Why Public Pensions Are Doomed

Not so long ago, millions of workers could count on their employers to provide monthly pensions for them after they retired. But for the private sector, pension plans for new employees have almost entirely disappeared, and even long-tenured workers have had their pension plans frozen or cut.

Even after corporate America began clamping down on its pension obligations, the public sector continued offering traditional pensions to government workers. Recently, though, tight budgets at the state and local level have forced government employers to reconsider whether they, too, need to follow the private sector toward eliminating pensions in favor of defined-contribution plans like 401(k)s.

A sea change for retirement saving
Workers who work for private employers have had to deal with all sorts of challenges in planning for their retirement. Here are just a few examples:

  • Several years ago, IBM (NYSE: IBM  ) , Verizon (NYSE: VZ  ) , and many other companies froze their pension plans for large portions of their respective workforces. The moves allowed current employees to keep the benefits they had already earned, but stopped them from earning additional benefits in the future. New workers wouldn't be eligible to participate in the frozen pension plans.
  • After bankruptcy proceedings, some employers, including US Airways (NYSE: LCC  ) and the predecessor to the United division of United Continental (NYSE: UAL  ) , simply terminated their pension plans entirely. The government's Pension Benefit Guaranty Corporation stepped in to restore some benefits, but many workers didn't get everything they would have received if the pension plan had continued in force.
  • Various employers have taken a variety of other steps. Hershey (NYSE: HSY  ) closed its pension plan to new workers several years ago. DuPont (NYSE: DD  ) and Motorola Solutions (NYSE: MSI  ) , meanwhile, actually changed the formulas their pension plans used to calculate benefits. In some cases, that led to reduced payments for retirees.

Yet even as private-sector workers lost pension benefits, many public employees continued on as usual. Now, though, governments are facing many of the same challenges that their private-business counterparts previously faced with pension liabilities. That partly explains the recent move among states to consider switching to 401(k)-like plans.

Desperate measures
According to the New York Times, many states have either made or are considering changes to their pension systems. Michigan, Ohio, and Utah are among those that have already made at least partial switchovers to 401(k)-style retirement plans, while Kentucky and Oklahoma are among others that are looking closely at moves.

With budget shortfalls in many states, workers question whether pension benefits will be there at retirement time. Late last year, one small town in Alabama chose to allow its pension fund to run out of money rather than taking steps to shore up the plan with additional contributions. That case may serve as the first of many similar situations in larger cities and towns across the country in the years to come.

But is it fair?
Public sector employees could argue that they relied on generous pension benefits as a trade-off for accepting lower pay to work in public-sector jobs. Although that's undoubtedly true for some employees, high-profile stories about former government workers retiring young on full six-figure pensions have drawn attention away from rank-and-file public employees with more modest pensions.

Regardless of what happens to current workers, new hires in government jobs can soon expect to face the same responsibility to manage their own retirement savings as their peers in the private sector. Government officials have simply proven unable to understand the long-term financial repercussions of promising pension benefits to workers.

Although some workers would undoubtedly prefer to have their pensions taken care of for them, the best solution for workers, government employers, and taxpayers going forward is to stop government entities from making the mistakes of granting lucrative pension benefits in the first place. It's likely too late to fix the promises that they've already made, and going forward, removing those benefits will make public-sector jobs less attractive to potential employees. But at the very least, drawing the line in the sand here will prevent future workers from ushering in a repeat of the current budget crisis, in which unrealistic expectations about the capacity for government employers to give retirement benefits to their employees has caused so much strife.

What do you think about the public pension debate? Weigh in with a comment below.

Be sure to tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger prefers making the tough decisions early before they blossom into huge problems. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of IBM. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is anything but gloom and doom.


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  • Report this Comment On March 02, 2011, at 4:05 PM, JeanDavid wrote:

    Part of the current budget crises is due to cowardly politicians fear of taxing wealthy individuals and corporations, the ones very who pay their campaign expenses.

    I imagine it is now all over for all workers in our society. Low paying part-time jobs without benefits, or no jobs at all.

    All over but the shouting.

  • Report this Comment On March 02, 2011, at 4:21 PM, PeteysTired wrote:

    I would like to note that it was not uncommon to promote public employees into higher grade levels to increase their pension before retiring.

  • Report this Comment On March 02, 2011, at 4:34 PM, zymok wrote:

    Dan,

    Did you mean to say that Motorola reduced benefits for people who were already retired at the time of the formula change, or for people who continued working after the change? If the former, I'd like to know just what they did. It sounds rather odd.

  • Report this Comment On March 02, 2011, at 4:38 PM, meddguy wrote:

    I don't think it matters how you feel about these pensions--most states and municipalities cannot afford them. Public employees are going to have to accept defined contribution plans.

  • Report this Comment On March 02, 2011, at 5:05 PM, wheeler111 wrote:

    How can you Expect to make 3 or 3 times more then people PAYING you ????

  • Report this Comment On March 02, 2011, at 5:14 PM, wheeler111 wrote:

    If it wasn't for the Immoral Politicians selling there Souls for a Vote and $$$ from the Unions we wouldn't be in this Mess !!

    Do any of you Folks remember the 'OLD FASHION 'words Honor and Integrity

    I guess you have to be over 60 to remember them.

  • Report this Comment On March 02, 2011, at 5:22 PM, FinnMcCoolIRA wrote:

    RE: JeanDavid:

    The 'cowardly politicians' are being paid off by the public pension UNIONS ..... NOT company's or rich people.

    More accurately, the UNIONS are buying the votes of the politicians using TAXPAYER money ... including the taxes of the 'rich' and the 'companys!

  • Report this Comment On March 02, 2011, at 5:22 PM, Silverh wrote:

    You may want to read today's NYT re public pensions and rethink your facts.

  • Report this Comment On March 02, 2011, at 5:26 PM, ASKRCK wrote:

    There is more to the story than appears above. In NJ, the state failed to make its share of contributions to state pensions for 16 of the past 18 years, while workers continued to do so.

    In addition, state pensions were unwisely invested, so that the financial crash devastated what remained of those pensions.

    The fleeting mention of high profile stories of gov't workers with 6 figure retirements at young ages glosses over the fallacy of those stories. High profile therefore prima facie accurate?

    Gov't wokers did not cause the recession nor did they defraud anyone. Those who did still ride high.

    What an obscenity!

  • Report this Comment On March 02, 2011, at 5:30 PM, FLHX wrote:

    The time has come to be realistic and clean up our perspective houses; otherwise accept our fate....more taxation and squeezing the private sector to the point of no return. I thought the American dream was the opportunity to work hard and potentially prosper. Not just show up for work with the guarantee to prosper

  • Report this Comment On March 02, 2011, at 5:30 PM, mtb297 wrote:

    In Wisconsin the pension is 99% funded. The fund is not dependent on annual legislative action. There is an Employer and Employee share which are both around 6%. In the early 70's employees bargained over a few years to have the employer pay in the employee share "in lieu of a salary increase". This benefited both union and employer who both got out of paying SS on the money. The hoopla about employees not paying in is bogus. Gov Thompson tried unsuccessfully to raid the fund in the 80's. I fear our new governor will also raid it.

  • Report this Comment On March 02, 2011, at 5:31 PM, ce4bnsf wrote:

    Following the private employer paradigm in transitioning from pensions to 401K programs in the public sector will only work if the culture of public employment changes. How will the teacher with 10 years of service feel when a first year teacher is hired at salary equivalent to theirs? The unions have created a "socialistic" culture regarding compensation - time served gets you a larger salary where only moderate differentiation is given to high performers versus poor performers. The first year teacher should have a higher entry salary given they have a greater responsibility for their retirement program. I don't see public employee culture willing to accept this type of change, or even recognize its necessity.

