the century, police pensions cost more than that every year.

As miserably as pension funds have performed recently, the deficits cannot be chalked up solely to bad luck in the market. Sponsors, which is to say cities and states, have at times deliberately underfunded them. The system almost encourages bad behavior. As has often been demonstrated on Wall Street, the opportunity to issue a far-off obligation can sire a powerful temptation to promise more than one ought.

Consider an example from the private sector, Studebaker—after World War II a struggling automaker. Unable to increase wages from the mid-1950s through the early 60s, Studebaker struck repeated deals with the United Auto Workers, according to which pension benefits were raised no fewer than four times. This was cynical in the extreme; both sides knew the money to pay those benefits wasn't there. Studebaker rested its hopes on a sexy new compact, the Lark—a squarish yet sprightly model that enticed my father to buy. Our Lark, gleaming red, would cease its warbling on a family trip—it simply gave out on the highway—as did, in 1963, Studebaker's auto operation. This being prior to the era of federal bailouts, manufacturing ceased, and workers were informed that the bulk of their pensions would not be paid. The loss was devastating—some $15 million in benefits were just extinguished.

Studebaker's collapse went a long way toward reforming practice in the private sector. Shocked by the sight of destitute workers, Congress set about regulating pensions, which it accomplished with the Employee Retirement Income Security Act (ERISA) in the early 1970s. Among its other requirements, ERISA mandated that corporations that offered pensions also had to fund them. The law was hardly perfect: In the 1990s and '00s, various steel, auto, and airline failures left pension funds with huge deficits, which federal insurance only partly covered. One could argue that ERISA actually hastened the demise of the private system—that, in other words, once corporations faced the burden of supporting a pension honestly, they switched to 401(k)s, which impose no future commitment.

ERISA did not address public pensions. In the 1960s and '70s, as the private system was undergoing reform, municipal and state workers were rapidly unionizing, leading to a wave of demands for richer benefits—health care as well as pensions. Pensions had long been a staple of civil service jobs, but unions sought a raft of costly changes, such as an earlier retirement age, more liberal calculations of a worker's final salary, and lower thresholds for disability. Rather than raise taxes, government officials chose to mollify labor with pensions they did not always fund. Profligacy ebbed and flowed with the economic and political tides. In the liberal 60s, New York lavished benefits on subway, sanitation, and safety workers. In the 70s, on the brink of bankruptcy, the Big Apple cut back—only to succumb to a new round of hikes in the buoyant 90s. Illinois, on the other hand, made a practice of consistently rewarding unions without bothering to fund.

Legislators across the U.S. quickly grasped that, by the time the benefits they were voting on came due, they would be pensioners themselves. The burden of funding thus fell to their successors, creating an insidious moral hazard. Pensions became a "free" political favor—free to the officials in power, though not to future taxpayers. The pressure to ratchet up benefits was almost irresistible, since public unions hold considerable power to influence the elections of the very legislators who determine benefits.

In San Diego, such conflicts inspired a tawdry plot. In 2002, the deteriorating position of the pension required a step-up in funding, which the city was ill-prepared to make. The retirement system's board, dominated by union officials, agreed to let the city defer its required higher contribution in return for an increase in future benefits. Shamefully, the city council agreed. This left the pension system with both higher obligations and lower funding. The deal, when exposed, left San Diego scandalized and impoverished.

Although pension agonies are rarely so conspiratorial, the result is often similar: guaranteed pensions and ad hoc funding. State laws superficially mirror aspects of ERISA, but legislatures are free in any given year to abolish the requirement to fund. Thus, New Jersey's Christie, facing an unpalatable choice of either tax hikes or budget cuts, chose to balance the budget in 2010 by skipping the state's $3.1 billion contribution. Massachusetts, similarly, underfunded by $1 billion.

It's natural to wonder whether employees in such realms will discover that their pensions are worthless. That occurred last year in Prichard, Ala., a city of 28,000 that stopped sending retirees their checks. Aging retirees were forced to go to work; at least one declared bankruptcy. In other small cities, such as Central Falls, R.I., pension failure is a distinct possibility. Funds in more than a few large cities, including Philadelphia, are also in dire shape, as are those of at least a half-dozen states, including Illinois, California, and New Jersey. Puerto Rico's pension system is essentially bankrupt.

