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Why Employee Pensions aren't Bankrupting States

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March 07, 2011 – Comments (24)

By Kevin hall  

WASHINGTON — From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers. However, that widespread perception doesn't match reality.

A close look at state and local pension plans across the nation, and a comparison of them to those in the private sector, reveals a more complicated story. However, the short answer is that there's simply no evidence that state pensions are the current burden to public finances that their critics claim.

Pension contributions from state and local employers aren't blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.

Though there's no direct comparison, state and local pension contributions approximate the burden shouldered by private companies. The nonpartisan Employee Benefit Research Institute estimates that retirement funding for private employers amounts to about 3.5 percent of employee compensation.

Nor are state and local government pension funds broke. They're underfunded, in large measure because — like the investments held in 401(k) plans by American private-sector employees — they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.



Read more: http://www.mcclatchydc.com/2011/03/06/109649/why-employee-pensions-arent-bankrupting.html##ixzz1Fv3GERdr 

Devoish here, I would like to also point out that the rising tide is only lifting those boats with pensions and 401k plans. The rising stock market is bad news for people who do not make enough money in their paycheck to invest, and will eventually be bad news for people who do make enough money to invest if it falls, unless they invest successfully in what many claim is a manipulated market often referred to as "casino capitalism".

24 Comments – Post Your Own

#1) On March 07, 2011 at 8:37 AM, RLAprof (< 20) wrote:

Not only are state pension plans grossly underfunded (and have been for years, not just since the "crisis" hit), much of that money was invested in -- wait for it -- MBS.

That's how we funded the banker bonuses. Nobody in jail yet. Blame the unions.

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#2) On March 07, 2011 at 9:07 AM, PeteysTired (< 20) wrote:

Unfortunately, the unions are a large reason the pension money bought MBS.  They use the money to buy all kinds of things.  Unfortunately, the targeted growth is unsustainable.

We need to move off pensions.  The private sector learned long ago they don't work. 

Also, we are living longer.  I am afraid people are going to have to work longer. Having people retire at 65 and live to 85 was not how the system was designed. 

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#3) On March 07, 2011 at 9:36 AM, ChrisGraley (30.21) wrote:

http://www.pensiontsunami.com/

the site is mainly focused on California, but also reports about other States.

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#4) On March 07, 2011 at 9:38 AM, rd80 (98.55) wrote:

much of that money was invested in -- wait for it -- MBS.

Holding MBS wasn't such a dumb thing to do through the financial train wreck.  Over the last 5 years, Annaly Capital is up something like 150% including dividends.  Guess what it invests in?

No position in NLY.

 

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#5) On March 07, 2011 at 2:28 PM, eldemonio (98.60) wrote:

Most state and local employees government across the nation have defined-benefit plans that promise employees either a percentage of their final salary during retirement or some fixed amount. The Bureau of Labor Statistics estimates that 91 percent of full-time state and local government workers have access to defined-benefit plans.

Here's another excerpt from that same article that outlines the exact problem you failed to mention.  Most employees in these plans are guaranteed a set pension based on a percentage of their salary.  It doesn't matter how much they have contributed to the plan, once they put in the required time and reach retirement age - they collect. 

I know teachers in New Mexico who retired, applied for NM pension, then later were granted nearly all of their years of service to return and teach in TX.  After 5 years, they retired again and received a full pension from TX as well.

Maybe guaranteed pensions won't destroy the world tomorrow, but if left unchecked, they will eventually.  

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#6) On March 07, 2011 at 5:31 PM, devoish (99.10) wrote:

Eldemonio,

I know ChrisGraley will stay on message, but are you suggesting to me that after 5 years those teachers got the same "full pension" amount as a someone who taught in Terxas for 35 years?

Because I'm suspicious that is not the case.

In fact, I'm suspicous that New Mexico teachers might even have been encouraged to take early retirement in order for New Mexico to reduce teacher numbers and payroll as a cost saving measure. And I suspect that New Mexico was very happy to cut their costs that way.

So the taxpayers lowered their costs.

I also suspect that Texas was very happy to find experienced qualified teachers who could work for less in their paycheck because of the wonderful opportunity that New Mexico provided Texas to save on costs.

