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August 07, 2010

Comments

One could consider public sector workers' defined benefit pensions to be just like Social Security: a Ponzi scheme which is reaching its inevitable collapse point. Granted, most of the money in public sector pensions did not come from payments to eventual beneficiaries. But the disconnect between predictable future expenses and possible future income applies to both.

Back in the 1980s, Wall Street takeover artists perfected an interesting tactic:

1) Find a company with a guaranteed benefit pension plan and a workforce with a relatively low average age;

2) Claim the pension plan was "overfunded" despite people pointing out that the money would be needed in 20 years to pay the promised pensions.

3) Take out loans secured by the pension plan's assets, and use that money to buy the company

4) Sell the vast majority of the pension plan's assets, keep a big chunk of them as their own profit, and flip the company to someone else.

Now that the 20 years have passed, and the pension funds are underfunded, everyone is shocked?

My guess is that these Wall Street looters and their friends are also the people who now find it appalling that retirees actually expect their employers to live up to the bargained-for terms. How about seizing the yachts, mansions, and other assets of the takeover artists who originally looted the pension funds, and use that money for its originally-intended purpose: funding pensions?

So you are going to blame government workers for trading lower pay to get better retirement and benefits. And all of this could have been so easily solved by paying gov't workers less than the private sector and offering lousy pensions, I can't see anything wrong with that plan.

And when does less than $35,000 a year become some kind of ridiculously luxurious retirement? Of course, what do these people need the money for? I mean they don't eat much and these days if you have a decent internet connection then you don't even really need to travel.

But I do agree with your first line, it's a snow job and it definitely smells.

For those who didn't experience the joys of Reaganomics first-hand, here's an article from 1987 about how cutting a pension fund's assets resulted in increased stock prices: "The Stock Price Response to Pension Terminations and the Relation of Pensions with Corporate Takeovers"

(I know this is for private pensions - but public pension funds were subject to similar pressures to what we'd now call "underfunding" but what was then termed "avoiding overfunding" of pension plans.)

http://www.jstor.org/pss/3665648

Abstract: Analyzing the stock price response to the termination of overfunded pension plans during 1980-1987 finds a positive effect on shareholder wealth around the date the terminations are filed, with firms undergoing reorganization experiencing relatively larger reactions on the file date. No stock price reaction is found on the legal termination date. There is no systematic evidence that takeovers are the primary cause of terminations. There is some evidence of harm to shareholders from pension parachutes implemented to impede takeovers. (emphasis added)

Speaking as a member of the generation designated to pay for all of this,

well, Jacob, another kind of divide and rule pits the generations against each other, ignoring heterogeneity within them...

(I agree with RogueDem)

absolutely everyone involved in setting up this disaster deserves scorn

I'm not sure that's true.

Some of the shortfall is no doubt due to investments falling short of projected earnings. I'm not sure anyone involved in the pension dealio is responsible for that.

If you want to complain about some kind of inherent unfairness of defined benefit retirement plans ("The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed.") then you also have to acknowledge that public employees have often traded away other forms of compensation in return for those.

The problem here is that the states and municipalities don't have any money.

Could be that everyone is going to have to tighten their belts. Which sucks. But sometimes it can't be helped, and it's not particularly surprising in the current economy.

My complaint is that the pensions of public employees -- we are talking cops, firemen, teachers -- are fair game, but people crap a freaking brick if anyone discusses raising marginal income tax rates on wealthy people.

A lot of cities, states, counties, and towns are broke. Beyond broke, they're going belly up. That's going to mean a lot of pain for a lot of people.

I don't mind deficit spending at times like this, but I also don't mind enhancing revenue by adjusting the tax burden.

If you're looking for who's getting a free ride, public employees are probably not the place to look.

My complaint is that the pensions of public employees -- we are talking cops, firemen, teachers -- are fair game, but people crap a freaking brick if anyone discusses raising marginal income tax rates on wealthy people.

Not only that, look what happened with the discussion around whether the same Masters of the Universe who nearly wiped out the global economy with their ridiculous investment instruments deserved multi-million dollar bonuses for it. "Promises were made to them! Contracts were signed! They're owed that money!"

Why . . why it's almost as if only promises made to rich people count, or something.

I think there is a lot of blame to go around. Public employee unions are some of the most powerful in the country and negotiated pension plans and escalations far beyond the comparative norms, even before we did away with private sector pension plans.

However, there is NO government expenditure that I place a HIGHER priority on than guaranteeing that the pensions promised and earned are paid. VA benefits of all kinds are equal.

We should ensure that pensions are earned fairly (in Mass and RI I know the system gets gamed a lot) but we should abide by that contract with people who have planned their whole financial lives around that promise.

Those companies and unions trying to NOT pay pension benefits, public or private should be forced to pay them first, and if they can't, then I support a bailout.

That's my pitch for SS too, it is a government sponsored pension plan that people have paid into and counted on all their lives, it is a contract that shouldn't be broken.

Getting rid of pensions to boost profit margins was going on throughout the 90s, too. And any company going through reorganization dumps their pensions on the Pension Benefit Guaranty Corporation.

Some of the shortfall is no doubt due to investments falling short of projected earnings. I'm not sure anyone involved in the pension dealio is responsible for that.

The ROI projections I've seen for some of those plans were, let's say, unsustainably optimistic. I think some governments were using the projections as an excuse to short the plans, hoping that taxpayer outrage down the road would fall on the employees and not the plan managers. *That* hope was not unsustainably optimistic; so far so good.

Pensions for Philadelphia public employees do not have COLAs; any increase has to be voted on by City Council and signed by the mayor. Don't know about the state or the school district.

And like Phil, I marvel that so many of the people who thought walking away from your mortgage is the abomination of desolation ("contracts are sacred! how can you deadbeats live with yourselves? won't somebody think of the banks?!") (even when that contract includes the option to walk away, and specifies what will happen if you do) think that walking away from a collective bargaining agreement is only fair if it inconveniences people who don't want to pay taxes.

you also have to acknowledge that public employees have often traded away other forms of compensation in return for those.

You do, certainly. But I think there is some scorn due union officials and negotiators who failed to insist on the pensions being funded. Just like politicians, the union leaders have an incentive to look good today at the expense of tomorrow.

That would have exposed the true cost of the pension at the time it was actually being incurred. (This is common sense, not to mention standard accounting procedure, for other sorts of expenses.) It might have led to different contracts, less attractive on the surface perhaps, but more likely to be fulfilled.

That's not to blame the individual cops, etc., who weren't directly involved.

Harpers had an article a few years ago about this:

http://harpers.org/archive/2005/04/0080499

If there are any literate humans left a hundred years from now, our economic history will be diagrammed by a empty pyramid with horizontal sections, and large arrows of cash flowing upwards, and beside it a timeline showing incidents of scapegoating as those beneath are cut free.

But I think there is some scorn due union officials and negotiators who failed to insist on the pensions being funded.

I'm not sure that's something you can bargain over. Those plans generally have trustees and managers who oversee the funding and investing side, and they're not sitting at the table when contracts get negotiated. You negotiate benefits, but not plan design, any more than you negotiate exactly how the employer is going to meet payroll.

Bear in mind I think all but the most egregious deals should be kept, and those may not form a significant part of the shortfall. But for instance inflation-blind automatic increases do not seem to serve an equitable purpose. And "pension year" scams where workers collaborate to have a last year that their pension amount is based on that is unreasonably more than the salary for the rest of their career, those may need some adjustment - at the very least we ought to stop letting that happen anew.

I am all for keeping intergenerational compacts but they have to be equitable when the time comes to make good. If we agree that I'm going to repay that $100 I owe you by having my son pay you $500 in 2060, that's one thing. If I promise $10,000, you may not want to count on that.

The unions and workers should have treated pension pre funding like other compensation - that is, if you don't get paid, you go on strike. Unions collaborated to turn a blind eye to underfunding and overoptimistic projections of returns because that was the easy route. It should not be a surprise when problems arise later on.

