The State of Public Pension Plans
http://thedianerehmshow.org/shows/2011-02-23/state-public-pension-plans
Cash-strapped state governments are seeking ways to shrink enormous budget deficits. Many are targeting public employee retirement plans and collective bargaining rights in efforts to cut expenditures. All of this is playing out in highly charged political environments. Some see it as a battle between public employees and taxpayers. Yesterday Democrats in Indiana left the state rather than vote on Republican-backed legislation to weaken unions. Grass-roots protests that began in Wisconsin have spread to other states. We'll talk about proposals aimed at addressing concerns with public employee retirement systems and the politics behind them.
Guests
Rep. Devin Nunes
Republican U.S. congressman representing California's 21st Congressional District.
Sen. Lena Taylor
Democratic state senator, Wisconsin's 4th Senate District.
Ross Eisenbrey
vice president of the Economic Policy Institute.
Sara Murray
economics reporter, The Wall Street Journal.
Andrew Biggs
resident scholar, American Enterprise Institute.
Comments
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Wow, 3 trillion! That's higher than Lloyd Blankfein's bonus.
If Republican governors are going to stiff people in their 60s who have worked and contributed for decades this is only "funny money." The true social costs will exceed this.
Consider that derivatives and CDOs potentially had 600 trillion outstanding at the time of the Meltdown in 2008. No one hesitated to appropriate a trillion here and there, rev up the FED electro-money machine, buy back bonds and sweep toxic bundles under Freddie and his Fannie. The perks of the elite were preserved at all costs and risks. There are other kinds of moral hazards besides propping up bad paper. There is the risk to community solidarity and the legitimacy of government, or can't you see the Levant from your house?
Band level societies in the Amazon say if you cut all the trees the sky will fall. Our trees are called retirement obligations and health benefits. They were generated with collective bargaining. All negotiation is halted in the quiet lull before a massacre. Kiss the illusion of middle class life goodbye.
Democrats made uneconomic pension and healthcare benefit promises in return for campaign donations and left others to clean it up. They will be cut because nothing grows to the sky. If not, the damage caused from the continued overburden will destroy middle class taxpayers.
Public workers don't need unions, especially given the strong civil servants workers protections in place.
Pensions should be terminated and 401(k)s initiated. States can't be counted on to manage pension investments as they lack this expertise and there have been too many instances of corruption.
Congress should allow states to go bankrupt so that they can wipe the pension slate clean and start on better footing.
This is all related to the government not willing to tax the wealthy and not so wealthy enough. States did not fund the pensions for years and now some governers are using this to bust unions. Unions have there problems but the US needs unions. They keep companies poor practices in check.
We need to raise taxes on people making above $100k (including me) to help solve this problem. And our governments need to fund the pensions each year.
John
The real culprit with respect to public sector pension plans and health care obligations is the same one the auto industry has, bad management. The problem is that management made commitments to workers to fund these benefits in the future. What they should have done is take advantage of the time value of money and pay for them out of the current operating income during the life of the contract and those employees' service. Instead they ignored these commitments as a current expense and in the case of the auto company executives pocketed that money and public sector probably gave that money away in subsidies and corporate welfare to their friends. Now they want to blame employees for their mismanagement, greed and incompetence.
Would someone talk about the discrepancy between what the real wages & pensions are public v private employees? I hear - including mitch daniels yesterday-that public employees earn waaay more than private--but I have seen plenty of info disputing this. What is the truth?
I have been working in the Ohio public school system for the past 20 years in accounting. As a member of the State Employees Retirement System, I contribute fully 10% of my gross pay to retirement while my school employer contributes 14% (this is the same for the State Teachers Retirement System, though that system is managed completely separately from SERS). SERS has over many years taken steps to remain solvent, including percentage changes in benefits paid to employees with X number years of experience upon retirement and requiring retiring employees to pay medical premiums for spouses if they wish them to be included in their medical benefits after retirement.
I am deeply concerned that this well-run retirement system is being lumped together in the political eye with those retirement plans that gave comparatively ridiculously generous benefits.