And again the taxpayers lowered their costs.

And the teachers were rewarded for working a little more.

Everybody wins ecept those who want the teachers in a 401k, paying 401k fees.

Best wishes,

Steven

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#7) On March 07, 2011 at 6:49 PM, ChrisGraley (30.21) wrote:

We've got even better than that in Ohio.

You can retire from your job and get re-hired for the same job and collect a pension along with your wages. Then you can then fund a second retirement account with the extra money that you are getting from your pension.

It's a great deal if you can get it.

On topic enough Steven? 

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#8) On March 07, 2011 at 8:44 PM, devoish (99.10) wrote:

ChrisGraley,

I said on "message" not topic.

If that is the best deal Ohio can get to save taxpayer money on their schools, then it is good news for them.

No problem that I can see.

Best wishes,

Steven

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#9) On March 07, 2011 at 9:53 PM, ChrisGraley (30.21) wrote:

No the best deal is yet to come.

We're going to eliminate the collective bargaining rights in Ohio as well as the double dipping.

That will save the taxpayers money. 

 

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#10) On March 07, 2011 at 10:36 PM, eldemonio (98.60) wrote:

I don't know where Terxas is, so no, that's not what I'm implying.

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#11) On March 07, 2011 at 11:46 PM, eldemonio (98.60) wrote:

Pension contributions from state and local employers aren't blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.

Does refuting your message make me on message, or off message?...but I digress.

You're right, pension contributions are not the problem.  Guaranteed pension distributions are the problem.  There's a big difference. 

Are you implying that strapping tax payers with the burden of funding underfunded pension plans is not that big of a problem? 

You can suspiciously suspect all you want, but facts are facts.  5-6 years ago, districts were scrambling to fill vacancies and were offering incredible incentives to lure back retired teachers - especially in districts directly across state borders. 

I suspect you're John H. George, the retired NY superintendent pulling over $205,000 per year in pension thanks to your crafty game that is fast becoming the rule, rather than the exception.

 

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#12) On March 08, 2011 at 8:13 AM, devoish (99.10) wrote:

I suppose I cannot really claim to have learned much about Terxas either.

I am not sure what you refuted?  Employees that have contributed to their pension funds have earned the defined benefits promised. It would have been one thing to tell them 25 years ago our word to them didn't mean crap, but now?

Perhaps those of us in private industry could take a lesson from our educators. Maybe the lesson is that defined benefit plans are actually sustainable, but defined contribution plans will not sustain us.

According to the US census the average retirement account in the US holds $49,000. That includes the millions in the accounts of our top 1% pulling that average up from its median account balance of $2000.

The NY teachers retirement fund has enough assets to continue paying all of its obligations - including Mr George's - for the next 16 years without taking in one more penny. That success has been achieved by investment managers holding investments through the downturn and continuing to buy during the recovery with a steady input of pretax cash promised teachers during contract negotiations and teachers contributions from their paychecks.

I am not sure why you want to punish them now for their good judgement, and also pretend that they did not achieve degrees and then go to work and earn their paychecks.

Private sector workers will be severely punished in retirement for failing to support the unions that could have helped them earn similar benefits, commensurate with their responsibilities and pay scale.

It is unfortunate that they are only waking up today to the fact that even a miniscule fee of 2.5% will put more of their 401K earnings into the pocket of their fund manager than they will get.

And unfortunately their support for "free trade" and "free markets" has left them captured by increasing oil prices with few renewable energy alternatives, impacting all their costs of living.

And their support for free markets has stopped their Government from investing tax dollars in educating more healthcare professionals leaving a shortage of doctors and rising costs while we wait for the CEO of UNH to decide if earnings are better spent on traning more doctors or put in his own pocket?

What is not sustainable is continuing to pretend that capital gains income should get a favorable tax treatment of less than half the amount of the income you actually work for. Because without the effort of your employment, the investments would fail.

So maybe if you worked over at Allegheny Energy before the merger and you are having trouble paying your bills or funding your retirement maybe you would be better off asking why your CEO deserves $13,000,000 in compensation and your shareholders deserve $100,000,000. in dividends while YOU continue to struggle on $25,000.