@JD
The unions and workers should have treated pension pre funding like other compensation - that is, if you don't get paid, you go on strike.

Theoretically, sure. In real life, in most jurisdictions, strikes by public-sector unions (or at least, public-safety unions) are illegal.

In the town we lived in, the teachers got around that by "work to rule". But I don't know that that's practical for cops, firefighters or DMV clerks.

You should take it from the title that I am not sympathetic to the class or generational warfare angles. But it is a mess and we are going to have to pay for it and I think it's important to understand how we got here in figuring out an equitable solution. (Taxes that fall on wealthy older people who were the ones who benefited from the lower taxes during the underfunding period would be a good place to start.)

I am irritated by the presentation of this as being about greedy workers when the reality is much more complex. And in any case, "liking money" is not a sin; it's the primary motivating force in the economy.

" (Taxes that fall on wealthy older people who were the ones who benefited from the lower taxes during the underfunding period would be a good place to start.)"

Of course, this is as starkly class warfare (besides not being necessarily true) as any statement made in the post.

Were they wealthy then? Were the taxes low just for the wealthy and what was the money diverted to? Did they reap any benefit from that?

Raising taxes isn't horrible but, if you don't want class divisiveness in the working it out process, it would be better to not start by singling out A group who somehow SHOULD pay for it.

Efgoldman: Theoretically, sure. In real life, in most jurisdictions, strikes by public-sector unions (or at least, public-safety unions) are illegal.

Fair enough. Maybe strike wasn't quite the right word. My point is that they should have treated underfunding like not getting paid. The plans are supposed to be pre-funded, not to rely on a general fund bailout in the out years. In treating underfunding differently to missing salary they helped to create the current situation. But here we are all the same.

we are going to have to pay for it

To the extent that the pension funds were properly funded and then raided, we are going to have to pay for it again.

See e.g. RepubAnon at 11:27 and passim.

How many public sector workers are receiving $3,000 a month pensions?

That's $36,000/yr. I mean, that seems pretty much what you would want a middle class pension to be for retirees of middle class, public-sector jobs.

Of course, this is as starkly class warfare (besides not being necessarily true) as any statement made in the post.

Marty, that's a lie meant to disrupt and shut down any rational discussion. I'm tired of the unhinged hatred of rightest screeching "class warfare" every time we discuss taxes being held artificially low. If you don't have a rational argument, you need to come up with one. The hate and vulgarity from the right on this issue is unacceptable, and screaming "class warfare" every time some advocates a tax regime you don't like-- and even worse, trying to draw a false equivalence between that statement and the vulgarity from Ron Lieber is not just acceptable, it is willfully dishonest and an attempt to shut down debate and to position yourself as the "reasonable moderate" who just happens to take the side of the right.

" (Taxes that fall on wealthy older people who were the ones who benefited from the lower taxes during the underfunding period would be a good place to start.)"

"Of course, this is as starkly class warfare (besides not being necessarily true) as any statement made in the post. "

Remember, it's only class warfare when the poor start shooting back.

That's $36,000/yr. I mean, that seems pretty much what you would want a middle class pension to be for retirees of middle class, public-sector jobs.

Right, but I am guessing that there are a lot of people getting a lot less than that (and no SS/Medicare). That guy was a fairly recent retiree.

Marty, I exaggerate a little, but all taxes fall more on the wealthy, and it's fairly safe to say that those who are wealthy now benefited from low taxes in the past. (They had to have had income to get rich, right?) And given the established distributional effects of the tax cuts of the past decades I think it's fair to say that that's where funding shortfalls mostly ended up.

Hogan,

I'm not sure that's something you can bargain over. Those plans generally have trustees and managers who oversee the funding and investing side, and they're not sitting at the table when contracts get negotiated. You negotiate benefits, but not plan design, any more than you negotiate exactly how the employer is going to meet payroll.

I'm not sure either, but there is a difference between the funding issue and investment strategies, so I suspect you get to bargain over the former but not much over the latter.

You don't need investment managers and such to set funding levels. You need to agree that the pensions will be funded, based on some sensible assumptions about returns. Then you need actuaries to do the calculations.

Of course there is some interplay there. Assume high returns and it takes less to fund the plan - changing the return assumption used to be a favorite game of takeover types. And if you set the return too high you will likely end up with unduly risky investments.

all taxes fall more on the wealthy

Well, no, they don't. Period.

Regarding the "class warfare angle", warfare is when people are shooting at each other. We don't have class warfare.

Regarding whether "the wealthy" are being singled out in some unfair manner, I personally advocate a small-to-moderate increase in marginal income tax rates on wealthier income earners because (a) they have the money and (b) levying a tax on them will do the least overall harm.

I'd prefer that we didn't raise taxes, at all, on anyone, but we need the money.

If anyone thinks it was off-topic for me to raise the tax issue in the first place, I'd simply remind you that states and other municipalities are who employs public workers, and states and other municipalities get their revenue from taxes.

They are out of money, and so they are considering reneging on pension obligations. If that's what needs to happen, that's what needs to happen. In cases where the contracts were egregiously out of bounds in the first place, that's likely what should happen.

But net/net, unless they raise some revenue, nobody's getting a dime.

Bernard: Exactly. You don't bargain over specific levels of funding; you bargain over benefits, and the trustees and plan managers determine how much funding is needed to pay out those benefits.

There are very few issues my local would strike over, and I don't think we're unusual in that respect. I'm almost positive this isn't one of them. Telling them to give up their income indefinitely because we demand that the plan be funded assuming a 5% rate of return rather than what we think is an unduly optimistic 8.5% is not going to get past a membership vote, and if I made that motion, I might leave the meeting alive, but I would never win another elected office. By and large, members don't understand the issue as well as they should, and even if they did it's too remote to convince them to take the enormous short-term risk of a strike.

And in the case of public employees, it's not just the members who need to understand the issue, it's the voters and taxpayers. You can do yourself a lot of long-term damage by striking over issues which most people won't even understand. The "greedy unions" frame is too durable to try to break out of on technically difficult issues, even when they involve fundamental economic justice.

I believe strikes by public employees other than police and fire are legal in most places (and here, the police and fire unions generally do better in arbitration than the non-uniform unions do in negotations). I know there have been campaigns to make it illegal for teachers to strike, but I don't know how many of those have succeeded.

Hogan: Telling them to give up their income indefinitely because we demand that the plan be funded assuming a 5% rate of return rather than what we think is an unduly optimistic 8.5% is not going to get past a membership vote

Yeah, but that rather undermines the idea that it should be treated as being just another type of compensation, like salary. I recognize that a strike would be hard to arrange over something like this, but that tacit acceptance of underfunding is going to be held against these workers when the time comes to pay out.

To me it seems like a pay-as-you-go scheme like Social Security is safer because it relies on growth in the general economy rather than growth in specific investments, even though that seems perverse.

Hogan,

I understand your point, and appreciate that you have some experience here that I lack.

But does it really come down to a question of striking over the issue or letting it go? Presumably lots of things other than return assumptions are involved in contract negotiations, so surely something else can be traded off for more secure pension funding.

It may well be that that would be a very hard sell to the membership, though I'm not sure why it ought to be a lot harder than selling a tradeoff involving health coverage, for example. Still, I'll take your word. But then those who were willing to accept less secure pensions in exchange for other things bear some of the responsibility when things go south, don't they?

According to Mr. Buffet we do to have clas warfare. And the rich are winning.

I'm familiar with the University of California retirement system. Their cost of living increases match the CPI up to 2%. That means that when the CPI is larger than 2% the retiree loses, although at times they grant a 2% increase for those retired earlier to partially make up for the years their COLA didn't increase as much as the CPI. For instance this year there was a 1.61% COLA increase for those retired after July 1, 2006, and 2% for those retired before July 1, 2006.