  • Report this Comment On March 02, 2011, at 5:33 PM, mtb297 wrote:

    Additionally, in WI worker can be vested in Fixed (50% stock) or Variable fund (95% stocks). When the market took a hit so did the pensioners. $50 to $600 per month less until recovery of the market. I took a slight loss last year and will probably again this year because the pension does a five year average. I enjoy the comments here from the ignorant who know only what idiots in media tell them.

  • Report this Comment On March 02, 2011, at 5:36 PM, michnow wrote:

    What is criminal is the money unions put into elections, then they negotiate with the people they just elected for raises and benefits.

  • Report this Comment On March 02, 2011, at 5:41 PM, michnow wrote:

    Ask the public worker why they thought they had to go to court to avoid paying for Viagra. When they have been screwing the taxpayers for years.

  • Report this Comment On March 02, 2011, at 5:42 PM, quinnathome wrote:

    Several comments:

    Before 2008, the majority of public pension funds were more or less fully funded. The current pension overhang is mostly because their portfolios got clobbered by the AIGs and Lehmans, not because the city councils or SIEUs were irresponsible. If the economy gets moving again, those portfolios are likely to substantially recover.

    Most high-income people in government work in law (e.g. judges), finance, medical services, IT, engineering, science, etc., and have employment opportunities outside government. Public service is a motivation, but most chose government in part because they value job and retirement security more than additional income. (All statistics show that high-skill public sector jobs on average pay less than private equivalents. The numbers are ambiguous for low-skill jobs.) Take the security away, and taxpayers will need to pay many employees substantially more.

    Pensions are deferred income. Paying tomorrow is sometimes more desirable or less expensive than paying today which is why organizations do it. It can be abused, but it also create societal good by encouraging secure retirements. Why aren't we asking how private-sector employees can be made more secure, rather than how to make public-sector employees less so?

  • Report this Comment On March 02, 2011, at 5:59 PM, MMcCabeNMC wrote:

    The problem with defined benefit pensions in both the public and the private sectors has been the unwillingness of the employer to provide the money necessary to pay for the promised future benefits. Private employers duck their pension responsibilities by "dumping" their underfunded plans on the taxpayers through the PBGC. Similarly, states and localities have failed to properly fund the pensions that they have promised their employees for years. Because the politicians have decided that raising taxes on anyone is impossible, the same politicians are seeking to take away the benefits promised to public sector employees. Unless employers, both public and private sector, act responsibly, defined benefit pensions are dead. The key is that all employers must be responsible to make the payments that they promised to all of their employees, whether through a §401(k) type plan or a defined benefit pension plan.

  • Report this Comment On March 02, 2011, at 6:04 PM, xetn wrote:

    "But is it fair?" Fair for who(m)? Public pensions are paid by taxes. This is absolutely true because all of the government and their employees get their money from TAXES!

    As for the comment that employees received their pensions due to reduced salaries is also true of employer paid health/life insurance premiums.

  • Report this Comment On March 02, 2011, at 7:40 PM, solarfool314 wrote:

    If governments start defaulting on their pension obligations to the average workers about to retire then the recession we just went through will be like a walk in the park.

    working class retirees spend their income to survive. If they don't have it they can't spend it and even more jobs go down the tubes.

    It's scary times out there!

  • Report this Comment On March 02, 2011, at 7:43 PM, TMFHousel wrote:

    "You may want to read today's NYT re public pensions and rethink your facts."

    Rethink your facts ... It makes sense if you don't think about.

  • Report this Comment On March 02, 2011, at 8:04 PM, TMFGalagan wrote:

    @zymok -

    My apologies for what I now see is an ambiguity. I meant that formulas were changed for people who were working at the time, such that their payments were reduced after they retired compared to what those payments would have been if the formulas hadn't been changed.

    best,

    dan (TMF Galagan)

  • Report this Comment On March 02, 2011, at 8:53 PM, wolfman225 wrote:

    Get rid of these @$*&(^ spammers!

    @ET69: Threatening violence against someone whom you have a disagreement with is far beyond the pale. Your comment has been reported to the moderator for action.

    I hope you reconsider such activity in the future.

  • Report this Comment On March 02, 2011, at 9:09 PM, wolfman225 wrote:

    I agree that public pensions are on their way out, at least as they have been known. The only reason it has taken the govenment as long as it has to come to this realization is that they have had the power of taxation and haven't had to concern themselves with actual costs of their promises until a new political reality rubbed their noses in it. The private sector simply cannot afford to continue to subsidize government employees at the levels they have in the past. The money is not there.

    As a possible compromise, I offer the following: let the public sector unions keep their collective bargaining "rights" BUT remove the politicians from the equation. Instead, assemble a pool of volunteers from private sector (non-union) employees. From this pool, draw a "citizen's employment panel" of approximately a dozen (6D's and 6R's) to negotiate directly with the government employees over pay and benefits. This would restore the necessary dynamic tension in contract negotiations between workers and the people actually paying the bills.

    Anytime you have members of the political class bargaining with the one's responsible for their election, and paying the tab with OPM, you will have corruption.

    If we give such a panel the authority to require that government fully fund any deal agreed to, that would head off any future "crisis" caused by the politicians failure to fund their obligations.

  • Report this Comment On March 02, 2011, at 10:12 PM, middleclass1 wrote:

    " (All statistics show that high-skill public sector jobs on average pay less than private equivalents. The numbers are ambiguous for low-skill jobs.)"

    I believe that used to be the case, but no more. The first three sites I found show the opposite.

    http://www.optionmonster.com/drj_blog/article.php?page=drj_b...

    http://www.commonwealthfoundation.org/research/detail/public...

    http://www.presstv.ir/usdetail/166349.html

    And as for the comment "When the market took a hit so did the pensioners. $50 to $600 per month less until recovery of the market. I took a slight loss last year and will probably again this year because the pension does a five year average."

    The same happened to everyone with a 401K. It's not an event which disproportionately affected public sector workers.

    Lastly, many workers in the private sector took pay cuts while often working even more hours. This is something I've rarely heard of happening to public sector workers.

    Make no mistake, I absolutely value what public sector workers provide, but things have gotten out of balance.

  • Report this Comment On March 02, 2011, at 10:20 PM, BIGOLBrad wrote:

    @wolfman225

    Bad things are coming in pensions and other areas. There is a small segment that feels the way ET69 does. It is important to recognize this and realize that this group will probably grow over time.

    Your ideas are well though out, but have almost zero chance of happening in the "real" world. ET69's ideas are not as well thought out, but stand a minimal chance of coming to fruition. We need to hear and deal with all "reasonable" opinions. Most intelligent Germans did not discuss Nazi ideas in the 1920's, but that didn't deter the Nazis.

  • Report this Comment On March 02, 2011, at 10:43 PM, dlb758 wrote:

    I contributed to my 401k for 25 years believing I was heading to a secure retirement. Then I was "downsized" at the age of 61 in early 2008. Shortly after my plan value started to tank ultimately losing nearly 50%. Although the value has regained some of the loss it may take years to recover.

    No one has stepped in to replenish my losses.

    My point: Public pension funds also suffered losses but pensions continue to be fully paid in most cases.

    Public workers must share in these losses and start paying more for health insurance and their retirements whether they collectively bargain or not.

  • Report this Comment On March 02, 2011, at 11:58 PM, jlo3605 wrote:

    Quite often, the actuaries, whomever they were, used very unrealiistic growth projections for the pension expectations. They were ginned up to make the outcome meet the desired negotiated result. No one wins in this situation except the politician who made the promise and was duly elected.

  • Report this Comment On March 03, 2011, at 12:01 AM, sttho wrote:

    I live in the US Virgin islands. Our neighbors, in the British Virgin Islands just passed a law stating that any privately owned business must pay a retirement package for any and all employees. But get this - it's retroactive. So any current employee gets back pay toward a retirement package for as long as they have worked for the company. Great for the employee, devastating for the small business owner. A friend of mine owns a liquor wholesale business; just one particular employee of his will cost the company $29,000.