MEANS OF ESCAPE

Cities and states, unlike car companies, cannot simply liquidate. Even in bankruptcy, public pension obligations are generally assumed to remain in force. Such provisions have rarely been tested, so legal certainties are lacking. But Vallejo, Calif., which entered bankruptcy in 2008, chose not to challenge its workers' pensions. It's easy to imagine that the federal government will feel forced to bail out the most desperate cases. And yet the solvent (or nearly solvent) majority of the country will not take kindly to rescuing the likes of Illinois, which has let its pension system deteriorate to 50 percent funding, meaning it has assets to cover only half of its eventual liabilities. Another escape hatch—pursued by the Commercial Club of Chicago, no less—would be litigation. The club has solicited a rather wishful legal opinion from the Chicago-based firm of Sidley Austin arguing that if the Illinois pension system went dry, pensioners could not compel the state to honor its promises. Yet another "solution," a fantasy promoted by Newt Gingrich, is that Congress will amend the bankruptcy law to permit states to challenge their obligations. The idea has not gained traction.

The likelihood is that public pensions—the great majority of them, anyway—will be paid, though some may require higher contributions. They will also put more stress on local budgets. The parties feeling the pain aren't retirees; they are taxpayers, employees (due to layoffs), and citizens suffering larger classroom sizes and unfilled potholes. Pensions are a long-festering corrosion in the body politic, but they are not remotely the sole cause of budget pressure, for which the national recession is the most immediate source. Public employees who feel unjustly singled out for blame may have a point. A December 2010 essay in the online journal American Thinker is representative of a certain du jour vengefulness toward labor. In it, Gary Jason, an adjunct professor of philosophy at California State University Fullerton, promotes the idea of releasing the names of retired civil servants receiving six-figure pensions (New York State has 3,700 of them). Before we set a mob after schoolteachers and sanitation workers, it should be noted that the average public pensioner in the U.S. receives only $27,000 a year, according to the Center for Retirement Research at Boston College. That figure, however, is somewhat misleading, since it includes many people who spent only a fraction of their careers in public service.

The pension burden of states and cities is also less than one would suspect. On average, in 2008, actual pension expenditures soaked up roughly 4 percent of local budgets. That figure is climbing and could easily double, according to the Boston College center. Moreover, the average masks a wide individual variation. Benefits are generally lower in less urbanized areas, whereas in New York City annual pension spending is $7.5 billion, about 15 percent of the budget. Pittsburgh spends roughly 12 percent of its budget on pensions, which were agreed to during its heyday as a steel town, and which it can no longer afford. Of course the expense would be higher if localities were fully funding. If Illinois reckons with the need to pay down its deficit, it will have to devote at least 10 percent of expenditures to pensions for 30 years. Facing that kind of burden, it's hard to see how the public pension crisis doesn't lead to a fresh wave of municipalities considering the abandonment of pensions in favor of 401(k)s. Should they?

banyon
04-10-2011, 02:37 PM
PENSIONS ON TRIAL

The arguments for terminating pensions are centered on the ways in which they have been abused. First is the moral hazard that leads to underfunding. Second, benefits begin at too young an age; as life expectancies have increased, pensions that kick in at 60 or below have turned into support systems that endure for two, three, and even four decades, creating a burden that the states never envisioned. Third are the sensational cases of individual abuse—employees who inflate their pensions by working overtime in their last year, or who change to a higher-salaried job at the end of their careers.

Such cases are infuriating. In Massachusetts, James DiPaola, sheriff of Middlesex County, filed for retirement in 2010 to start collecting his pension, then announced he would run for reelection, to stay on salary. The case had a tragic coda: Allegations of impropriety surfaced, and in November DiPaola committed suicide.

Headline-grabbing abuses matter less than the long-standing notion, often enshrined in state constitutions, that even ordinary benefits, once established, can't be reduced. Thus, regrettably, it takes only a single moment of exuberance by legislatures to gift-wrap higher benefits forever. Finally, there is the political question of whether taxpayers should support richer retirements for government employees than most enjoy for themselves.

In fairness, governments are better equipped to handle pensions than private employers are. For a worker hired in his or her 20s, an employer's pension commitment will endure, potentially, for 70 years. No private corporation can pretend to know if it will be around that long. As Keith Brainard, head of research for NASRA, points out, "States and localities are perpetual." There's also an actuarial reason for preferring properly funded pensions over 401(k)s: Pensions benefit from the insurance feature of collective savings. If you save for yourself, you have to worry about living to 99, and conservatism may well lead you to oversave. A pension fund merely must provide for average longevity.