As they describe:


How the COLA is calculated
The UCRP COLA formula generally matches the cumulative increase in the CPI up to 2% annually. This year members who retired before July 2, 2006 will receive a 2% COLA. The larger COLA helps those UCRP recipients retain more of their their purchasing power by partially making up for the years of inflation greater than 2% that were not matched by the UCRP COLA.

So who are these people who get the 3.5% increase no matter what?

Additionally, if inflation is much higher there are higher COLAS, but they don't keep up with CPI inflation over 2%:


100% of the CPI increase up to 2%,
75% of the CPI increase over 4%,
Maximum COLA 6%.

I have a lot of trouble mustering sympathy for public sector unions which 'negotiate' enormous public pensions which sometimes feel like scams, but that may be because I'm from San Diego where it was actually pretty close to being a scam.

The problems with defined benefit pensions in general are on a couple of dimensions:

a) they were originally designed for shorter retirement periods;

b) many of them used to be a significantly smaller fraction of your end-salary;

c) because of a and b it was easier to fund them.

As much as I like firefighters for instance, I don't think paying them 3% of highest salary per year of service if they retire at age 50 is really a great thing if they are likely to live into their 70s or 80s (the infamous San Diego plan). Nor do I think it is good to let them 'retire' and stay in place so they collect both salary and retirement benefits (the infamous San Diego deferred retirement option plan).

Again I don't blame the employees. I blame the corrupt pairing of public union bosses with city hall members.

@ Sebastian

It seems, whether its baseball players or auto workers or cops and firefighters or railroad engineers, its always the ::scare quote alert:: "Greedy Unions" that get the blame.

Again I don't blame the employees. I blame the corrupt pairing of public union bosses with city hall members. This is very much on point.

A labor contract is signed by two parties. No-one held a gun to Daniel Snyder's head to sign Albert Haynesworth. Similarly, when the Big 3 automakers started the cycle of unsustainable contracts in the 1950s, it was because whichever was chosen as the "lead" firm by the union, caved rather than chance a strike that would allow its competitors to get a sales advantage.

Similarly, once public sector unions got collective bargaining rights, the members reminded their local politicians that they were also voters. And relatively few people vote in local elections.

(Parenthetically: I once heard Barney Frank, no less, when he was an aide to Boston Mayor Kevin White, say that public employees ought to have civil service rights *or* collective bargaining rights, but not both. I think he was right.)

I think "the public unions as local voters" is probably what pushed so many unrealistic and unsustainable contracts and conditions. Nevertheless, even Republicans and Grover Norquist need people to put out the fires, plow the streets, and teach the kids.

And yes, there are certainly union locals and individual workers who abuse and game the system in the worst way - see Boston firefighters and NYC teachers for plenty of examples. The problem now, though, is that history is past. We have to do figure out what do do next, in an atmosphere where one major party (and innumerable talkers and writers) want to take us back to the 1890s model of public employment.

Dean Baker pretty much took this article apart in a couple of paragraphs.

http://www.cepr.net/index.php/beat-the-press/

...and I agree it is despicable to see such bold faced editorializing put out there as news. Lieber's article verged on propaganda.

"A labor contract is signed by two parties."

I'm happy to give you that in the private market analysis. In public employee pension cases the union/management dichotomy isn't always as clear.

"Similarly, once public sector unions got collective bargaining rights, the members reminded their local politicians that they were also voters. And relatively few people vote in local elections."

Sure which is why it isn't *illegal*. But that doesn't make it wise policy.

This comes back to my recurring point on democracy and payment. It is dangerous to wise democratic government for the voters to believe that they can vote large increases in benefits and not have to incur increases in payments. In city elections--especially for low profile positions--the voting can be dominated by people on one side of the equation, especially if the key issue hasn't come to the public eye yet. In the San Diego pension case for example, the voting and locking in of pensions happened years before it became obvious what to the public what was going on. (See also the ridiculous case of Bell.

It is very unlikely that the processes are illegal. But they sure are unwise.

A defined benefit pension that lets you retire at 50 with 90% of your salary for 20 or more years is going to be a tremendous drain on the city coffers for a very long time. It is almost impossible that such a system can be part of a system-wide long term plan. Without tremendous growth in city money, there is no way you can expect to do that over say 100 years worth of employees. So why in the world would you be stupid enough to authorize it for the current group of employees?

I'm not sure of the answer, but whatever it is, points to a problem. Right?

...but whatever it is, points to a problem. Right?

Absolutely.

It is dangerous to wise democratic government for the voters to believe that they can vote large increases in benefits and not have to incur increases in payments.

I don't disagree. I think most folks here would agree. But we're smarter than the average bear.
:::pats ObWi denizens on the back:::
But "wise democratic government" you posit requires a far, far higher level of voter engagement and thoughtfulness than I've ever seen in MY lifetime, and I'm 65. (And unable to retire, BTW, because my private-sector 401k took such a hit in 2008.)

The closest we've come is in general throw-the-bums out elections, and those are usually around a single issue. "Public Pensions are Unsustainable and I Haven't Got The First Freaking Idea How to Fix It" is not going to win many elections. In Boston this year, when the city council had a chance to take on the firefighters (over drug testing, not pensions) the pols laid down like dogs.

Also one more thought: While Social Security and federal pensions might some day also become unsustainable, the feds, as we know, can run a deficit to pay them. States, counties and municipalities? Not so much. But I think a lot of people just conflate all government pensions with federal programs. So we get "what, me worry?"

Private sector employees used to earn pensions too; until, as RepubAnon pointed out, parasitic capitalists figured out a way to steal them.

Just like everyone used to be able to count on getting at least some Social Security, until Alan Greenspan and the parasites of the GOP figured out a way to borrow against the SocSec fund (after raising SocSec taxes to "ensure the Fund's long term liquidity") in order to pay for tax cuts for the wealthy.

So we as a country, via our politicians passing legislation to make it possible, allowed parasitic corporate executives and GOP politicians to take the monies meant for the general population's retirement, and employees' retirement, and divert it to their patrons.

Now the only class of employees who haven't been robbed blind are public employees. Because they have effective unions who negotiated pension contracts which, in a manner unique in the current universe, actually favor the employees.

And I'm supposed to resent them? I'm supposed to advocate for, or at least support, screwing over public employees the same way everyone else has been screwed over? And I'm supposed to resent the fact that they have effective unions?

Fnck no.

No, I don't think the solution to the "problem" of public employees getting the pensions promised to them is to deny them those pensions, nor to resent them for getting a better deal than private sector employees.

The solution should be to strip the parasites of what they've taken, and strip them of power and influence so they can't steal anymore.

Yeah, like that's going to happen...

Public employees worked hard to get their pensions - at least as hard as the CEOs who sell their companies off piece by piece; and at least as hard as the politicians who curry favor with parasites and predators in order to stay in office. Public employees deserve their pensions. It's not their fault the rest of us are screwed.

Hell, 20 years from now, public employees might be the only middle class left.

I've been googling a bit to follow this, and I'm a bit confused. Some pieces talk about the money, but don't give much data, and other pieces talk how the main thing is the generous health benefits. Does anyone have an idea about what precisely is the problem? Is it a simple monetary shortfall, or is it tied to health costs?

"Hell, 20 years from now, public employees might be the only middle class left."
Likely true when everyone else has paid for their pension funds.

Seb @ above: "It is dangerous to wise democratic government for the voters to believe that they can vote large increases in benefits and not have to incur increases in payments."

The very sine qua non of the wealth holding class. They receive vastly larger public benefits than anybody by far, and they have convinced a substantial slice of the population that making them pay for these goodies constitutes a kind of social and/or economic evil.

So why in the world would you be stupid enough to authorize it for the current group of employees?

Because realistically a 62 year old firefighter isn't worth anything to anyone. The dynamics that created the current situation don't disappear just because pension funds got raided. In a lot of cases these people don't get social security, in some, it's the nature of the job that forces them to retire early (my line of work, air traffic control, has mandatory retirement at 56) so even if they get social security they won't be eligible for years. There's a lot of things that goes into why pensions became what they are.