    This is devastating to the small business owner. This law not only will shutter current companies, it will strangle anyone thinking of starting up.

  • Report this Comment On March 03, 2011, at 12:31 AM, dcfoolz wrote:

    According to the Collins English Dictionary 10th Edition, FRAUD can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage". In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual.

    For about 30 years, companies underfunded their pension plans to "juice their profitability." This did NOT lead to higher incomes for everyone (when adjusted for inflation). At the same time, our country borrowed trillions of dollars to support tax breaks for the wealthest. All of the financial gains of the last 30 years went to less than 10% of the population.

    THIS WAS DELIBERATE! IT WAS NO ACCIDENT!

    It was a FRAUD perpetrated upon average Americans!

    Now, the same people are advocating the process for pubilc sector workers' pensions. The Cities & States have underfunded the pension plans of their workers for years when tax revenues were high. Even worse, many of the fraudulent Mortagage Backed Securities (of the RE Bubble years) were sold to pension plans of the States and Local Municipalities. Now these "assets" are probably going to underperform their promised yields. This is more FRAUD, which further weakens Public pensions!

    I am all for market-oriented economies as engines of growth, but this whole process is UNREAL!

    I fault 50% of the so-called Democrats for selling out the People, but the architects of this calamity can be found among the Republicans and Wall Streeters.

    The only way for our country to rebuild itself is to stop rewarding the criminals (Repubs/Wall Street) and for all workers to begin sticking together for the benefit of worker's salaries and benefits. Our pensions were stolen by the Wall Street Captains. A large part of their wealth should have been given (proportionally) to the workers as salaries or benefits (e.g., pensions and/or profitsharing).

    Don't believe we are in crisis because of public sector salaries or pensions. We are in crisis because "certain people" have created a crisis.

    Investors need a market which can buy their companies' goods & services. There is nothing contradictory about rewarding employees for their work and also making a profit.

    I hope Fools will consider what is really in the best interest of themselves. Many smart people read FOOL.com. There is really no need for any smart person who has "investable assets" to seek to pauperize others who are decent working people. Our country is suffering because some people have sought to do exactly that or have denied to themselves that this was the effect of their actions.

    Wishing everyone a happy and prosperous life. Please consider other people's lives once in a while when seeking to advance yourselves.

    I guarantee you'll be happier.

    Ciao!

  • Report this Comment On March 03, 2011, at 12:35 AM, sttho wrote:

    I was a teenager in the 80's, and watched my father, and friends' parents get laid off just before their pensions came in. Every dollar of the pension they thought they were getting, the future "guarantee" they worked for, for decades, was lost overnight. They had all been "downsized", a new term then. The addage of "Work for a big company, they'll take care of you" from the Depression standpoint of only-the-big-companies-survive (or the gov't), just doesn't work anymore.

    Think what you will about the 20-somethings, but they know that the only one to control their own futures, their own destinies, is themselves. More power to them.

  • Report this Comment On March 03, 2011, at 1:02 AM, sttho wrote:

    Anyway, my point is this:

    Didn't America get a huge wake-up call, 30 years ago, in the 80's, telling us that we are all responsible for our own future? That was when companies were "Downsized," when companies fired their long-term employees just so they wouldn't have to pay pensions. so they could hire cheaper, younger employees? Prior to that, the 401K was cheerleaded, a major hint of "You're on your own from here..."

    I was just a teenager then, but I realized that I earn what I make, hourly, or through salary. If I want money tomorrow, I had better save it. Because if you don't show up for work, you don't get paid. Especially 10, 20, 30 years down the road.

    Too many people feel they deserve more than they are worth because they put a lot of time in. Too many people feel entitled.

    It's the same, but petty reason people steal paper clips, office pens, and spend half their work day sending send-to-all ridiculous email jokes.

  • Report this Comment On March 03, 2011, at 6:03 AM, midnightmoney wrote:

    Sttho,

    I think that if a person is going to go into business he ought to be able to take care of his employees, or either a) not go into business, or b) not hire employees. Complaining about having to compensate your workers, even retroactively, is probably the result of having exploited them as mercilessly as the law, for what it's worth to society as a whole, will allow. How much has your friend the liquor store owner there in the islands been paying his employees? I'll go out on a limb and say as absolutely little as possible. Am I wrong? If so, apologies; if not, in my book you have a flimsy argument lacking an appropriate moral balance. Signed, an overworked but absolutely unwilling to exploit self-employed business owner sans employees.

  • Report this Comment On March 03, 2011, at 6:44 AM, linedancer101 wrote:

    Why no information on the states like Colorado that have already successfully modified the state pension system? Going forward, retirees will take lower annual increases, and current contributors will pay a bit more. Just this alone has placed the pension program back on actuarial soundness. More information: Colorado, like many other states, had its pension program in place before the initiation of Social Security, and recipients of the state pension plan largely are disconnected from SS, neither contributing to nor taking benefits from SS.

  • Report this Comment On March 03, 2011, at 7:31 AM, kandu101 wrote:

    We the people as a country have many problems to address.These pensions entitlements size of the government are just some of them the list is long.It seems that the government is grossly detached from the people with their partisan politics.Recent events have pushed these problems into the main stream everyone has felt it.Rich poor young old were all in the same boat these days some more some less.We as a nation should not get cought up in the partisan politics. Ill be 43 next week last year i voted for the first time guess that makes me part of the problem.Lets show the world what this country is made of rise above partisanship cut the party lines and work together.Sometimes their are simple solutions to complex problems we just need to find them.This is the greatest country in the world i beleive in it and its people.

  • Report this Comment On March 03, 2011, at 8:43 AM, bigkansasfool wrote:

    @middleclass1 - the websites that you cite to don't actually prove your point. Adjusted for education, government workers are actually paid a little less (total compensation) than those in the private sector. There isn't a big difference either way in terms of total compensation.

  • Report this Comment On March 03, 2011, at 9:20 AM, Stocklovr wrote:

    "Government officials have simply proven unable to understand the long-term financial repercussions of promising pension benefits to workers."

    Because the governent is the absolute worst financial manager on the planet. Running out of money for Social Security and Medicare/Medicaid, Post Office running in the red, Amtrak is a taxpayer money pit not to mention their own budgets... on and on. They only understand tax and spend ... and yeah, blame all financial woes on Wall Street.

    If they'd actually act as good stewards for the tax dollars they receive, then govt. plans would be fine. We'd pay in and never have to worry about about cutting benefits, working longer, etc.

    What the government should really be doing is protecting it's people... watch dogs of Wall Street and anyone else who may harm the people. What they should not be, is a source of handouts. They should leave this to the private sector then monitor to make sure the private sector is on the up and up. If they'd get out of the handout business, they'd have time to monitor Wall Street, etc.

  • Report this Comment On March 03, 2011, at 9:38 AM, cmstripling wrote:

    @midnightmoney

    "I think that if a person is going to go into business he ought to be able to take care of his employees, or either a) not go into business, or b) not hire employees."

    So every small business owner knows that they are going to make x amount of money right off the bat so he shouldn't worry about how much they pay their employees? I'm assuming you've never ran a business or had to deal with a business budget. And why would anyone pay someone say $20/hour when said employee would gladly take $15/hour. You're not exploiting them, there is a market for their services and you are paying market value. Go live in one of your beloved communist countries if you don't like the market system.