For all the problems of pensions, 401(k)s have hardly covered themselves in glory. One of the great fictions of the past two decades, promoted with gusto by the mutual fund industry, is that the typical wage earner is able to manage his own portfolio. In fact, private accounts are pitifully insufficient. In 2007, before the crash, the average 401(k) for people nearing retirement held only $78,000—a formula for old-age penury.

Since the bust, the public pension industry has so far defied forecasts of its demise. North Dakota and California considered and rejected switching to 401(k)s. Since last year, Utah has been giving new employees a choice of a 401(k) or a traditional pension. In Florida, where employees have enjoyed such a choice since 2001, the vast majority of employees have stuck with pensions. Only Alaska has abolished pensions outright for new employees. Michigan has done so for state—not local—workers.

Given the presumption that pensions are immutable, reforms have attacked the benefits of mainly future employees. This is a slow way to save money, since someone who starts work tomorrow would likely not collect a pension until the middle of the century. Recently, though, states have also started to snip at existing workers' pensions by raising their required contributions or cutting inflation adjustments. San Diego is exploring a new tack: defining more narrowly how much of an employee's pay is pensionable. The reforms are difficult to quantify—some are merely proposed, while some have been adopted but challenged in the courts, and they vary from state to state.

A looming issue, technical but important, concerns governments' ability to slow the rate at which employees accrue benefits. A private corporation can slow or even "freeze" accruals. In a freeze, workers who stay on the job no longer add to their benefits. (Benefits already earned, of course, remain.) But for public employers, such adjustments have been considered off-limits legally, even when labor contracts expire: You can cut a cop's salary, you can lay him off, but don't touch his accruals. Public pensions, in this regard, loom as an oddly out-of-date institution, as rigid as the codes of a medieval guild. If pensions are to survive, public employers need the same freedom as others. The current straitjacket, argues Alicia Munnell, director of Boston College's retirement research center, is unreasonable. Given that companies can freeze their plans at a moment's notice, she says, "It's a real inequity" that government sponsors are locked in.

Besides pushing the courts to give ground on accruals, what would make pensions more viable in the future? The answer has been obvious for 30 years. Public pensions need an equivalent of ERISA—federal regulation that would keep public employers on the straight and narrow. Congress could mandate that localities that did not fund at a pace consistent with accruals would lose the right to issue tax-exempt bonds. That would cure the temptation to promise too much and fund too little.

The broader question, though, is: Do we want public pensions at all? There are some pretty compelling reasons why we do. Public servants are still, in the main, careerists. It's in the public interest for fire departments, schools, and the like to retain their workers; pensions are an unmatched tool for doing so. Ideally, pensions would be combined with 401(k)s, so the government pension would guarantee only a portion of retirement income, enough for a decent living standard but not more. The burden of providing retirement income above that level would fall on the employee, through a 401(k). And consistent with the aim of supporting retirees when they are no longer able to work, pensions should kick in no earlier than age 60 in blue-collar professions and 65 in white-collar ones.

http://images.businessweek.com/mz/11/15/popup_mz_1115_83underfunded.jpg

Finally, employers must be free to negotiate changes to pensions over time. In no other area of public policy are governments beholden to decisions made decades ago. The above reforms are readily achievable. The highest priority—lest a federal bailout become necessary—is a federal prod to full funding, similar to ERISA. That might induce legislatures to reduce benefits; then again, it might not. It would be up to officials to weigh the exigencies of the labor market, knowing that each dollar spent on pensions will deplete the budget for competing programs or require additional taxes. This is the type of political tradeoff that legislatures are elected to make. What cannot endure any longer is the legislative fantasy that pension benefits are free.

healthpellets
04-10-2011, 02:59 PM
Pensions are a fantastic way for an organization to say "Thank you, we truly appreciate your service" to their loyal employees. That goes for both public and private organizations. I'd love to have a fully funded pension waiting for me instead of having to squirrel away thousands and thousands of dollars every year and hoping that i'll live long enough to see it (also while hoping that hyperinflation doesn't make all my investments utterly worthless).