We're twisting ourselves into the ten basic yoga positions by pretending that we can have the civilization we've become accustomed to without taxation. So yes, the elephant in the room is: this is going to have to be paid for, one way or another.

In all fairness, I can't say that the public sector unions aren't culpable in all this, but I do find it interesting how the right is determined to push the blame entirely onto such left-leaning mechanisms, especially in the public sector, when the wealthy have gamed the system, curried favor to the extent they have, legally created mechanisms for stealing this accumulation, then piously carp about how they are entitled to it in such a way as to curry our sympathy.

And it seems to have worked - a good number of Americans, including those who are getting screwed, indeed appear to be sympathetic to all this and blame, well, themselves for not working "hard enough," when more Americans are working harder than ever and have less to show for it than what they did 20-30 years ago.

Unions are supposed to negotiate wage and pension benefits to the best degree possible. That's what unions do. And notwithstanding the excesses and taint of corruption, the public sector unions are among the most successful of their kind. At bottom, their executives were motivated by a good beyond themselves - to see that their rank-and-file got what they were entitled to based on what they gave for their service. Hell, don't forget that cops and firefighters actually die on the job now and then, and teachers (gasp) actually take home work with them, are still not often fully compensated given their responsibilities, and really don't stop working even over the summer breaks. By contrast, the executives of the CEO set give every indication that they are only motivated to serve themselves, their companies be damned, and slink away with their tails between their legs and eight-figure severance packages when the rubber hits the road.

"And I'm supposed to resent them? I'm supposed to advocate for, or at least support, screwing over public employees the same way everyone else has been screwed over? And I'm supposed to resent the fact that they have effective unions?"

So there is a basic right to life long pension at 90% of pay?

Or do you mean something else?

I'm not talking about taking away anybodies current pension. (Well almost nobody. The workers at the City of Bell probably need it). I'm talking about not being stupid enough to guarantee someone's peak income for 20-40 years after they stop working.

And the era of the ubiquitous private sector pension for average workers is a myth anyway. So its loss is the loss of a myth, not the loss of a reality.

"That's what unions do. And notwithstanding the excesses and taint of corruption, the public sector unions are among the most successful of their kind."

Are you sure it isn't *because of* the excesses and the taint of corruption that the public sector unions are the most successful of their kind? Especially at the city level, very few non-public unions can actually vote their bosses out of office. Maybe that leverage has caused some of the excesses?

"Because realistically a 62 year old firefighter isn't worth anything to anyone. The dynamics that created the current situation don't disappear just because pension funds got raided."

The dynamics are crazy even without the pension fund getting 'raided'. You can't have 20 out of 50 years of your payroll be paid at their highest compensation for 2/5 of the time while not doing any of the work. That might have looked sustainable for about 5-10 post WWII years when year to year growth was double digit because we had literally bombed the rest of the competition, and half the world was locked in the Communist insanity. Other than that pretty much no.

If you want to defend the idea of 'a' public pension for public employees, great. That isn't the same at all as defending current municipality pensions.

The California Foundation for Fiscal Responsibility has updated its CalPERS $100,000 Pension Club searchable database, and the list has increased in size by almost 50% — to over 9,100 members — compared to just a little over a year ago.

http://www.californiapensionreform.com/?p=855

Sebastian: The dynamics are crazy even without the pension fund getting 'raided'. You can't have 20 out of 50 years of your payroll be paid at their highest compensation for 2/5 of the time while not doing any of the work. That might have looked sustainable for about 5-10 post WWII years when year to year growth was double digit because we had literally bombed the rest of the competition, and half the world was locked in the Communist insanity. Other than that pretty much no.

I refer Sebastian to an earlier post by Jacob (which he did not respond to at the time it was posted) : The Wealthiest of Nations.

But America is still an astonishingly wealthy nation. "We can't afford it" has no place here.

I refer you to basic math.

I'm pretty sure his argument isn't that infinite spending is possible.

You've raised some interesting points, Seb. But if "the era of the ubiquitous private sector pension for average workers is a myth anyway. So its loss is the loss of a myth, not the loss of a reality" is a way of fobbing off the real fears of people who worked for them, how is the era of executive raiding of pension funds - really, de facto embezzlement - justified? And where's the outrage? This was money that was not earned by those who took it.

If this bunch were remotely willing to show that they would honestly reckon with what they've done, I'd be willing to concede a greater sympathy towards market pressures on the sustainability of these funds. But they've demonstrated they haven't. So I'd be more inclined to come more to your side when I see a recognition that such embezzlement - let's call a spade a spade, here - is equally unsustainable, and criminal.

If we have an economy that can routinely sustain multi-million dollar bonuses for CEOs and executives just because they appear to come from the private sector and therefore aren't "really" paid for publically, then money is there.

Sure, it's not infinite. But there are huge questions on how what we do have is being moved around, and we've still got a helluva lot around now. We're still not the largest economy for nothing. But I'm willing to talk when these people pay up like the rest of us.

Way to dodge the issue, Sebastian. Well done: classic goal-post moving.

Oh well.

So yes, the elephant in the room is: this is going to have to be paid for, one way or another.

Bingo.

It's going to be paid for by some combination of:

1. clawbacks on benefits
2. revenue, which is to say taxes

The focus in this thread is almost exclusively on unions, unions, unions, unions, unions.

Nobody is talking about lost revenue do to widespread unemployment, loss of housing stock value, etc. All of which contributes to the problem *at least* as much as Evil Greedy Unions.

If you don't like unions, pay people better. The reason unions exist is because, in the absence of unions, people who work for a living get screwed.

Don't like that solution, live with unions.

And unions are not the point here. The fact is that states and municipalities have incurred obligations they can't afford.

So somebody is going to pay.

We can discuss how we got to this sorry pass, and I'm sure there are about 1,000 reasons.

But someone's going to pay. It's either going to come out of the hide of the folks who are due the pensions, or it's going to come out of the hide of taxpayers.

Or maybe we'll all dodge a bullet and the economy will rebound famously in the next six months.

Problem solved!

If you want to defend the idea of 'a' public pension for public employees, great. That isn't the same at all as defending current municipality pensions.

Do you actually have a proposed solution here, Sebastian, that does not amount to "renege on contracts that were signed?"

You can pay people for 50 years who only work for 30, but the difficulty is in doing so while defined-benefit pensions for the private sector cease to exist. People are not good at saving, and so if they're given more salary they will tend to use it to bid up the price of other goods, like housing and healthcare. Then public-sector workers have a hard time keeping up during their working years. Then they demand more pay, and then that does cause a problem with the 30/50 ratio.

That's why I think expanding Social Security rather than contracting it would be a good idea. People suck at saving, and if the government is going to wind up bailing out all these pension plans anyway, better to just take more in payroll taxes and pay more from Social Security. That reduces the scope for pension plan looting and other moral hazards. Never going to happen of course.

The title of this post refers to the situation that is being set up where instead of looking at what could be done to strengthen private pensions so they are competitive, we're going to be encouraged to battle in a race to the bottom between private and public by resentment and envy.

As to the race to the bottom:

From Jefferson's Pillow, by Roger Wilkins:

As the last quarter of the seventeenth century opened, the Virginia Colony was still a rugged frontier land, but it was settling down to some extent. Tobacco had become the driving force of the economy; a group of the shrewdest and toughest men had gained control of economic life and a good share of political life as well...[p. 18]

In 1676, with the approval and support of the governor, Nathaniel Bacon led an alliance of "black and white dispossessed men" in a successful foray against the Native Americans. When the governor wouldn't let Bacon carry the warfare further, Bacon led his troops in a rebellion against "the elite."