  • Report this Comment On March 03, 2011, at 10:29 AM, ferede wrote:

    I challenge those who cite 6 figure pensions to identify their source and to which public officials they to whom they apply, if at all. if they do it is likely to doctors, laywers and politicians that are in the public shere. The consequence. The consequence of this bailout of institutions publc or private make social security mandadatory for the 90% of America's non-wealthy. Squeezing the public sector assures a less capable work force and lower economy when they retire. Big business and the GOP brain dead policies to budget cut simply kills more of the middle class and pushes this country further in the direction of second class status!

  • Report this Comment On March 03, 2011, at 11:10 AM, henjo wrote:

    The UAW ruined the automobile companies, and the teachers unions are about to do the same thing to the states.

  • Report this Comment On March 03, 2011, at 1:04 PM, caltex1nomad wrote:

    Why doesn't anyone point out the sweetheart pensions and health benefits that our lawmakers receive. They can serve for only a couple of years and receive lifetime benefits including health care.

  • Report this Comment On March 03, 2011, at 1:51 PM, bigdividends wrote:

    In Arizona, we have 9.2% of our pay deducted to cover pension cost (ASRS plan). To come back to us and redefine the plan is like someone going into your 401K and start taking out money because the company is having issues making a profit.

    Pensions are not an option for us. It is required we participate. Our take home pay is significantly reduce to recieve a benefit later on in life. It is a trade off we made. I wish more people would respect that.

    With that being said, the formula how they calculate a pension should be modified to eliminate alot of manipulation. If they calculated based off base salary it would reduce these outrages cost significantly.

  • Report this Comment On March 03, 2011, at 2:44 PM, JAMESATJCSLAW wrote:

    I think all this talk about ending public pensions or dramatically reducing them ignores one key point, and that is the interaction of the public sector penion with social security. Right now, under federal law a public sector pensioner who starts to receive his pension today is not entitled to receive social security, even if they have made sufficient contributions and have sufficient quarters. It is the exitence of these pensions that cause this exclusion. So the question I have are:

    If a State or local government tries to end a pension system, can it be done without a change in social security law on the federal level? If a teacher has 15 years into the current pension, if that portion is left intact but no further accumulations occur, then when the teacher retires will the teacher be entitled only to a small pension for the 15 years but no social security? When IBM froze it's pension, it's employees were entitled to receive their pensions for the time they had in, plus social security. The current federal law would not allow public sector employees to do that.

    The comments regarding bankruptcy are really not relevant. Though local municipalities can file for bankruptcy, I believ it has only been done a few times (maybe only once) because the cost to the municipality in bond rates end up more costing more than is saved. Governments issue bonds in order to pay the bills regularly, because the revenues come in sporatically. If the municipality's rating is adversely affected by the bankruptcy, which would have to apply to all creditors including current bond holders, then the cost to the government in additional interest in the future would be prohibitive.

    In regard to the public pensions payable by the state governments, bankruptcy does not apply because state governments do not have the right to file for bankruptcy. So if the states really wanted to pursue that option, there would have to be a change at the federal system first. Then the problems would really start because would a Federal Judge allow IBM to not pay it's obligations because it didn't want to? That is the proper analogy since a state government has the ability to increase revenues by increasing taxes. So why should they be allowed to avoid their legal obligations even though they have the ability to pay?

    If the states try to end the pensions, and convert to 401(k) plan, they would obviously have to fund these accounts with all pension contributions previously made by the public employees themselves as well as any amount the government bodies were suppose to be contributing all along . So do they have the money to do that now? Like many pension systems current employee contributions are used to pay retired employees benefits. So, how much money would the governmental bodies have to come up with, in addition to the amount currently held in the trust funds, to pay out all the contributions made by all the retired and current public sector employees? I would think that it would be at least equal to the existing shortfall in those pension funds, if not substantially larger?

    Also, with the end of the pension system, State and local governments would have to start paying into social security the employers share of FICA. Unlike the pension contributions, they would not be able to use these funds to balance their budgets by borrowing against them and giving the pension fund a government IOU.

    Since the State and local governments as employers are responsible for paying into social security, would the governments also have to come up with the 6.2% of each public employees salary for the entire time of the employees employment (example 15 years x salary x 6.2%) and pay that in a lump sum into social security which they avoided paying all these years? Or would they have to pay 12.4% as a private sector employer would have to do if he failed to have employee's contributions withheld? Has there been an analysis completed about what it would cost the states and local governments

    Unlike private sector employees where the pension system was set up in addition to social security, the public sector pension system is currently set up as a replacement to social security.

    So can any action eliminating or modifying the public sector pension system be valid without a prior modification to the social security laws by the federal government?

    Assuming that happens, we now add all the public sector employees to the social security system. Many of these people already have enough quarters. So how much would that cost the social security system?

    Has anyone examined the actual costs of such a change? There is alot of knee jerk reaction going on because of the perceived inequities of the system. But what if getting rid of a system ends up costing the taxpayers more?

    Would it make more sense to pass a law that required all government bodies to fully fund all their pension funds annually so they were actuarially sound ?

  • Report this Comment On March 03, 2011, at 3:59 PM, bigdividends wrote:

    I am curious why most politicians do not bring up military pensions. If you want to complain about state pensions, wouldn't you also want to complain about federal pensions.

    Political suicide I guess.

    jamesatjcslaw - great write up. I am curious if what you said cocerning FICA only applies to federal employees. State employees pay into FICA. The amount deducted for pensions only reduces tax liability (similar to the 401k)

  • Report this Comment On March 03, 2011, at 4:55 PM, ynotc wrote:

    Social Security and Government Pensions are unsustainable at current levels.

    What started out good has ended up a Ponzi Scheme. Every good Ponzi Scheme requires new money to pay the earlier “investors” and Social Security and Government Pensions are no different. If the current group of wage earners stops paying into the system there will be no future payments to current retirees. When Bernie Madhoff did this he was rightfully indicted for his crime.

    Because the tide has gone out we see what many have been prediciting for quite a while. That the government and it's bedfellows have been swimming naked.

  • Report this Comment On March 03, 2011, at 6:42 PM, gspaxis wrote:

    Leave schoolteachers alone. Already too few good people want to teach because of the long hours and low pay with the same student loans to pay off as anyone else.

    It is not the fault of the employees, public or otherwise, that we had this repression. Why are they the ones who must shoulder the burden of paying for it?

    Social security is fine with a small fix - it is not a general budget item, is held in a separate trust fund, and its only problem is that it had so many funds congress borrowed against it.

    Meanwhile, what about the obscene bonuses and golden parachutes the financial gamblers took on the public dime or the corporate welfare given to multi-billion dollar companies. The shortfall should be made up directly by the people who took us down and a surtax on the companies that have been on the public dole.

    I am a long-term investor, and, along with Henry Ford, I understand that long term paying the American worker well is good for everyone. It is also the right thing to do.

  • Report this Comment On March 03, 2011, at 9:01 PM, zoopsia63 wrote:

    There is much blame to go around -- that is go around the state legislatures and union halls -- for what is wrong with state and local government compensation, benefits and pensions. Just to cite an example of unions gone amuck, take the teachers' union in New York City and their "rubber rooms" for discredited teachers, teachers accused of child abuse, for one, and put out of the classroom. There is full pay, benefits, vacations, and retirement pensions for those former teachers spending the rest of their careers reporting to the "rubber rooms" located strategically around the city. The only requirement to receiving all of the above is to report each school day and spend time playing cards, reading newspapers, etc. GET RID OF THE RUBBER ROOMS. Just Google it and see what comes up.

    In Connecticut, public utilities are not permitted to police their own construction and/or repair sites. Local police departments rotate senior police officers to work extra duty after police shifts and on days off, charging exorbitant hourly rates to the utility companies. Utilities could police their own construction sites at one/third the charge of the local police department. This extorted money is paid over to the local police department, is included in the policeman's W-2, inflating his or her income sometimes by 100 percent in the last three years of employment and sticking the town or city's pension retirement system with that inflated pension for as long as that cop shall live.