The problem isn't the pensions. The problem is the collective bargaining. There's nothing wrong with a state providing pensions to their employees upon completion of service. The problem is the demand of bigger and better benefits. As if receiving 100% of your salary for your retirement wasn't enough, now you want a full set of medical benefits as well. And life insurance. And this. And that. Asking someone to set aside a little bit of his own money for retirement isn't such a bad thing.

Of course, this relates mainly to public pensions...the ones bargained for in return for political favors the cost of which is passed on to the children and grandchildren of those getting the favors. That's the problem. Funny how people don't mind throwing other people's money down a rat hole.

banyon
04-10-2011, 05:44 PM
Pensions are a fantastic way for an organization to say "Thank you, we truly appreciate your service" to their loyal employees. That goes for both public and private organizations. I'd love to have a fully funded pension waiting for me instead of having to squirrel away thousands and thousands of dollars every year and hoping that i'll live long enough to see it (also while hoping that hyperinflation doesn't make all my investments utterly worthless).

The problem isn't the pensions. The problem is the collective bargaining. There's nothing wrong with a state providing pensions to their employees upon completion of service. The problem is the demand of bigger and better benefits. As if receiving 100% of your salary for your retirement wasn't enough, now you want a full set of medical benefits as well. And life insurance. And this. And that. Asking someone to set aside a little bit of his own money for retirement isn't such a bad thing.

Of course, this relates mainly to public pensions...the ones bargained for in return for political favors the cost of which is passed on to the children and grandchildren of those getting the favors. That's the problem. Funny how people don't mind throwing other people's money down a rat hole.

I think the collective bargaining perception is a bit overblown, likely due to the media coverage and enflamed rhetoric from the political showdown in Wisconsin.

In reality, the data exists to either confirm or deny your theory about public employee union membership being the culprit.

http://www.themonkeycage.org/unionsanddeficits2.png



http://public.sheet.zoho.com/public/mahplanningconsultants/public-union-membership-and-state-budget-shortfalls-2011--1?mode=print

Like my state of Kansas, public employee union membership is fairly low, yet we make the top 10 most underfunded pension systems. Wisconsin, who has nearly 250% more public employees in unions in relative terms and was the source of all the controversy, has no appreciable large underfunding of their pension. Kentucky and Louisiana, whose public employee union memberships are miniscule, rank #4 and #5 respectively, overall in pension underfundedness.

Like the article accurately captures, IMO, the problem is more complex than just "get rid of the unions and everything will be peachy".

After all, that's been the mantra in the private sector for years, "look at these gold-plated pensions at the auto companies" and now that unions are a relic in the private sector, no company seems to be able to maintain any kind of reliable pension system and have just switched to 401k's which are dramatically insufficient.

vailpass
04-10-2011, 06:57 PM
I'm putting the over/under on the number of people who actually read this at -2.

HonestChieffan
04-10-2011, 07:54 PM
The idea this is somehow balanced sort of bit the big one here:

The Great American Ponzi Scheme
Do we want public pensions? There are compelling reasons why we do

Its a long explanation from one persons view that we need public pensions. I'd bet most people are cool with public pensions if they had some relationship to the non public sector.

Public employee pensions pay far more as a % of retiree earnings.
Private sector has been doing away with pensions transitioning to 401k's...public has not
Public sector employees should be funding a lot more of the cost than they are.

Taxpayers are fed up with waste and if public employees feel that heat they join folks like drug company reps who get blasted. oil company employees who get blasted or whoever. Grow up and take some responsibility.

banyon
04-10-2011, 08:07 PM
The idea this is somehow balanced sort of bit the big one here:

The Great American Ponzi Scheme
Do we want public pensions? There are compelling reasons why we do

Its a long explanation from one persons view that we need public pensions. I'd bet most people are cool with public pensions if they had some relationship to the non public sector.

Public employee pensions pay far more as a % of retiree earnings.
Private sector has been doing away with pensions transitioning to 401k's...public has not
Public sector employees should be funding a lot more of the cost than they are.

Taxpayers are fed up with waste and if public employees feel that heat they join folks like drug company reps who get blasted. oil company employees who get blasted or whoever. Grow up and take some responsibility.

Well, of course, you aren't going to think it's balanced. I meant for moderate people, not professional corporate apologists.

I mean, clearly the article goes into great detail about the pros and cons of nearly every aspect of the system. Just because it has a conclusion at the end doesn't negate that. It's pretty dishonest to claim what you just did and pretend like you actually read it.