Then:

After only a few months of plunder and pillage, which terrified the ruling class, Bacon fell ill and died. Without its leader, his revolution soon petered out. Although he left no political credo, the events taught powerful lessons on the dangers of class antagonisms within the population. The major men in the colony would work to ensure that their descendants would acquire the education and polished manners necessary to secure the deference of the lower ranks of whites. And more significantly, the elite learned that class consciousness and racial hatred were potent adhesives, capable of creating a coalition that could threaten the existing ruling structure. The elite would subsequently turn racial hatred inward and use it to stifle class conflicts among whites. The power of Bacon's rebellion had spring from the union of poor blacks and whites against a perceived common enemy ; when the Native Americans, at least at home in Virginia, proved too elusive to serve as an effective distraction, the role fell to blacks, whose utility as slaves was already being demonstrated in the colony.

Power would continue to be concentrated in the hands of the wealthy...[p. 19]

Jesus said, "The poor you will always have with you."

He forgot to say that a lot of the reason for that is that "The shrewdest and toughest" and greediest and most ruthless you will also have with you, taking more than their share and then convincing the poor to squabble with each other over the leavings.

And thus it shall ever be.

Why . . why it's almost as if only promises made to rich people count, or something.

And, what Phil said.

Phil and Jes. As usual you are making crap up about my positions. I'm not asking for public pension funds from the past to be less than honored. (Except perhaps in truly near-criminal cases like the city of Bell).

I'm saying that we shouldn't be stupid enough to continue promising them, and for people working now, but still far from retirement, we should probably find a way to to monetize their current interest and move to some other plan. And when you are making proposals to dramatically expand the public sector (which most people here are), these things need to be kept in mind.

"You can pay people for 50 years who only work for 30, but the difficulty is in doing so while defined-benefit pensions for the private sector cease to exist."

No, this pretty much is not a public/private issue. Paying someone at around 90% *of their highest salary* for around 20 years of non-work is not a sustainable model unless you have either a massively expanding work base to retirement base ratio (see Baby Boom supporting previous generation and you almost get there) or incredibly aggressive growth (and I don't mean the kind that would make economists thrilled right now--2-4%, I mean the kind of thing not actually seen in developed countries something like a sustained 8% for decades). You don't need to add in private sector bidding on goods to make that unsustainable. Private sector non-existence of defined benefits happened largely because the private sector has to deal with the reality of 'unsustainable' earlier than the government does.

"The title of this post refers to the situation that is being set up where instead of looking at what could be done to strengthen private pensions so they are competitive, we're going to be encouraged to battle in a race to the bottom between private and public by resentment and envy."

I understand that, which is why I'm so strongly objecting. The 'race to the bottom' has almost nothing to do with this issue. It may be something on the margin. I'm not going to say that it doesn't influence it at all. But I will say that the magnitude of that component is very small compared to the problems I'm talking about.

And if you're comparing it to some past, it doesn't seem like you are being realistic about that. The kind of defined benefit pension with some very large portion of your ending salary was never as wide-spread as you seem to be thinking. The existence of *any kind* of defined benefit pension never peaked much above 30% in the private sector, and the number of those that were similar to the auto-industry promises (near full salary) were a very small fraction of those. In the hey-day of private defined-benefit pensions, the kind of things we are talking about here in the public pension context were never has high as 10% of the workforce.

So it feels like you are comparing public pensions to a history of private pensions that did not actually occur.

A few points:

1) Genuinely totalitarian local unions, where the leadership has no accountability to the rank and file, are much rarer in real life than in that mythology (largely but not exclusively right-wing) where every union is the Teamsters and every union president is Zombie Jimmy Hoffa. In my union we have officer elections every year, and when the board has negotiated a tentative agreement with the empoyer we hold a ratification meeting where we explain the changes to the membership (orally and in writing) and take as many questions as people want to ask. But even some of our members take comfort in the notion that if they voted to ratify a crappy contract, it's still the case that "the board sold us out"--they weren't listening when we explained the bad stuff because all they looked at was what their raise would be; we should have told them to vote no; we should have forced them to go on strike. (In other words, we weren't totalitarian *enough*.) So I'm not entirely down with the "membership is not to blame" argument (nor with the "membership should be punished because the employer didn't pay its bills on time" argument).

However:

2) Members of public employee unions also pay local taxes. For most of them it's not optional; residency requirements are still pretty standard, and there are some good reasons for them along with the perverse incentives. It's actually the opposite of voting yourself benefits you won't have to pay for; it's voting yourself benefits that you may be the only one to pay for, since the rest of the taxpaying middle class has already decamped to the suburbs and rich people and businesses are in a much better position than you are to maneuver themselves out of having to pay local taxes. It sucks, but cities themselves have very little ability to fix that, since what they can tax and how much they can tax it tends to be determined at the state level, and many cities don't have the leverage at the state level to get the deal they might want (like, in my state, progressivity).

3) In my city the whip hand in the labor movement is held not by the public employees, but by the building trades. There are various reasons for this: they tend to have bigger PACs; they are overrepresented in the central labor council; the non-uniform public employees are divided into two AFSMCE district councils who historically haven't worked and played well together; and the trades have lots of members who are available for lobbying and Election Day volunteering because they don't necessarily work every day of the week. (And public employees are extremely limited in their ability to conduct political activity--even more than corporations at this point.) The result is that it's a lot easier to get the city to subsidize construction of private projects (including but not limited to new sports stadiums, before we'd even paid off the bonds for the old stadium) than to get them to pass even one-time increases to pension benefits. As far as the trades are concerned, an injury to me is an injury to me, and youse can suck on it. The Chamber of Commerce has their backs.

This is an issue where most people tend to generalize from their local experience. I wouldn't think mine is any more representative than San Diego's. But there you are.

I'm not sure I'm understanding your comment correctly. You're talking about the fact that different unions fight with each other over resources, right?

Well, I'm talking about that among other things, but noting that, like those other things, the terms of that competition are different in different situations, and that blanket arguments about "public employee unions" tend to gloss over that.

OK, so I read the executive summary (first 10 or 15 pages) of the Pew Report that's behind the NYT article.

Here are the high points:

Pensions per se are about a $2.8 trillion liability, there's about $2.3 trillion on hand to pay them. So, they're about 84% funded. Could be better, but it could also be a hell of a lot worse.

Health care and other non-pension benefits are a very big problem. About $587 billion in liability, overall funded at about 5%. So, surprise surprise, health care is going to bite us in the behind.

On top of all of that, in fiscal year 2008 states lost a *median* 25% of the value of their investments. So, a shrinking pot of money to pay from.

Last but not least, lots of states assume 8% a year ROI on their investments, which is not bloody likely in the near to medium terms.

Pew finds fault with states and municipalities for failing to fund known obligations for years and years.

I understand that Jacob's point here was to call out the NYT posing public and private workers as enemies in this particular fight. I agree, that's crap journalism, and doesn't even come into the Pew study.

What I observe in this thread is endless discussion of how public sector unions are too greedy, the unions should have made sure that municipalities did due diligence in funding (!??!!?), etc.

Seb is all fired up about the guy who's retiring at age 50 with 90% of highest annual pay, for life. Which is, probably, about seventeen people.

Here is what happened: the states failed to fund their obligations, and when revenues went south they got caught with their pants down. Blame whoever the hell you like, the numbers are going to be the same once you're done.

Three things are going to happen, in some combination:

1. Public employees are going to have retirement benefits trimmed back. In some cases these will be folks who have already retired.

2. Other public services will be trimmed back to fund the pension obligations.

3. States will raise taxes to get more revenue.

Folks who live in the various states will get to pick which of the three, and in what combination, best floats their boat.

Net/net it sucks. But it doesn't suck because public employees are greedy SOB's, it just sucks.

God I'm glad I'm not a public employee, I'd spend my days wanting to kick people in the shins.

"Seb is all fired up about the guy who's retiring at age 50 with 90% of highest annual pay, for life. Which is, probably, about seventeen people."