  • Report this Comment On March 03, 2011, at 9:05 PM, zoopsia63 wrote:

    As a follow-up to the above Connecticut situation, utility companies have been unsuccessful in concvincing the state legislature to take back this union perk being foisted on the taxpayers.

  • Report this Comment On March 03, 2011, at 9:39 PM, KellieLyne wrote:

    I work for a school here in California. I get paid pretty lousy wages, but I love my job regardless. I pay into a pension through CalPers, and I PRAY that it will be available when it is time for me to retire. I have dedicated a good portion of my life to help educate our children, and do not feel that it is asking a lot to continue our current pensions. Hopefully we can retire with the same lousy pay into our golden years for all the hard work we have put into jobs!

  • Report this Comment On March 03, 2011, at 10:42 PM, LLynneB wrote:

    Obviously some do not have a clue about how public penions are funded. In SOME states, the employees contribute a portion of their salary to their pension. It is matched by the entity. Yes it is basically funded by taxpayers. I won't go into the difference between government funds and enterprise funds.

    Depending on the state the number of years worked determines what % of AFC (average final compensation) a pensioner receives. In WA state for instance a retiree, who has worked at least 5 or 10 years, depending on the plan they are enrolled in, will receive 1% or 2% for each year worked x the AFC. WA state has 3 plans with 2 open for enrollment.

    The State of WA is one of 4 or 5 states whose pension fund is solvent. Some states have separate funds for pensions such as WA.

    Also depending on the entity, the employee contributes to BOTH the pension fund AND Social Security. If they do not, the SS equivalent, or a portion thereof, is deposited in a 401, 457, etc. Therefore are entitled to receive both benefits.

    An understanding of government accounting helps when discussing monetary funds for public entities. All tax money collected is NOT dumped into one pot with everyone taking what they consider their share. If funds are designated for Pensions, there is a pension fund. If funds are designated for Transportation, there is a transportation fund. These two funds cannot SHARE their monies with other funds. i.e. General, Water, Prisons, Solid Waste, etc. The only fund that can help others is the General Fund. This may not be applicable to every state but it is for those of my knowledge base.

    Several states are beginning to make changes to their pension funds. They are reducing the % of AFC, lengthening the number of years before vested, making mandatory requirements to contributions to a 457, etc. The mandatory contributions are not governed by regular retirement rules except that they are just that, mandatory.

    In my PERSONAL opinion, private companies could do the same. Have dual contributions and matching funds. This would increase the pension benefit for the employees.

    Another thing I would like to see is for all companies, with a certain number of employees, to create a Deferred Compensation Plan; changes to the accounting rules (GASB) to require companies to setup a separate fund for said plan and have some way for those funds to be protected from bankruptcy laws, etc.

    Now on to health insurance. Again in WA the retiree pays 100% of any health insurance premiums. The exception may be the entities who have their own retirement systems which are called Class A cities. Those w/populations over a certain number.

    Off my soap box for now.

  • Report this Comment On March 04, 2011, at 1:06 AM, profitafool wrote:

    I came up the hard way as I imagine many fools have. I'm reasonably intelligent but never finished college. Didn't have the money, wasn't smart enough to borrow. I've worked since I was 16. Without the degree from college I migrated to the trades looking to make the most I could with the skills I had. I eventually ended my career in private construction as a project manager. After a turbulent period of high pay, bonuses, and then lay offs I decided to work for the County. Long story short, I ended up working as a Rehab Specialist & eventually as a Building Inspector. I've seen both sides of the equation & I find compelling benefits & drawbacks for both realms. The bottom line issue for me was the constancy of the work with the County and the benefits that came with a union. I found the pay scale in the private sector to be 30% higher with incentives & bonuses. The pay from the County was far lower, but decent. The pay went up incrementally at a rate that did not keep pace with inflation. The trade off was the health care & pension. This is the tipping point the "teabaggers" & conservatives want to alter. If they succeed, you will watch the caliber of the public employees decrease over time. This is a self-fulfilling prophecy for government that does'nt work. You get what you pay for. If you want cheap, you'll end up with inspectors that don't inspect, EMTs that don't care, and police that are'nt motivated. Think about that the next time you're on a bridge, or your spouse has a heart attack, or some nuts have entered a high school with rifles.

    The rant you are hearing from the conservatives & baggers is a ruse. Its a part of the "big lie", its a blatant attempt to demonize civil servants. The "big lie" also includes most of what Fox news puts out.. This program went into full swing after 9-11 with Homeland Security, seeking to stress out the populace with fear. The next phase was to create the "enemy", they just happen to be the guys that have most of the oil. So let's start a war, need a reason, we'llll we'll make it up as we go. Need to win an election, oh we got that figured too. Some of your buds need ready cash, well we'll just give em some contracts, send them overseas, and not pay too much attention to the billing or the results. A hurricane smashes the southern coast, well those folks don't have much money. Assign a buddy, who's incompetent, pay him a huge salary, and watch him fail. Tell CNN he's doing a great job as Americans die from exposure and neglect. Wall street and your buds feeling a bit constrained by banking and investment rules, well we'll just deregulate & hamstring the agencies, by cutting their budgets. FDA constraining profits on drugs, well we'll just slash the budget, and put an industry insider in the top slot. Senators & Congressman getting huffy, well we'll just hire out the best of them with lucrative jobs if they'll just look the wrong way occasionally. When it all collapses. well we did'nt think that could happen, and by the way lets have the taxpayers bail these guys out. They're too big to fail, they didn't mean it, they're our buds. The middle class is losing their jobs to overseas job competition , well that's just free trade. The middle class is living off credit cards & refi money, well that's just their own stupidity, easy cheap money greases the wheels of free markets. Cut taxes, deregulate, dismantle Social Security, refuse health care for the poor . I got mine & I'm gonna get yours, is the guiding principal. The sad, sad truth is they're winning. The middle class is in intensive care and can't make the copay. I always thought the American Dream was too big to fail, I think I was wrong.

  • Report this Comment On March 04, 2011, at 11:25 AM, idamoore wrote:

    Reportedly, Bank of America pays no corporate income tax.

    Warren Buffet has said that he pays less in income

    taxes than his secretary.

    Gov. Scott Walker gave tax breaks/reductions to

    corporations right after his election, and now says

    the state is broke???

    Anyone with a $2. calculator can figure out how much would be gained in revenue if those Bush tax cuts had not been extended. This is fourth grade arithmetic, people.

    Less than 13% of the public employee group belong to unions. In the private sector it is less than 7% who belong to unions.

    So, Public Employees who are in the 87% non union group have what benefits/salaries?

    And, Private Employees who are in the 93% non

    union group have what benefits/salaries?

    Some people with agendas seem not to mention

    the true facts nor ask the obvious questions.

    USA is becoming a serf society.

  • Report this Comment On March 04, 2011, at 12:14 PM, gypsywoman87 wrote:

    Dan,

    I'm a state worker at a University and you and others talk about this pension that needs to be changed now. Well, I don't get Social Security, this is our Social Security and we contribute half

    toward the amount. And as far as the state government taking care of the other amount, that's almost been cut down to a nothing share. So, this means the other half is paid for by student, who are our clients and that makes us no different from any other corporation paying toward Social Security. As for health and other benefits, I pay towards that now as I will pay towards it later just like medicare that I don't qualify for. As for federal workers, it's really no different they are being paid for by their clients, the people. Like any industry, some workers provide better service than others and some are just plan boxed in by regulation. Either way leave the poor public worker that has been vilified by Fox "News" and find a way to go after the Wall Street Villians who have not only got away with their "Mortgage Scheme", but have been rewarded with a tax cut.