Of course you probably just read the title, which would be par for the course with your soundbyte attention span.

Perhaps if you read the part about 401k's you might realize they aren't the silver bullet either.

Saul Good
04-10-2011, 08:10 PM
Pensions are a fantastic way for an organization to say "Thank you, we truly appreciate your service" to their loyal employees. That goes for both public and private organizations. I'd love to have a fully funded pension waiting for me instead of having to squirrel away thousands and thousands of dollars every year and hoping that i'll live long enough to see it (also while hoping that hyperinflation doesn't make all my investments utterly worthless).

Don't you appreciate them faithfully paying you for 30 years? Maybe you should stop being paid after they have paid you for 30 years but still working 28 hours per week until you die as a sign of your appreciation.

banyon
04-10-2011, 08:18 PM
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I mean we should trust the Wall street lobbyists and marketers peddling the benefits to enrich mutual fund companies, right?

I mean when have they ever steered us wrong?

HonestChieffan
04-10-2011, 08:27 PM
If an individual chooses to not deposit into a 401k, does that mean 401k's dont work? The comments about 401's in the OP are absurd in that it adresses the issue that the ave 401 has low assets....duh? You have to put into the 401K. You have to invest it wisely. I see my 401 k balance every month. Its an amazing and fantastic way to retire with a very nice nestegg. Does it go up, down, sideways...yep.

Choices. You make them.

BIG_DADDY
04-10-2011, 08:33 PM
LMAO, nice post Banyon. The truth is their shouldn't be any public pensions. The truth is they should have to retire on their 401k's like everyone else. The truth is the unions need to be 86ed from the public sector. The only question now is how do we get there? They are public fucking servants which means they are supposed to be serving the community, not robbing it blind.

banyon
04-10-2011, 08:42 PM
If an individual chooses to not deposit into a 401k, does that mean 401k's dont work? The comments about 401's in the OP are absurd in that it adresses the issue that the ave 401 has low assets....duh? You have to put into the 401K. You have to invest it wisely. I see my 401 k balance every month. Its an amazing and fantastic way to retire with a very nice nestegg. Does it go up, down, sideways...yep.

Choices. You make them.

Yes, and the choice you want to make is that you seem to not care about attracting decent people into the public sector who will learn the job and have an incentive to stay.

If the "choice" is save extra money if you have it (which most people, including most public employees don't have it), then why be a police officer, firefighter, a teacher, or be in any public sector job which pays close to the private sector, but is a lot more difficult and you have to answer to the public all the time?

We have difficulty now attracting decent people in these professions. Who do you think we are going to attract without some decent benefits?

A 401k is not really a benefit (particularly with no matching). It's just a tax deferment which you can get the same with an IRA (the caps not affecting most people's yearly contribution).

I realize you've done pretty well for yourself and like to toot your horn about how cushy you have it, but at some point the axiom "you get what you pay for" comes into play.

Is there waste and abuse of the pension systems? Absolutely, and the article does a fine job of pointing that out.

But this whole "I want everyone to have it just as bad as I do" marketing campaign that's going on now is likely to be our ruin, IMO.

Do you know how corrupt local government officals used to be when they were paid much less in relative terms historically?

Think of the Mexican police force. Why do you think they are all joining cartels and have been taking bribes for 20 years? That's their retirement system. Much cheaper than ours. Wanna trade?

banyon
04-10-2011, 09:02 PM
And BTW, you of course mischaracterize the point in the article about 401k's. It's not that a few irresponsible chuckleheads forgot to fund their 401k's. It's that the vast majority aren't able to do so.

Another thing you probably haven't factored in is that these underfunded people would be a new large drain on social security, since those offsets would disappear.

Of course you probably think for social security to just let them eat cake too.

trndobrd
04-10-2011, 09:03 PM
A couple thoughts:

I like the author's idea of a dual retirement of a minimal baseline pension coupled with a 401(k). It does seem counter to good public policy that a legislature today can commit a legislature 40 years from now to certain expenditures, and the author does a nice job of explaining the moral hazard argument.

Pensions, public or otherwise, are not transferrable. In today's economy the inability to move between companies in severly limiting to workers. As for government employees, I'm not a fan of 30 year government employees (outside of fire and police), and believe that more employee movement between government and the private sector would benefit everyone. Even for fire and police, they are also limited to working for the same state or district for their entire career or risk losing a part of their retirement benefit.