Not in California. It is tens of thousands of people. I actually think it is hundreds of thousands, but I'm not 100% sure we get to 200,000 so I won't claim that at the moment. But it definitely isn't just a handful.

"Net/net it sucks. But it doesn't suck because public employees are greedy SOB's, it just sucks."

I'm not sure why you feel the need to project that. The unsustainable part is just ridiculously unsustainable. There may have been people who at the highest point of bubbles thought that it was sustainable, but it wasn't. So there we are. The unions fought for what they thought they could get. This is an argument for not giving them all they ask for when it comes to pensions. That's all it is. No viciousness required anywhere. Just sober thinking about realistic propositions.

Haven't read the comments so if anyone else has made this point I'm sorry, but isn't it a common truism that public sector employees make less money than private sector employees for similar work? If so isn't their high pensions something that makes up for this.

"Pensions per se are about a $2.8 trillion liability, there's about $2.3 trillion on hand to pay them. So, they're about 84% funded. Could be better, but it could also be a hell of a lot worse."

I don't know that this is a safe way of looking at it. Funding questions like that make quite a few assumptions about things going forward that may or may not be likely. Like 8% average growth for example.

"..., but isn't it a common truism that public sector employees make less money than private sector employees for similar work?"
In most occupations, that's not the case anymore.

Employee Compensation in State and Local Governments (.pdf)

Phil and Jes. As usual you are making crap up about my positions. I'm not asking for public pension funds from the past to be less than honored.

Super! Now, how would you like to pay for them?

Also, just to have it on the record, what sort of a) salary and b) pension would be sufficient to entice you to run into burning buildings?

Since you're so big on talking about incentives all the time, do you suppose lower pensions might result in fewer people willing to take jobs requiring them to rush into burning buildings?

If not, why not?


Italics again? What is this, some kind of conspiracy?

"Since you're so big on talking about incentives all the time, do you suppose lower pensions might result in fewer people willing to take jobs requiring them to rush into burning buildings?

If not, why not?"

No. Because we didn't have much trouble filling them before the ridiculous pensions which are only an artifact of the last 15 years or so.

Seb, we "didn't have much trouble" filling jobs for CEOs or major-league ballplayers before their spectacular rise in compensation over "the last 15 years or so". It's safe to say that the actual performance of the old-time, low-paid CEOs and MLB players was not appreciably worse than that of their highly-paid modern-day counterparts. So in a sense you're correct: we would not lose much if we went back to the old compensation levels -- for CEOs and star athletes as well as teachers and firefighters.

--TP

I think that a lot of people -- not unions, but employers, public or private -- like to promise benefits because they don't have to be paid today, and you can look forward to decades of fudging the numbers between the time you make the promise and the time you have to live up to it. When the employers in question are public, we have only ourselves to thank, as voters who (collectively) didn't insist on this. Why the proposal that we have to pay for our collective idiocy should spark "class warfare" is beyond me.

Personally, I plan to expend my outrage on the fact that CEOs get great big severance packages even when they quit in disgrace, rather than the fact that my mail carrier might actually get a pension after doing her job faithfully for decades.

I'm not sure why you feel the need to project that.

Here were your very first words in this thread:

I have a lot of trouble mustering sympathy for public sector unions

That's why I felt the need to project that.

Generous defined benefit pension plans are not sustainable unless municipalities raise more revenue and dedicate that revenue to funding them.

Which is to say, they aren't sustainable.

There are lots of reasons for that. Greedy unions are, at most, merely one among them.

I don't know that this is a safe way of looking at it.

It was a simple factual statement about cash on hand vs liabilities. My purpose in citing it was to contrast unfunded liabilities specifically due to pensions, vs due to other, non-pension benefits.

Most notably health care, because the rise in the cost of health care is hardly something that can be blamed on unions, workers, municipalities, or any of the other principals involved. It's a broad economic problem in this country, and not specifically anybody's fault in particular.

Lots and lots of belts are going to be tightened. Public employees, private employees, people who currently benefit from public services of all kinds. In my town we voted down at least 10 requests to fund specific projects above and beyond the core functions of the town, and my property taxes still went up.

Times are tough all over.

I'm sorry the folks in Bell, CA made such overly generous promises to their public employees. They're probably going to have to revisit those contracts, and it will probably get ugly. But most places aren't handing out deals like the folks in Bell, CA.

In most places, the only folks who get to retire at 50 are folks like cops and firemen, whose jobs are demanding, dangerous, and hard to do for folks in later middle age. And in most places, retirement at 50 is optional, not mandatory, and if you exercise that option you don't get anything like 90% of full pay.

I'd really like people to quit having the knee-jerk reaction that public employees are getting some fat deal off of the rest of our backs. The whole country is not freaking Bell, CA.

Personally, I plan to expend my outrage on the fact that CEOs get great big severance packages even when they quit in disgrace, rather than the fact that my mail carrier might actually get a pension after doing her job faithfully for decades.

Amen.

"The whole country is not freaking Bell, CA."
Well, not entirely.

[...]
California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.

As the Columbus Dispatch reported last year: "Across the state, Ohio's State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan." Some teachers can earn nearly $200,000 a year in pensions and salaries.
[...]

The Government Pay Boom: America's most privileged class are public union workers.

OK Charles.

First, lots of folks retire and then work another full time job. Going back to work for your former employer does, indeed, sound kind of messed up. They should change that, IMO.

CA state cops used to be able to retire at 50, now it's 55. They get highest three years' salary, times 3 percent, times number of years in, with a max of 90%. So if you're 55 and you have 30 years in, yes, you get Seb's 90% for life.

OH state employees get final salary, times 2.2% for the first thirty years and 2.5% for every year after that, times number of years. So, if you have thirty years in, you get 66%, if you have forty years in you get 68.5%. That's if you retire at 65 or later, if you retire before then, it's less.

In NV, it's 2.5% a year for every year of service before 2001, 2.67% for every year since then.

I couldn't make heads or tails of the NJ PERS website, which doesn't surprise me.

So, yeah, retire and rehire seems pretty stupid. And yeah, CA cops get a good deal. If you live in CA or a retire-and-rehire state, and all of this bugs you, call your rep.

Public union workers are "America's most privileged class"? No, not really.

Privileged?

So become a teacher, a firefighter, a postal employee, whatever.

I'm not a fan of the type of double-dipping described here and I think entry level spots in these professions should pay more.

But the fact that private sector employees winge about this stuff and don't seem to move into the government much, though I understand turnover in the Federal government between private and public is fairly high, seems to say that incentives aren't what they are cracked up to be.

If I were a private sector employer, I would take that for a reason to cut pay further, eliminate pensions, eviscerate health insurance, and shut down the water cooler because apparently my employees have such high ideals that they will probably work for next to nothing.

There's two points about retire and rehire. The first is that in many cases, it is deemed to be financially preferable to have people take early retirement and then be rehired, especially when they want to hold people at certain steps within their GS levels. The second is that with the increasing sophistication of jobs, it may cost more to try and train a new hire, especially in government positions where there are many required procedures to follow and some sort of privatization is being held out as an option.

No. Because we didn't have much trouble filling them before the ridiculous pensions which are only an artifact of the last 15 years or so.

I'd like a cite for that, please, because I don't consider you an authoritative source on this matter.

Also, could you answer how you'd like to pay for the existing pensions, since you agree they should be honored?

Thanks!

You also didn't answer why firefighting jobs -- for example -- are immune from the incentives you believe apply to everything else in life. Since you're claiming that they are. If you could also explain that, I'd appreciate it.

Thanks!

Also, I'd like to note that one of the first things the private sector does in a recession is lay off their most expensive (read oldest and most experienced) workers, (except for CEOs and managers and the like_ which is sure to skew the public/private compensation numbers right now too.

"I'd like a cite for that, please, because I don't consider you an authoritative source on this matter."

Sorry not going to be cite trolled by you phil. If you can prove to me that there was trouble hiring firefighters 1950-1990 I'll reconsider it. Otherwise, not so much.