  • Report this Comment On March 04, 2011, at 12:42 PM, WD562 wrote:

    Not all state government situations are the same. I am a retired state worker in Missouri and a recent study showed that compensation is 23% behind comparable private sector jobs even though educational requirements are stiffer for the public sector. Many thousands of state jobs have been cut and people let go (going back a couple of years). No pay increases(whether cost of living or other - unless one gets promoted) has been the norm in more years than not (even when the private sector gets raises). The pension and medical benefits at retirement is what keeps most hanging on although pensions for most are in the $10 to $25 thousand/year range and those that retire early must pay most of the cost of medical insurance ($1,000 or so/month for a family policy). Our pension plan is 82% funded but benefits for new state workers won't be the same. That may be necessary but new hires will make 23% less than they could in the private sector. In the Missouri case, state workers should not be asked to reduce retirement benefits without adjusts in basic compensation that would allow contributions to 403b's (up until a year or so ago, the state matched employee contrigutions up to $30/month but the match has been withdrawn and is $0/month. There are other states that have similar scenarios - state workers are people too and deserve respect and fair compensation.

  • Report this Comment On March 04, 2011, at 3:35 PM, 2010bpm wrote:

    Since the United Airlines and US air default on their pension obligations the federal government has changed the laws for privately funded defined benefit pension plans. Through actuarial projections required annually, if a pension trust fund has unfunded liability, that pension fund by federal law (pension protection act) must take actions starting with cutting benefits, increasing contributions or other measures (increased retirement age) that can fix the problem. State and local government Unions are not subject to this federal law. If these pensions were covered under the federal law their would already be corrective measures being put into place.

  • Report this Comment On March 04, 2011, at 3:58 PM, forestfarmer wrote:

    Interesting read. I've been on both sides. I was a private practice physician for 15 years, made about 50% more than I do now. Subsequently recruited back to a state medical school as faculty, took a pretty big haircut on the salary front, but got better health care coverage and a pension when I retire, as long as I work long enough to vest in it, specifically 28 years. I bought some years of service with my IRA that I built up from private practice (note this is my contribution), so now I'm 26 years into it. However, I have foregone probably over 50K PER YEAR income while at the "state job", busted my tail over the years, and had about 8% of my salary taken every year by the pension plan, in addition to the states contribution. Yet my pension will be 58K per year, not exactly what I would call "living off the public". Especially when you add up all I contributed over the years. In view of all the "free" medical care I've given out over the years, the teaching, extra preparation to arrange good lectures, etc., I don' t feel like I've taken advantage of the state. In many ways, it's the other way around.

    What they should do is adjust the formulas for pensions to reflect the fact that people are living longer, maybe raise the number of years to reach full retirement, etc. Also, in many ways what everybody is saying about state pensions applies to the biggest pension of all- social security. And yes, I have contributed to SS all the years while i've been a state employee. So if you are going to have a pension, they should fully fund it, not give 70%, or skip a year like they have done in some states.

    However, in my case if they terminated or stopped my pension, I would be raising holy hell !!!

  • Report this Comment On March 04, 2011, at 4:30 PM, fisherdoc wrote:

    It's really pretty simple. Life is an adult sport. It's high time for the "entitled" to realize nothing is guaranteed. Sure it's unfortunate, but, honestly, did anyone ever guarantee that life is fair? It isn't. Fairness is a human trait, and when there is misery to go around, you can be damn sure most of the humans will see the fairest thing to be spreading all the unfairness around equally. Trusting and/or expecting someone else, even under a contract, to secure your future whether it be your employer, the government, or even your parents, is begging to be disappointed, AT BEST, and completely robbed, at worst. Americans from as recently as 2 generations ago knew this and strove to take care of themselves . Stop and think: is giving your money to someone else and asking for it back 20 or 30 years later, after it is subjected to the ebbs and flows of world politics and economics, even remotely realistic? I suggest that kind of thinking is REALLY risky. Public pensions, much private pensions, will change drastically for the worse, and they should. There are no guarantees in life. Depend upon (and invest in) yourself as much as possible.

  • Report this Comment On March 04, 2011, at 5:55 PM, majac3356 wrote:

    the message to public sector workers in wisconsin and other states is that "you can accept some changes or end up in a bankrupt system unable to pay you anything!"

  • Report this Comment On March 04, 2011, at 6:52 PM, sbpension wrote:

    I have been a plan administrator for private sector plans for almost 25 years.

    It is a bad idea for states to over-react to the current problems by scrapping the best type of retirement plan for its mostly long term employees. The problem is the level of benefits promised, not the type of plan. Why not simply reduce the amount of retirement benefits for new employees to a level that is deemed reasonable.

    Replacing defined benefit plans with 401k plans will just add to the number of us eating from dumpsters in 20 years.

  • Report this Comment On March 04, 2011, at 11:40 PM, Upstate10 wrote:

    State and Federal Pension Plans need to change. A neighboring county here in NY recently stated that their contribution for the state pension fund for 2011 would be $2.9M. Back in 2001 their contribution was $190K. It has basically doubled every 2 years. The taxpayers can't continue to be held liable for these costs.

  • Report this Comment On March 05, 2011, at 2:41 AM, HardtoSwallow4u wrote:

    Its all about the mighty dollar and who will pay for all the baby factories that crank them out for cash, everyone know it. If we didn't have so many free programs and lavish welfare program. 3 kids $743 a month, 1 drug caused mental disorder $232 a month, 0 job priceless.

  • Report this Comment On March 05, 2011, at 2:50 AM, HardtoSwallow4u wrote:

    not to mention free cell phones, thats right I have one and will ride out the free train until it derails, 1 false police report (someone stole my rent) = government check (victims of crime)

    cry to a church for help = money for cigarettes.

    goverment issue food card = sale to hight bidder (alcohol money)

    child support that I don't have to claim or report = I make no money in turn equals more benifits. People with money have no idea what they pay for with their tax money. 1 happy baby maker = 1 vote for a liar.

  • Report this Comment On March 05, 2011, at 3:48 PM, WD562 wrote:

    Regarding the comment about promoting people just before they retired in order to boost pension payments, I am a retired state employee and was a supervisor for about half my career. I did not see that kind of thing going on in state government but was involved in many promotion decisions. Promotions were based on which of the candidates was best for the job. Anyone promoted would have had to work at least 2 years in a promoted position in order to reap any financial benefits in retirement and, even then, it would have been minimal unless it was a promotion that leapfrogged someone way up the pay scale. The other thing is most state workers were hired here (as new hires) with promise of the pension if they stayed long enough. The pay has always been low and cola's rare in my 35 year experience but the pension has been considered by rank and file employees to be part of their compensation (simply deferred until retirement). A different deal for new hires is one thing but for those that are nearing retirement, a deal is a deal and the pension should not be diminished (to do otherwise would be a terrible "bait and switch" thing and I doubt any in this forum would like that if it were them.

  • Report this Comment On March 05, 2011, at 6:59 PM, deg66 wrote:

    I've been in a union for 20 years and in 20 years when I can retire with full benefits there will probably be no money left because the international thugs will have spent all the money on things for themselves. Dont worry, they have good lawyers.

  • Report this Comment On March 06, 2011, at 12:30 AM, csufGrad wrote:

    Forget pensions. Become rich. This is America. We still have the American Dream. Even a welfare mother can run a dog-walking or baby-sitting small business.

    Start a business. Fail. Start another business. Fail. Start another. This is why we have bankruptcy in this country- so we can pursue the American Dream with sufficient funds risked.

  • Report this Comment On March 06, 2011, at 8:10 AM, pauljfitzgerald wrote:

    @quinnathome: Excellent points. "Why aren't we asking how private-sector employees can be made more secure, rather than how to make public-sector employees less so? " As a private sector employee whose retirement is more and more my own worry, and looks much more dismal than it did three years ago (despite the excellent wisdom of all you Fools, of course), I heartily agree.