Another problem I have with the pension system, private or government, even Social Security for that matter, is that the pension pays for the life of the retired worker (in some cases, the spouse). The net benefit for a person who retires at 65 and dies at 68 doesn't come close to matching the wealth accrued as a result of the pension payments. Unlike a 401(k) or other investment vehicle in which the wealth is transferrable to an heir. Similarly, there is no option to take a loan out against a pension balance as there is with a 401(k).

As for the average balance of American 401(k)s being too low, keep in mind that 401(k)s didn't come into existence until the early 80's, and not really popular, especially contribution matching as an expected benefit, until the 90's. I would be curious to see what the average retiree today looks with 401(k) and IRA (the most popular retirement vehicle in the late 70's through the 80's) amounts combined. Another number that would be telling is how the average 40 year old is tracking on their 401(K).

banyon
04-10-2011, 09:12 PM
A couple thoughts:

I like the author's idea of a dual retirement of a minimal baseline pension coupled with a 401(k). It does seem counter to good public policy that a legislature today can commit a legislature 40 years from now to certain expenditures, and the author does a nice job of explaining the moral hazard argument.



Given the current structural liabilities, I think that a minimum baseline coupled with a 401k is a reasonable medium-term compromise.

BIG_DADDY
04-10-2011, 09:44 PM
WTF anyone thinks public servants are entitled to pensions like they are senior executives of fortune 500 companies is beyond me.

banyon
04-10-2011, 09:50 PM
WTF anyone thinks public servants are entitled to pensions like they are senior executives of fortune 500 companies is beyond me.

I don't think anyone thinks that. The average public pension is $27,000. That's in the article.

Hardly fortune 500 exec stuff.

HonestChieffan
04-10-2011, 10:00 PM
I don't think anyone thinks that. The average public pension is $27,000. That's in the article.

Hardly fortune 500 exec stuff.

Before we set a mob after schoolteachers and sanitation workers, it should be noted that the average public pensioner in the U.S. receives only $27,000 a year, according to the Center for Retirement Research at Boston College. That figure, however, is somewhat misleading, since it includes many people who spent only a fraction of their careers in public service.

Swing and a miss.

BIG_DADDY
04-10-2011, 10:10 PM
I don't think anyone thinks that. The average public pension is $27,000. That's in the article.

Hardly fortune 500 exec stuff.

I guess my opinion is skewed by my Cali experience once again. I gotta guy that shows up at sushi on Saturday night. He has two government pensions and his wife has one too. They are making 500k sitting on their ass and brag about it. They are also the ones who never show up with anything for the group when everyone else does. I am so sick of him talking about how they worked the system. You couldn't even have a good conversation with the guy about anything that is taking place in the world either because he is completely clueless. He has that whole entitlement thing going on.

banyon
04-10-2011, 10:28 PM
Before we set a mob after schoolteachers and sanitation workers, it should be noted that the average public pensioner in the U.S. receives only $27,000 a year, according to the Center for Retirement Research at Boston College. That figure, however, is somewhat misleading, since it includes many people who spent only a fraction of their careers in public service.

Swing and a miss.

:spock: so you think that means they do get fortune 500 style pensions?

Because [that] was the point I was responding to.

If you don't have anything interesting to say, go do your cheap shot drive bys someplace else. I had an actual reply to your earlier post, but since it wasn't convenient, you chose to ignore it.

banyon
04-10-2011, 10:31 PM
I guess my opinion is skewed by my Cali experience once again. I gotta guy that shows up at sushi on Saturday night. He has two government pensions and his wife has one too. They are making 500k sitting on their ass and brag about it. They are also the ones who never show up with anything for the group when everyone else does. I am so sick of him talking about how they worked the system. You couldn't even have a good conversation with the guy about anything that is taking place in the world either because he is completely clueless. He has that whole entitlement thing going on.

That's an abuse, and a good example of why the guaranteed minimums and transferability provisions trndo talked about might be good adjustments.

BIG_DADDY
04-10-2011, 10:37 PM
That's an abuse, and a good example of why the guaranteed minimums and transferability provisions trndo talked about might be good adjustments.

Why do they deserve a pension?

banyon
04-10-2011, 10:51 PM
Why do they deserve a pension?