Your CEO does have the option of taking a salary of $500,000 and using the rest to fund YOUR retirement plan, not his.

I'd be more inclined to believe that the superintendant of Commack schools is probably doing just as much work in an eight hour day for his $200k as Paul Evanson did in eight hours to get $13,000,000. And I would also be inclined to believe that the superintendant of Commack schools is the better value for my dollar whether I pay it in taxes or an electric bill.

And therefore, the Commack school district is more efficiently run than private industry and has a more equitable distribution of value to the people who create that value than private industry whose compensation is determined by board members in exchange for determining their compensation by sitting on their companys boards.

I'm betting if everyone in the USA making more than $10,000,000 was taxed at 90% they still could not find better paying jobs, and we could balance Federal, State and local budgets in less than ten years. And fix the roads, and invest in healthcare, and keep hospitals open. Or to put it another way - actually get the value for the work we do, rather than give it away to a very small group of people.

Best wishes,

Steven

 

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#13) On March 08, 2011 at 10:42 AM, rd80 (98.55) wrote:

I'm betting if everyone in the USA making more than $10,000,000 was taxed at 90% they still could not find better paying jobs, and we could balance Federal, State and local budgets in less than ten years.

They might not be able to find better paying jobs, but you would lose that bet.  A Tax Foundation study found you would have to triple EVERY tax bracket to balance the budget.  That would put the tax rate on those making over $373,601 at over 95%.  source

 

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#14) On March 08, 2011 at 4:41 PM, devoish (99.10) wrote:

rd80,

Thanks for the link. The budget gap they are trying to close in 2014 is the same budget gap as if there were no additionl taxes in 2012 in order to start with a lower deficit in 2014.

If you never start, it is definitely harder to finish.

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#15) On March 08, 2011 at 8:00 PM, ChrisGraley (30.21) wrote:

If you never start, it is definitely harder to finish.

You have the right slogan devoish.

If you look at spending cuts, you will actually erode the deficit. If try tax increases though, you'll be farther behind than when you started. 

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#16) On March 08, 2011 at 8:00 PM, ChrisGraley (30.21) wrote:

If you never start, it is definitely harder to finish.

You have the right slogan devoish.

If you look at spending cuts, you will actually erode the deficit. If try tax increases though, you'll be farther behind than when you started. 

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#17) On March 09, 2011 at 10:41 AM, eldemonio (98.60) wrote:

I am not sure why you want to punish them now for their good judgement, and also pretend that they did not achieve degrees and then go to work and earn their paychecks.

Doesn't your comment above also apply to very wealthy people who've worked hard for their money?

I'm not sure I want to live in your world where wealthy people = greedy, evil people; and the rest of us can do whatever it takes to scam the system.

All I'm looking for is a little consistency. 

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#18) On March 11, 2011 at 4:54 PM, JaysRage (90.51) wrote:

Underfunded is the under-statement of the year.    They might not be broke yet, but they are certainly insolvent.    It's not the paying in, it's the paying OUT that is the problem.    Pay in 3.5%.....pay out 100%.   The math doesn't work.   They are underfunded because it's a system dependent on unrealistic returns to make up for chronic under-funding.    The aren't going to rebound, because the principals took such an enormous hit during this last recession round that even if the unrealistic returns are met from this point forward, there is no achieving solvency.   Something has to give. 

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#19) On March 11, 2011 at 5:09 PM, JaysRage (90.51) wrote:

By the way, New York was one of only 4 states that had fully funded pensions as of 2008, so they are not a mid-point representation.  Their situation is not nearly as serious as some others.  

http://reason.com/archives/2011/03/11/the-truth-about-the-state-pens

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#20) On March 11, 2011 at 5:10 PM, JaysRage (90.51) wrote:

BTW -- While I completely disagree with you, this was an extremely well-articulated post, and I enjoyed the read.   

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#21) On March 14, 2011 at 6:22 AM, devoish (99.10) wrote:

Eldemonio,

I am not sure why you want to punish them now for their good judgement, and also pretend that they did not achieve degrees and then go to work and earn their paychecks.

Doesn't your comment above also apply to very wealthy people who've worked hard for their money?