"You also didn't answer why firefighting jobs -- for example -- are immune from the incentives you believe apply to everything else in life. Since you're claiming that they are. If you could also explain that, I'd appreciate it."

Ummmm, they aren't. We just don't need ridiculous pensions to get firefighters because the high pay with overtime and normal pensions are plenty.

You're Welcome!!!!

"Also, I'd like to note that one of the first things the private sector does in a recession is lay off their most expensive (read oldest and most experienced) workers,..."
While unpleasant for the employees involved, it's not an altogether bad thing. Their knowledge, experience and skills get a much wider exposure as they start business of their own or go to work for business who previously couldn't afford them. More than a few business have found themselves having to compete with upstarts manned by former employees.
More than a few business have found themselves having to compete with upstarts manned by former employees.

Im this recession? That's impressive.

If you do not see a problem with CEO's who run their company into the ground getting $20m severance pacakages...If you do not see a problem with doctors, accountants, and lawyers creaming off exorbitant economic rents...if you have no criticism of the ways in which our system is tilted to the benefit of those who already 'have'...then you have absolutely no standing to whine about the pay or the pensions for public service custodians or teachers. Maybe we "can't afford" those costs either.

There are many ways that we skew available resources that negatively impact our ability to efficiently meet the public good. Some school teacher getting $200K/year is not one of the bigger ones.

Seb sez: "No. Because we didn't have much trouble filling them (fire fighter positions) before the ridiculous pensions which are only an artifact of the last 15 years or so."

Well, we didn't have much trouble filling CEO and Wall Street trader positions either before the FIRE sector took on the humongous burden of ponying up 40% of corporate profits, and corporate executive and financial services insiders' compensation became astoundingly ridiculous both in absolute and comparative terms "in the last twenty years or so".

But that's not absurd "waste", eh? The whole thrust of your argument is simply absurd.

Bobbyp, would you mind quoting the sections where you think I've said what you're ascribing to me? I don't see them here, or even in other recent threads. You might be confusing me with someone else. Because, for the record, I thought I wasn't a big fan of runaway CEO pay either (which is caused by interlocking boards and lack of competition). And I'm pretty sure you can find me suggesting that pay for doctors and out of control lawyers is a problem too if you search the archives.

I don't mind a little extrapolation in the discussion. It speeds things along when you can correctly anticipate possible objections and respond to them. But at this point you seem to just want to rant at me.

Sorry not going to be cite trolled by you phil. If you can prove to me that there was trouble hiring firefighters 1950-1990 I'll reconsider it. Otherwise, not so much.

Nice jump from "15 years" to "60 years." See also, "Bad Faith (definition)."

Ummmm, they aren't. We just don't need ridiculous pensions to get firefighters because the high pay with overtime and normal pensions are plenty.

That's a pretty bold assertion, but yeah, don't bother backing it up or anything, it's cool. We'll all take you at your word since you're clearly an expert. Although I may ask some of my firefighter friends and relatives what they think about the topic. You know, just to be safe.

Also, you still haven't answered how you'd like to pay for these existing pensions that you agree should be honored. If you find time today, maybe you could type that out in the little box below? Just if you find time.

OK, at this point what we have is a b*tchfest about public employee unions.

States are facing difficulty meeting their employee's retirement payments.

Some of those obligations are pensions, some are health care, some are other stuff.

The pension obligations are *generally* reasonably well funded. The health care and other, non-pension obligations are dramatically not well-funded.

The causes of the shortfall include:

1. States and municipalities failed to put aside adequate funds to cover them. This is, sadly, not shocking, because they would have had to generate revenue (aka taxes) to do so, and that's not popular. So, they kicked the can down the road.

2. Health care costs, in particular, have risen quite a lot.

3. States relied on fairly optimistic investment returns when doing their long range planning. To state the obvious, actual returns have failed to meet projections.

I'm not providing a freaking cite for this, because it's in the damned Pew Report that is cited in the NYT article. If you want to read it, follow the breadcrumb trail. It will take you about 20 minutes or less to read the executive summary.

The culpability of public employee unions in all of this is in asking for generous pension and other retirement benefits.

Next time you negotiate an employment contract, or compensation when hired for a new job, or submit a bid for services you intend to render, I encourage you to hold yourself to the same standard you wish to apply to public employee unions.

And don't forget to require your prospective employer or client to lay out, in detail, their long range financial plans for meeting the terms you're insisting on. Cause it will be your fault if they fail to adequately fund whatever it is you agree to.

I've spent an hour or two looking at municipal retirement plans via our friend the Google. They're easy to find, most of them have publicly accessible websites where the particulars of the various retirement plans are available.

Most do, in fact, offer retirement at 50 or 55 for folks who have lots of years in, typically 30. In most cases, early retirement means you get less money.

Most plans offer pension according to plans based on some percentage of your highest salary, times the number of years in. That percentage is typically somewhere in the low to middle 2's - 2.2%, 2.5%, 2.7%. In the case of CA state police, it's 3.

So, CA state cops can work a very sweet 90% at age 55 if they have 30 years in. CA firefighters have basically the same deal as cops. Those two professions involve (a) getting shot at, and (b) walking into burning buildings.

Otherwise, nobody is getting 90% at age 50 or 55, and in fact not many folks are getting 90% at all.

The question of whether we can continue to provide defined benefit plans for public employees is an interesting and important one. Likewise, the question of how to fund the obligations we've already committed to, and/or how best to renegotiate those if we simply cannot meet them without totally abandoning important and necessary public services.

Wanna talk about that? Sounds good to me.

But at this point the thread is basically Sebastian b*tching about CA public employee unions. I got better things to listen to.

"Nice jump from "15 years" to "60 years." See also, "Bad Faith (definition).""

Ummm no. We haven't had trouble hiring firefighters in any of those years to my knowledge. If you have knowledge to the contrary, or even any reason to believe that we have, please share it. Until then, you are just cite trolling which is neither productive to discussion, nor a productive use of my time.

"That's a pretty bold assertion, but yeah, don't bother backing it up or anything, it's cool. We'll all take you at your word since you're clearly an expert."

It isn't a very bold assertion. That global warming wasn't actually happening would be a bold assertion where you wouldn't be cite trolling to ask. That we found nuclear weapons in Iraq would be a bold assertion where you wouldn't be cite trolling to ask.

In fact it is such a modest assumption that there are people upthread who seem to disagree with me and the overall topic, but agree with me on the fact that it was and is perfectly possible to hire firefighters without unsustainable pension promises.

I'm perfectly willing to go on long annoying hunts for information on all sorts of questions asked in good faith. In fact, I do that too often as is. I'm not willing to do so on an issue that I'm pretty sure every one here doesn't seriously question, including quite probably you.

"Also, you still haven't answered how you'd like to pay for these existing pensions that you agree should be honored. If you find time today, maybe you could type that out in the little box below? Just if you find time."

We will raise taxes. We will raise municipal and states taxes a lot. Then we will cut back municipal and state services because we will have already raised taxes a lot. I also suspect that since health care benefit *levels* are often not committed to the way defined benefit pension dollar numbers are, we will see municipalities try to cut the health care to levels below Medicare to make those commitments go away. Which is super-cheesy, and probably makes the ex-employee even worse off than he would have been if he had gotten a more reasonably sustainable pension.

I know that isn't the answer people like to hear. Republicans aren't the only ones who like to pretend that you can commit to enormous amounts of spending and get it without cost.

We will raise taxes. We will raise municipal and states taxes a lot. Then we will cut back municipal and state services because we will have already raised taxes a lot. I also suspect that since health care benefit *levels* are often not committed to the way defined benefit pension dollar numbers are, we will see municipalities try to cut the health care to levels below Medicare to make those commitments go away.

IMO this is exactly right.

And, IMO there's not a lot of choice in the matter, it's what states, counties, cities, and towns are simply going to have to do.