Your guest can and should blame the economic collapse, but what contributed to that collapse, what necessitated so many working class Americans to go so far into debt and the bubble inflated on their backs, is the decline in wages over the last 30 years. Perhaps the problem isn't that unionized government workers who make too much and get much too lavish benefits should take cuts in these hard times like everyone else, perhaps the problem is that the rest of union-busted America does not and has not been making enough. Corporations are sitting on considerable capital; I heard a guest from the Chamber of Commerce a week or so back say that they aren't investing it because there isn't any demand for new products and therefore no incentive for innovation. Again, why isn't this an issue of wages? If some of that capital were restored to paychecks that have fallen drastically behind inflation for the last few decades, that would mean more taxable income (in which case today's conversation maybe wouldn't be necessary) and more consumer spending--spending that would increase just the demand these hording businesses find to be wanting. People shouldn't be busting these unions, they should be taking their lead.
As a young CPA in the late seventies, I can remember a Forbes magazine article foretelling the problem with the longterm viability of corporate and public pensions promises. The recent financial crisis just accelerated the pension crisis.
Ron Robinson CPA
I wonder how so many, see so little. Big monied interests caused this meltdown and the rank and file are being painted as the villains. We've been the pace-setters in living wages for 60 years and the big money people can't STAND it. This is the opportunity for all workers to organise! Thank you for your comment. :)
Benefits are a negotiated portion of the cost of labor. They may be negotiated with a union or put in place by an employer to attract skilled labor. As a cost of labor, all benefits come out of the pocket of the laborer. "Retirement" benefits (health care and pensions) are part of this worker package. The worker is the primary source of production and tax revenue.
A major cost of retirees from public service and many corporations (e.g., the American auto industry) is funding health care. This is also a major driver of the cost of labor in our active work force. Please comment on the economic impact of a universal health care system (single payer) to cover health care for all Americans (active workers and retirees = Medicare for everyone) verses the ultimate cost to all Americans (and American government and industry) by defunding promised benefits.
Roger H Strube, MD
Why should government workers have guaranteed benefits and be able to retire after 30 years with medical and defined benefits. Very few private jobs have this. Very few have defined benefits and certainly not medical and some might have 401ks funded mostly by individuals.
Why should government workers have guaranteed benefits and be able to retire after 30 years with medical and defined benefits. Very few private jobs have this. Very few have defined benefits and certainly not medical and some might have 401ks funded mostly by individuals.
One of the things that is overlooked in all this discussion of public pension plans is the fact that these people do not receive Social Security. The public pension plans are their alternative for public service.Why are these state governments attacking their own employees? Some of it must be jealousy over the benefits without understanding also that these folks get paid less than they would in the private sector.
Why is Moody's even part of this conversation. Moody's along with AIG enabled the economic crisis that I'm experiencing with my second layoff. How do parties that failed to protect the economy (AIG, Moody's, Republicans and Wall Street) expect the American people to believe any argument that takes away rights and money from ordinary citizens?
why is it when republicans offer amendments to change state law that it is not called big government intervention...
why is not the state deciding this.
The federal gov. put their workers on a 401 (tsp) plan 30 years ago. It is time for all public workers to be on a 401 plan and control their own pension plans.
Explain to me why they want to cut money from the pension plans but Republicans at the same time want to continue to fund corporate welfare. Why are they touting big oil subsidies and hand outs to other private corporations while they are simultaneously cutting the floor out from under the working class? Billionaires making outrageous profits aren't the ones who need to be supported here. Shame on the Republicans for perpetrating this on the middle class of this country.
Elections have consequences. Wisconsin Democrats should understand that.
The bill is 144-pages and it was 6 days to review. Pelosi said it best,"You will figure out what it's in it once it's passed."
Please ask the politician from Wisconsin how much she gets from unions in the way of campaign contributions.
Collective bargaining will be allowed for wages. Individual bargaining will be allowed for everything!
Why are unions afraid of having members vote every year as to whether they want to continue to be a union member? Why are unions afraid of members having to write a check for their dues as opposed to having their dues garnished from their wages?
Is this a long-term solution?: My public service employee pension plan here in Canada is at "arms-length" from the government. The pension plan is jointly managed by the government and by Union members. Depending on the health of the plan, the union employee contribution has ranged from 4% to 6% of wages. The contribution rate could be raised to 10% if needed if the plan does not recover from the hit in 2009. A report of the state of pension plan is made available to members and the public every year.
In addition to the quality of investments and accounting rules, many state and local governments have adopted the practice of granting long-term benefits in lieu of the cost of increases in current wages. That also encourages optimistic investment predictions in order to disguise the long-term costs. This kicking the can down the road end when you come to a dead-end, which is where we are.