I'm not sure I want to live in your world where wealthy people = greedy, evil people; and the rest of us can do whatever it takes to scam the system.

All I'm looking for is a little consistency. 

So who is being asked to "share the sacrifice"? So far we have private employees and small business's who have gone deeply into debt to the financial industry. Now we have public employees being handed a pay cut. In 1970 we had a strong middle class who is now retired on the SSI and pensions they bought for themselves. So we had rules from 1933 onward that built a strong middle class and safer working conditions and then in the late 70's we began to change the rules to benefit investors and investment income over actually getting to work.

And we changed the rules in the belief that the financial industry could be trusted to police themselves.

Change the rules BACK.

Begin by taxing dividends and capital gains income as the same as the income in a paycheck. And follow by raising taxes on those who have been rewarded by the rule changes of the last thirty years as though their money shouldn't be taxed because they "earned" it and "invested" it and took "risk".

Massey wasn't in his coal mine when it collapsed. His risk was merely financial and not nearly as final as his employees.

Hank Paulson did not "earn" millions. At best he should be on unemployment and broke.

Perhaps we should ask Bill Gates if the fear of being taxed 75% on his first 50 million would have kept him from inventing.

Best wishes,

Steven

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#22) On March 14, 2011 at 7:25 AM, ChairmanMAObama (57.61) wrote:

"Perhaps we should ask Bill Gates if the fear of being taxed 75% on his first 50 million would have kept him from inventing"

 Nope but the os wouldnt cost $69 it would cost $169. 

 Bill Gates should get to keep even more than he does now.  The windows operating system gave the world more access and wealth than any tax increase would for 100 years.

I agree with previous post about your "interesting read" however i couldn't wait to get away from the union.  It would be nice if we could ask the zero liability voters to contribute a finski without being called racist. (skin in the game, shared sacrifice) 

  Its depressing when we are arguing that the government needs  more of anybodys money.  Our tax system is so basackwards.  Our state tax should be 20-35% and the federal leviathon should be only 3-7%.  Then like abortion we would have the right to choose where to live if the publik tyrants get outa control.  But you can't escape mordor on the Potomic.

"Employees that have contributed to their pension funds have earned the defined benefits promised. It would have been one thing to tell them 25 years ago our word to them didn't mean crap, but now?"      How much did the employees in wisconsin contribute?  The statment I saw was the gubment picked up both sides.  http://online.wsj.com/article/SB10001424052748703408604576164290717724956.html

The progressive hero FDR said publik sektor unions would be a disaster.  http://www.nytimes.com/roomfordebate/2011/02/18/the-first-blow-against-public-employees/fdr-warned-us-about-public-sector-unions

 "And we changed the rules in the belief that the financial industry could be trusted to police themselves"

And they were haranged by the gubment to hand out loans to the incapable.  Rainbow Push would pick a bank out and picket/threaten to call the bank racist and skim some free money off the bank, because how do you defend yourself against false statments.  It's easier to pay the thugs "hush money".  Who's gonna pick up Fannie/Freddie George Soros the Ted Kennedy trust fund, Oprah or are we just gonna drive more work overseas by raising taxes on those fatherless children running those evil corporations. 

 

 Liberalism:  Ideas so good they have to be manditory!

Remember you serfs your children owe the government $35000 so get to work and shut your mouths.  And dont forget socialism is for the people not the socalist.

Capitalism is BOSS

Muss

 

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#23) On March 14, 2011 at 7:56 AM, ChairmanMAObama (57.61) wrote:

  BTW im against corporate tax breaks (See GE and the oil companys and windmill farms) also.  Im for lowering the corporate tax to 10% for any corp under 250 mil and 15% over the number.  No write downs or addons.  We have to get competitive with the Asian countrys and 35% is not that.  Ban publik "servants" from double dipping SSI/medicare.  I have no children and don't want any and I have to pay teachers salary and beni's.  I make 40K have to save for my own retirement and the publik "servants" also!  The teachers are smarter (rumor has it)   than the average Joe, so they should be able to save for their own retirement.

  All Hail the recipiant, All Hail the recipiant, All Hail the recipiant!

Capitalism is BOSS

Muss

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