Not sure deserves has anything to do with it.

if your viewpoint is that they don't deserve 1 red penny more than the McDonald's fry cook because they both work hard, then my earlier point is that you aren't going to attract many worthwhile people. That's fine when 1 person can screw up a fast food order just as good as another, but when they have important public responsibilities, you might want someone a little more dedicated putting out your house fire.

HonestChieffan
04-10-2011, 11:03 PM
:spock: so you think that means they do get fortune 500 style pensions?

Because [that] was the point I was responding to.

If you don't have anything interesting to say, go do your cheap shot drive bys someplace else. I had an actual reply to your earlier post, but since it wasn't convenient, you chose to ignore it.

That was a paste from your OP. Asshat. Go do your petulant little driveby comments somewhere where people think its cute.

You may want to look into corporate pensions. They have been on the way out for years.
http://www.nytimes.com/2006/01/09/business/09pension.html?_r=1&ex=1294462800&en=568259c0f10bf707&ei=5089&partner=rssyahoo&emc=rss

banyon
04-10-2011, 11:15 PM
That was a paste from your OP. Asshat. Go do your petulant little driveby comments somewhere where people think its cute.

You may want to look into corporate pensions. They have been on the way out for years.
http://www.nytimes.com/2006/01/09/business/09pension.html?_r=1&ex=1294462800&en=568259c0f10bf707&ei=5089&partner=rssyahoo&emc=rss

No sh*t, Sherlock. The article made the same point in paragraph 12. Then again your reading comprehension skills are in worse shape than most of these pensions.

BIG_DADDY
04-10-2011, 11:17 PM
Not sure deserves has anything to do with it.

if your viewpoint is that they don't deserve 1 red penny more than the McDonald's fry cook because they both work hard, then my earlier point is that you aren't going to attract many worthwhile people. That's fine when 1 person can screw up a fast food order just as good as another, but when they have important public responsibilities, you might want someone a little more dedicated putting out your house fire.

That's not where I am going at all. If you choose to serve the public you certainly should not be payed more or receive more than you would comparably in the private sector. That's what I am saying. MOF you should probably receive less in most situations. Case and point, I send my kid to a school where the teachers make less than they would if they were public but the education he receives is significantly higher. They are more qualified, put out students who graduate at a significantly higher level and they do this because they want to serve their community. The unions have absolutely destroyed us. Everyone is an opportunist looking to exploit the system with no interest in serving their community.

banyon
04-10-2011, 11:44 PM
That's not where I am going at all. If you choose to serve the public you certainly should not be payed more or receive more than you would comparably in the private sector. That's what I am saying. MOF you should probably receive less in most situations. Case and point, I send my kid to a school where the teachers make less than they would if they were public but the education he receives is significantly higher. They are more qualified, put out students who graduate at a significantly higher level and they do this because they want to serve their community. The unions have absolutely destroyed us. Everyone is an opportunist looking to exploit the system with no interest in serving their community.

Have to disagree. In most cases, historical, or in country comparisons, there are not very many shining examples of places where public sector employees are paid worse than, or even on par with private sector counterparts, with no benefits, and the result works out well.

private teaching is an outlier because the kids they teach are more affluent, have higher iq's and more responsible parents and greatly influence the private-public school comparisons.

banyon
04-10-2011, 11:54 PM
Let's just think about how this works in practice. What is the private sector equivalent of a sheriff's deputy or patrol pd officer? Mall security guard? Should they be paid the same? With no pension to lose and a security guard salary will we get a cop who is more or less likely to take bribes or steal from crime scened?

I don't know if your view on human nature is that people will inherently do what is right, but I kind of doubt that it is. And, right or wrong, the threat of losing a pension for malfeasance is going to alter behavior at the margins.

BIG_DADDY
04-10-2011, 11:55 PM
Have to disagree. In most cases, historical, or in country comparisons, there are not very many shining examples of places where public sector employees are paid worse than, or even on par with private sector counterparts, and the result works out well.

private teaching is an outlier because the kids they teach are more affluent, have higher iq's and more responsible parents and greatly influence the private-public school comparisons.


Most of the teachers I had didn't even like kids. We will have to agree to disagree.

banyon
04-10-2011, 11:59 PM
Most of the teachers I had didn't even like kids. We will have to agree to disagree.

Maybe it was just that they didn't like you. :)

BIG_DADDY
04-11-2011, 12:01 AM
Maybe it was just that they didn't like you. :)

Or themselves, or teaching, or their life, or their wife......... Miserable lot.