Now, the politicians who have used this tool for their own advancement are turning around and blaming the public worker for it.
3 of 4 of these panelists represent Conservative points of view. I feel the Progressive side is not fully represented.
I feel it's fair to move new public employees to a defined contribution pension system. This is what most private employees now have.
But to what extent are the state's budgetary problems created or made worse by recent business tax cuts?
Michigan has a recent history of business "incentives" in the form of tax cuts or credits in the name of creating jobs. Is there any credible evidence that this has worked.
Michigan's new governor proposes taxing pensions in order to provide a large business tax cut. This has nothing to do with Michigan's budget issues, which are substantial. Rather it appears to be an effort to move the tax burden from business to the individual.
Diane,
I have spent quite a bit of time recently discussing these issues with folks. It seems that most people agree that the American public would feel much more agreeable to taxes, lower wages and benefits and even further tightening our belts if it means national fiscal health. The problem that we ALL have is that the "fat cats" at the top, including the men and women that caused this financial meltdown, continue to enjoy anonymity, huge paychecks and most likely the most amazing tax breaks. If we, the people, felt that there was some level of fairness in this mess, we would be more than willing to do our part!
Karen in Michigan
My wife is a teacher in NY for 25 years at this point. Her pension was funded at 110% just ten years ago to be underfunded between 39-49 billion now. At that point our politicians of both parties saw a big pot of money and started to not fund that plan because it was so well funded. In the last 15 years contributions have been made only twice. So before our officials bemoan the greedy workers maybe they should see what the true deficit would be if they had made the required cotribution. If they had made the contributions the fund would be in good shape and be able to weather the current crisis.
I sent the following comments to my New Hampshire Legislators and would appreciate comments from your experts:
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I put in over 36 years as a NH State employee and based my retirement plans on the system that was in place for all that time. My reward for dedicating my working career to the State is to have to fight for my retirement benefits. As soon as I retired, two years ago, the Legislature decided for the first time that retirees need to pay for a portion of the health insurance. Now there is a bill to eliminate the insurance benefit for my wife, which will have the effect of reducing my yearly pension by over $10,000. Last week, at a hearing for a bill that would reduce the reitred employee's pension, we were told that the retirement fund does not have enough capital to last much beyond 10 years. Is this the employee's or the retiree's fault? I know that I paid what was demanded of me for all 36 years. When I first started working for the State, I was told that the system worked by both the employee and the employer contributing. Soon after, I was told that the State does not actually put their contribution in but instead pays for the benefits of retirees who have run out of their own contribution, theoretically a smaller number each year. It would seem that fund is short because the State has not done its job.
Both of these bills effect already retired empoloyees. No one told me twenty years ago, when I could have adjusted my retirement savings, that I would need an additional $60,000 for my wife's insurance. To spring this on us after retirement is unfair and unreasonable.
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Howard Roundy
Public workers can't strike but apparently they can miss work for days on end.
I'm guessing the only election you believe is legit is the one where your candidate is elected.
Republicans won a landslide in 2010 in Wisconsin. Walker ran on this proposal, it was not a surprise to anyone. Let the government govern!
Public funds may have been 100% funded 10 years ago, but that was after a period of 20%+ returns in a simple U.S. market index strategy. This bred overconfidence in the equity markets. That strategy returned 0% for the next 10 years. A lower expected rate of return and lower discount rate are absolutely in order.
Yep hainc, rigged and bought elections and a misinformed and passive electorate do have consequences. Legitimacy of government is the price we paid for oligarch influence.
States House Republicans are over the top w/ bills eliminating collective bargaining. Majority elected politicians were not given rights to take basic rights away from hard working people who provide service to all people regardless of their ability to pay. The revolts in the Middle East are precisely over bureaucracies’ blinded to the needs of the common person and these actions represent threats to our democracy. Do your guests think this is a fair analogy
I found the congressmans coment hypocritical. Is he willing to give up his generous benefits and pay? We all know how well congressmen live after leaving congress. He sure talks the talk lets see him walk the walk. To bring Margaret Thatcher is over the top. Here's a quote for the congressman "capiotalism is a game of monopoly that you dont win by sharing" Will the last of the middle class shut off the lights when they leave?