    We are all victims of the culture of the early 2000's that enabled smoke and mirrors "wealth" and undervalued the social and real value of services and products, Blame the likes of Lehman and AIG for our troubles, not government employees. It's also a valid point that employees also paid significant amounts into these funds, and they were let down by the economy and/or poor management of the funds. Plus (as the NY Times editorial fails to mention but several commenters here pointed out) public employees tend to be in technical and professional positions, so comparing their salary to the average worker's is invalid.

    This latest beating up on public employees is simply the latest chapter in the game of privatizing profits and socializing losses that began with the bailouts. That's why it's particularly ironic that some people use the word "socialism" when referring to public employee benefits. "Socialism" thus seems to be when someone else gets what's fair and just, and you don't.

  • Report this Comment On March 06, 2011, at 8:29 AM, stemcellanalyst wrote:

    Entitlements need to go. People will be living dramatically longer lives and entitlements are simply unsustainable. For instance, Cephalon is leading the charge in the new wave of "biological drugs". PII results just published in Nature showed that Cephalon's "off-the-shelf" stem cell drug Revascor reduced MACE (Major Adverse Cardiac Events: chest pain, heart attack, death, etc) by an unprecedented 84%, virtually curing heart disease with a single injection. If you can afford it, the drug has been approved for treatment in Australia. Even though they just beat earnings, raised EPS targets, are net positive cash and have the highest FCF/share of any biotech, Cephalon is approaching a 52-week low and has the highest short interest of any stock in the S&P 500. Go figure. http://bit.ly/i1pYmr

  • Report this Comment On March 06, 2011, at 9:09 AM, skypilot2005 wrote:

    pauljfitzgerald wrote:

    @quinnathome: Excellent points. "Why aren't we asking how private-sector employees can be made more secure, rather than how to make public-sector employees less so? "

    I agree with this.

    We have CEOs making millions of dollars by taking money from stockholder equity. Let's address that before scrambling to a collectively lower quality of life.

    The studies I've read reveal that government workers are usually better educated and earn less on average than people with the same level of education in the private sector.

  • Report this Comment On March 06, 2011, at 9:11 AM, MD14450 wrote:

    Scapegoating public employees is unfair. While it is true the unions negotiated their contracts in "bad faith" (by threatening strikes or by selling their votes), contract negotiations were always with the collusion of Government. To hold unions solely responsible for the current deficits is to give politicians a free pass. There are honest solutions to this problem --- "term-limits" for one. But no one wants this --- not unions and certainly not the politicians.

  • Report this Comment On March 06, 2011, at 11:14 AM, Mzenfong wrote:

    The bottom line for most of these problems is the lack of either the knowledge or ethics or both to properly plan and manage financial assets and liabilities. Unfortunately for all of us our elected officials are merely a public image of who we have become as a nation. If you look thru history it is chock full of these kind of crises in a cyclical pattern. The key is constant vigilance which requires attention & effort on our part. What we need now is a true leader(s) who can strap on a pair of gourds and provide the spark that will bring out the more timid but ethically strong of us so that we can work together to competently solve our financial problems.

  • Report this Comment On March 06, 2011, at 12:36 PM, washbdan wrote:

    The politicians insist on diverting attention from the way they are giving the wealth of the country to those who don't really earn it. Retirement benefits are earned money. They are compensation for work actually done. The fact that some of the compensation for this work was deferred until retirement years does not alter the fact that it is earned. Now let's talk about the benefits that high-level managers in the private sector get. You know, the people who have run the economy into a ditch. The ones who are scraping all of the wealth in their own direction. Very little of the money they receive is earned. If the average CEO died and nobody told the rest of the company, things would go on as if nothing relevant had happened, because nothing relevant would have happened. "Redistribution of wealth" has been used as a trigger to get fools to follow people who hate them. The real redistribution of wealth has been upward. The last piece of the puzzle these people are assembling is the destruction of all unions of any kind, and the attack on pensions and collective bargaining is all about that.

  • Report this Comment On March 06, 2011, at 2:38 PM, mtb297 wrote:

    Yes some public employees do get 6 figure pensions. Try County Board in Milwaukee WI just before Scott Walker got the Exec job there. Former elected Board -- which is paid full time job -- decided to reward themselves and management with big pension raises. They called in the union and offered them a good deal too. Union agreed. When the county exec before Walker (making something like 110K) left, he got a pension of over 100K and also got a million dollar payout. This was all exposed by the Milwaukee Jounal Sentinal and there was hell to pay.

    This rape of the taxpayer was orchestrated by elected officials and not by lower paid unions. Something like the Cal. officials who gave themselves big pay raises.

    Again for those writers to this column who still do not get it, Wisconsin pensions are fully funded. The real issue here is whether unions will even continue to exist. And whether WI will be the first place that corporate America has its way

  • Report this Comment On March 06, 2011, at 3:34 PM, Tygered wrote:

    The government made many promises to the native Americans, but they only kept one. They promised to take their land and they did. Now corporations join them to take our money. We who worked as public employees took less money in our salaries so we could have a reasonable pension to live on in retirement and now they plan on reneging on that promise, but will they give us our back pay? Hell no.

    I'm just so glad that my wife and I were able to rollover our pensions and now the money is under OUR control. I do not fear being 75 and suddenly find out my pension stipend will be cut or deleted entirely. I only hope that we live long enough to get every dime we paid to social security. Trust me, the Republicans won't stop until they have stolen that money from us and given it to their corporate overlords. Too bad we can't take a lump sum on social security too. I would be first in line.

    My advice to the young workers out there: Realize you work in the jungle and your bosses have no intention of keeping any promises. Get your money under your control asap and plan on how to take care of yourself and your family, because nobody is going to help you in this country.

    As another poster said, USA is becoming (has become) a serf society. We are slaves to the corporations and our country is nothing more than a 3rd world dictatorship.

  • Report this Comment On March 06, 2011, at 3:46 PM, jsamans wrote:

    I'm extremely bothered by what is becoming the commonly accepted logic that providing a pension program is inherently unaffordable.

    Okay, pension plans have lost money. But pension plans are directed by knowledgeable pension administrators, and it's now well known that these plans lost far less than the average 401(k), because 401(k)s allow their beneficiaries to set up foolish asset allocations.

    A 401(k) plan is nothing more than a self-directed pension. If pensions are mathematically foolish and doomed, then so are the 401(k)s that have replaced them.

  • Report this Comment On March 06, 2011, at 3:55 PM, ChrisFs wrote:

    Another reason why 401ks are more popular with employers is that it takes the risk away from the employer and makes the brokers a lot more money.

    Instead of employers paying a certain amount (aka a defined benefit), it's the employees that now have to not only know their job but also be stock market experts as well. Pensions have a lot of money, so they can command lower fees from broker. 401Ks have less, so the fees are often double and that doesn't include the 'sub managed' funds offered in many 401Ks where the management company takes even more fees.

    Take a look at Contrafund returns vs ING Contrafund returns. It's the exact same fund, only in ING contrafund ING takes an extra fee for the privilege of offering it in their 401Ks, so of course the return to the employee is less.

    http://www.google.com/finance?q=MUTF%3AFCNTX

    http://www.google.com/finance?q=MUTF%3AVPCSX

    People who complain about pensions of public employees seem to either be clueless, jealous, or have a stake in getting them broken up. It's like complaining that Warren Buffet has too much money,

  • Report this Comment On March 07, 2011, at 12:44 PM, ilovesumm wrote:

    everybody should be equal , private or public sector .

  • Report this Comment On March 07, 2011, at 3:45 PM, Doris411 wrote:

    jamesatjcslaw's comments regarding government workers' ineligibility for Social Security do indeed apply to state, not just federal workers. I worked for the state university system for several years, with mandatory "contributions" (what an oxymoron) taken out of my salary (which was about 20% lower than I had previously earned in private business).

