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In Budget Crisis, States Take Aim at Pension Costs

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June 20, 2010 – Comments (7)

This is an article that very much goes with my post from yesterday - The Promises Must Be Broken - http://caps.fool.com/Blogs/the-promises-must-be-broken/409017. State governments are starting to accept the reality of the unsustainablity of the situation, but as I highlight below, there is still some major denial going on. This is a bad situation and it just keeps getting worse.

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In Budget Crisis, States Take Aim at Pension Costs
By MARY WILLIAMS WALSH
Published: June 19, 2010

http://www.nytimes.com/2010/06/20/business/20pension.html

Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits.

Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week.

“We can’t afford to deny reality or delay action any longer,” said Gov. Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in March, will save some $300 million in the first year alone.

But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthrough reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect.

Lawmakers wanted to avoid legal battles or fights with unions, whose members can be influential voters. So they are allowing most public workers across the country to keep building up their pensions at the same rate as ever. The tens of thousands of workers now on Illinois’s payrolls, for instance, will still get to retire at 60 — and some will as young as 55.

One striking exception is Colorado, which has imposed cuts on its current workers, not just future hires, and even on people who have already retired. The retirees have sued to block the reduction.
[My comment: I can't blame them. They are fighting to protect what they were promised. I would too if I were in the same position. But the money is fundamentally not there. This is a very bad situation inded]

7 Comments – Post Your Own

#1) On June 20, 2010 at 3:15 PM, ralphmachio (24.66) wrote:

Funny how Colorado is the first to screw it's citizens.  They have no problem stealing from them because they just lay down and take it like sheep. I plan on leaving Colorado because of the lack of quality and respect the people have become too accustomed to, and too readily accept from their government. 

This is a very exciting time for me, as I have been predicting this since before I graduated high school. I have always been fascinated by a population that is given all the evidence that they will be put in dire straits by their government, yet continue to believe in the 'positive' notion that things will get better if they keep their heads down and keep up the same routine that has empowered the very ogre that will feed off them one day soon. How much more obvious could it be that we have been working against our best interest in creating this monstrosity? When our tax dollars are actually spent on chemicals to be used on us, that the geneva convention won't allow us to use on our enemies? When troops our tax dollars have paid for are coming to our doorsteps to take our firearms? Whose fault will it be then, my crowd following, media believing lemmings? Don't think too hard now... 

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#2) On June 20, 2010 at 4:31 PM, binve (< 20) wrote:

ralphmachio ,

Hey man!

>>I have always been fascinated by a population that is given all the evidence that they will be put in dire straits by their government, yet continue to believe in the 'positive' notion that things will get better if they keep their heads down and keep up the same routine that has empowered the very ogre that will feed off them one day soon.

I know. That is what is so perplexing about the last year and a half. Like I layed out here (Moving Some Macroeconomic Deck Chairs: The Dollar, Dollar Swaps, Bonds and LIBOR - http://caps.fool.com/Blogs/moving-some-macroeconomic-deck/369098), there was never any fundamental reason for the bounce. It was driven completely by the market being flooded with Dollar Swaps in the midst of oversold conditions / utter fear. The "positive" economic developments are all temporary as a result of the stimulus (unsustainable). People were so ready to wish everything was better that at the first sign they sound the all clear. I honestly think, despite how hard it was been over the past 3 years, it is just not that easy. :(.

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#3) On June 20, 2010 at 8:15 PM, ChrisGraley (29.77) wrote:

This has all the makings of a "Greek" tragedy.

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#4) On June 20, 2010 at 9:04 PM, binve (< 20) wrote:

ChrisGraley ,

I think you are exactly right :(.

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#5) On June 21, 2010 at 11:30 AM, dbjella (< 20) wrote:

How do I know that binve is not Alstry?

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#6) On June 21, 2010 at 11:38 AM, binve (< 20) wrote:

dbjella ,

LOL! hmmm.... I point out pension problems and now suddenly my identity is in question. Nice :)..

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#7) On June 22, 2010 at 7:28 PM, dwot (72.18) wrote:

I wrote my first letter about the unsustainability of pensions about 25 years ago.

Amazing how long a ponzi scheme can continue...  Of course it was about the fact that baby boomers were not retiring for a while so it sure kept up appearances of working for a long time.

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