    My Social Security statement shows zero earnings for those years.

    Since I left before being vested, I will receive no employer contributions for those years, only my own funds returned to me.

    And no credit in the Social Security system.

    Perhaps one of you could explain to me how this constitutes public employees getting overly generous benefits?

  • Report this Comment On March 07, 2011, at 11:30 PM, kddunwoody wrote:

    Has anyone here ever heard of a CAFR (Comprehensive Annual Financial Report)?

    Do you realize that most cities, counties and states have millions, nationally totaling several hundred billions of dollars in investments that are being HIDDEN from public view? This is one of the greatest scandals among many that are being perpetrated on the public. We could solve our alleged insolvency straight away if we forced them to hand over OUR money. What are they intending to do with these funds!

    Visit Walter Burien's site http://cafr1.com/.

    As his site states...

    "GOVERNMENT OWNS IT "ALL" BY INVESTMENT

    Now the Key Question is: Do you own Government?

    Or, does Government own you?

    How many governments exist in the United States?

    The 1997 Census of Government says it best...

    "There were 87,504 governmental units in the United States as of June 1997. In addition to the Federal Government and the 50 state governments, there were 87,453 units of local government. Of these, 39,044 are general purpose local governments - 3,043 county governments and 36,001 subcounty general purpose governments, including 13,726 school district governments and 34,683 special district governments." What wealth is held in your local CAFR's?"

    CAFRs are available to anyone.

  • Report this Comment On March 08, 2011, at 8:35 PM, mythshakr wrote:

    Random thoughts

    1. Just how much money does it take to retire? If you know THE answer please share.

    2. Getting rid of all after office benefits for all elected officials would remove an inherent conflict of interest and one incentive to remain.

    3. I completely support collective bargaining, public and private. But, as suggested above, no elected official or persons appointed by elected officials should be allowed at the bargaining table or have any say so whatsoever over the negotiations or the result. That is a conflict of interest. Politicians have proved beyond a reasonable doubt that they are really lousy negotiators and excellent panderers.

    4. "Why aren't we asking how private-sector employees can be made more secure, rather than how to make public-sector employees less so?" Because "we" can't afford it. Just where do you expect those "security" dollars to come from? E.g., the US's comparative advantage in manufacturing is bad enough, that will only make it worse. Oh, I know, tax all the "wealthy" at what, 100% That might make a 1% difference.

    5. The six figure retirement benefits are largely the higher ups in the public employee hierarchy, as noted above in Wisconsin. It is really no difference at that level between the public and private sector except for who is paying and the lack of results criteria. In California, at least, it also applies to police and fire who get 90% after some period of time by which they are making six figures.

    6. The Repubs and Dems really screwed the middle class with this 1 year SS reduction. It upped your taxable income and they didn't even offer an avenue to put it in your own retirement plan above the current contribution levels. If they really cared anything about the middle class they would have a provision to put that money in a Roth, tax free in and out. That would have been an incentive.

    7. Federal retirees (including military) do collect SS. They are required to apply for and collect SS, if eligible. Their pensions are offset by some percentage but they are guaranteed that between SS and their pension they will receive X.

    8. The current incentives for people to manage their own retirement funding are wholly inadequate for the risk/rewards they are being required to take for what amounts to mandatory participation. They call it voluntary but people who do not participate, particularly early on in their career so compounding can work for the person, have no clue just how screwed they are.

    9. Did you know that an employer cannot contribute more than 6% to an employees 401K? Even if a magnanimous employer wanted to contribute more the tax code disallows it. Who's interest does that serve?

  • Report this Comment On March 09, 2011, at 12:40 AM, tikalily wrote:

    askrck, you hit the nail on the head. A lot of us state workers have happily paid into the state MANDATED portion of our wages. Let's call it a state forced retirement. We pay into the system and 15 years in they say oops we are broke. My point is, We HAVE been paying in, not only to the pension but the health insurance also with regular increases and now they say we can't pay you when retirement happens...If you live in Washington State everyone knows they have been robbing the plans for years... to make up for their fiscal incompetance, Where is the accountability?

  • Report this Comment On March 09, 2011, at 10:40 AM, smpico wrote:

    Great comments and observations! To the point of the articles, public pension jeopardy is a consequence of bad governance. Some benefits ought never to have been awarded, admittedly. Those aspects of the plans need to be addressed. Eliminating defined benefit plans is precipitous and unnecessary, especially as a response to current economic conditions. It represents an easy fix to a more complex problem. By the way our friends in the insurance industry are more than willing to sell you an annuity. Even with their commissions and fees, don't they guarantee the benefits? Doesn't that constitute a contract, a defined benefit. So it is possible. Part of the problem is the brain trust whose task it is to part government agencies from the revenues they collect. Those people are much more clever than the elected officials who created this crisis, and now need someone to blame. I'm not necessarily a union guy but I have a deep respect for the people who do the work of government and provide the array of services to our people. A little appreciation, if you please

  • Report this Comment On March 09, 2011, at 1:33 PM, vpsoccer wrote:

    Most of the "affordability" argument is bogus. Even top-quality pensions can be fully funded. If they are not, then it is the fault of those who failed to pay when they should have, or who invested poorly--such as only in government bonds to fund the deficits--instead of wisely and widely diversified. No such thing as a pension that is "too rich." If it is part of the compensation package, then pay it. Look at military pensions--you give over a lot of your life for a shorter time than civiy jobs, and get a better/earlier pension package. As long as it is funded....

    Calc a simple example. Take 15% (half employer half employee) of salary per year (grow salary 2% per year) for 35 years, invest it with a 7% return until and after retirement. Pay pension of 70% of average of top 5 years, with indexing of 2% per year, and you can easily pay the pension for another 35 years. You can pay the pension for 50 years and more and still have a ton of money left over.

    That is a typical (Canadian) government pension and it is fully funded if the government pays its agreed share (employees have no option but to pony up their share).

  • Report this Comment On March 09, 2011, at 5:58 PM, maaries wrote:

    I get sick of hearing how the 'taxpayers' are bearing the burden of public pensions. First of all, since when are public employees not taxpayers, too? And do public employees get a tax deduction for that portion of their taxes that pay their salaries and pensions? No way!!

    Second, in most public employee pension plans, the employee and employer contribute matching amounts. For CalSTRS, Calif. State Teachers Retirement System), teachers contribute 8%--more than those contributing to Social Security. Oh, and teachers are prohibited from contributing to Social Security, so their CalSTRS pension is all they are ever going to get--no SS safety net.

    Third, the government crisis was not created by public employees--it was created by greedy financial institutions that cause giant stock market losses that impaired the returns pension funds rely on. And it was also created by government's refusal to raise taxes where needed, granting great tax loopholes to corporations--then cutting programs of middle class Americans.

    Fourth, this is not a fight between public v. private employees. Make no mistake--this is an attack on middle class Americans by the superwealthy and by financial institutions and other corporations. Don't forget the corporate greed and the flagrant violations of law by these institutions that started this mess.

    First they eviscerate the financial well-being of private employees, then they set the private employees up against a false enemy--public employees. Wake up folks--other middle class Americans (and that's us public employees) are not the enemy; public employees are more than willing to fight for the restoration of the benefits the private employees once enjoyed--until the corporations decided big bonuses for execs. etc, were more important than you were.

    We are all in the same boat--public and private employees--and we are all being attacked by the same enemy. Just take a deep breath and think about the financial crises of the past 10 years--Enron, World Com, Bernie Madoff, AIG--it goes on and on--and the taxpayer bailouts of them and the banks. Your neighbor is not the enemy or the problem. Don't get distracted. THINK!!!

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