It's going to suck for a lot of people, but I doubt it can be helped.

The cupboard is bare.

Russell for President!!

thanks, but no thanks...

and I'm sure "It's gonna suck!!" will be one of the all-time great campaign slogans.

Russell,

And don't forget to require your prospective employer or client to lay out, in detail, their long range financial plans for meeting the terms you're insisting on. Cause it will be your fault if they fail to adequately fund whatever it is you agree to.

Let me defend myself on this issue.

1. Union negotiators are, in effect, fiduciaries. They have responsibilities to their members, and they have lots of members. While it may be impractical for an individual worker to do what you suggest, I think it is not impractical for someone negotiating on behalf of a large number of workers. It's OK if a firefighter doesn't understand return assumptions and other technical matters about pensions. It's not OK if the person negotiating on behalf of lots of firefighters doesn't understand these matters.

2. Detailed long-range plans are not necessary. Verifying that the promises are being made on a reasonable basis is easier than that and given the number of people involved it's fair to say that the negotiator should get expert advice if needed.

3. My criticism is not that the unions drove a hard bargain, or that it's OK for municipalities to renege on their promises. It's that in some cases unions may have traded off concrete benefits for promises structured so as to conceal their cost from taxpayers, leading inevitably to a collision with reality.

Bernie -

That makes sense.

My objection is the reflexive framing of stuff like this as being the fault of people who, basically, work for a living.

We saw the same thing during the auto bailout discussion. It was the damned UAW who were responsible for the demise of the American auto industry!

I recognize that isn't where you were going with your comment, and I also recognize the point you're making.

Unions are not blameless in economic and industrial problems, but they're no more or less to blame than anybody else.

It's that in some cases unions may have traded off concrete benefits for promises structured so as to conceal their cost from taxpayers, leading inevitably to a collision with reality.

I'm not so sure there was "concealment" going on so much as opposed to unrealistic assumptions sold to gullible negotiators on both sides. Relying on this "expert" advice from people who make a very comfortable living dispensing it has led to this "problem" more than the assertions above about political backscratching.

Some other observations:

This is basically a trillion dollar problem that will be spread out over 30 years, not the end of the freaking world.

Public employee pensions are not, as Russell and others have shown "unrealistically" generous. I'd like to see who claim this walk up to somebody who has hoisted garbage cans or driven a bus for 30 years and tell them their little pension is "unsustainable".

And what really chaps my hide is the assertion slipped oh so casually into the discussion that these costs are simply "not affordable", the default assumption being these "unsustainable" costs will need to be cut once the 'crisis' passes. To dump that steaming pile of sh*t here is simply incredible, and is just polishing the turd that is the deficit hawk political agenda.

We as a nation spend over 1/2 TRILLION PER YEAR on military toys. Don't tell me we "can't afford it". That is simply a lie.

So I'm really sorry if I appear to be on a "rant", but taking the discussion down this road is wrong, simply wrong in so many ways.

And what Russell said.

I do not think I will be able to reconcile Russell's 'the cupboard is bare' with JD's 'don't say that we can't afford it' so I'm afraid that I will have to part company with Russell here (and this is on the heels of Russell's comment regarding 'drawing the line at Hawaiian pizza' which was, of course, abject lunacy--a very strange week indeed).

Krugman's latest blog post addresses this exact issue. Public employees as scapegoats is a real political issue but as PK points out the financial reality is certainly manageable. But, alas, it is likely that the political reality will trump the financial one and while I hope that Seb is correct and that taxes will be raised to cover any shortfalls, I do have serious doubts. I can easily envisage a scenario where public employee pensions are reneged on and the vox pop will cheer because they get to stick it to all those lousy teachers and other pigs that are feeding at the public trough.

I hope that I'm wrong and that I should have more faith in the American voter but as we teeter from democracy to plutocracy I fear that my faith is waning.

I've linked to this before, but I think it seems apropos to the current discussion.

How many of the conservatives arguing now that we need to break contracts with public employees argued that we couldn't POSSIBLY claw back any of the money from Wall Street CEOs and traders who crashed the economy for their own profit, because OMG CONTRACTS ARE SACRED?

Because without those Wall Street CEOs and traders and other "Masters of the Universe" crashing the economy, we wouldn't be having this 'crisis' in public employee pensions, at least not nearly so badly.

And can't get back any of the money from paying Blackwater's ex-military mercenaries, no matter how many crimes they've committed, either.

If this is the best we can do as a country, then we're in deep deep deep trouble.

"How many of the conservatives arguing now that we need to break contracts with public employees"

Has anyone here said this?

I do not think I will be able to reconcile Russell's 'the cupboard is bare' with JD's 'don't say that we can't afford it'

I think I can help you with that...

alas, it is likely that the political reality will trump the financial one

Not many folks are running on a platform of "I will raise your taxes".

On the way home tonight I was listening to one of the PBS talk shows, where the topic was raising the SS retirement age.

A guy called in to explain that he was telephone lineman, currently age 52, and there was no freaking way he was going to be able to work until he was 70.

Not as a matter of preference, just as a matter of physical reality. His body wasn't going to hold up through another 18 years of climbing ladders with a couple dozen pounds of gear.

The suggestions from the guest speaker were:

a). Retire earlier with lower benefits
b). Retrain for another profession

Thanks, pal!

People wonder what made "the greatest generation" so great.

What made the greatest generation so great was that, when confronted with major challenges, they did not reply with "I got mine, f**k you".

Yes, there is an astounding amount of wealth in this country. Truly astounding.

And we're willing to let our cities and towns shut down firehouses, to lay off teachers, and to close down public health programs, rather than raise taxes on that wealth and income by even the most marginal amounts.

We'll let people we know work until the day they're either dead or incapable of working whatsoever before we'll ever, ever think about, for example, increasing the cap on FICA withholding.

If this country becomes second-rate, which is by no means unlikely, that is why it will happen.

In 2000, through a combination of fiscal discipline, some pain, and some sheer dumb luck, we managed to achieve budget surpluses.

What did we do with that money? Did we buy down national debt? Did we invest in infrastructure and education? Did we sock some away for the inevitable rainy day?

We lowered taxes, most significantly on the wealthiest among us.

I got mine, f**k you. You should have been a banker, you stupid jerk. Nobody told you to be a cop, or a fireman, or a teacher, that was your choice.

So screw you.

The American middle class had a good run. It was nice while it lasted.

Overall, the vectors of so many of these arguments can be traced to the fact that we no longer have a sense of shared sacrifice, which is why we're in the crisis we're in.

A culture of self-interest, a fetishism for self-accumulation, and free-market ideology has the body politic so ruthlessly by the balls that, short of legislation regarding limits of compensation for those whose earnings track over a certain level, I doubt there will be tax increases on any level that will cover the pension shortfalls given that the only substantial increases likely to make a difference have to include hikes on the highest earners - and fat chance on that happening. I do not speak with an air of superiority but as I've said before, we can't have civilization without taxation.

What needs to emerge is a sense among people that taxation, as necessary an evil as it is, could actually give them some form of leverage with elected officials. But most people can't be bothered to delve too deeply, if at all, into the minutiae of policy regarding how we parse the tax money once it goes into the coffers. Now, we're in grave danger of reneging promises that, in a roundabout way when you think of it, we've actually made...to ourselves, given that public sector employees do indeed pay taxes like the rest of us.

It's true, as I review the posts here on this topic, that no-one has out-and-out suggested that we renege on the promises made with regard to these pension funds, nor do I see any leading conservatives openly suggesting that we do so. But I fear that we'll renege by default, given that short of tax increases and decreasing benefits, there's no way we'll be able to live up to the projected promises made in the pension packages. What I do count on are leading conservatives shrugging their shoulders and sighing a lot about how we can't do anything about it, and rationalizing things away with a wave of their palsied hands.

The broader outcome is that we are already in civic decline as a nation given that those who have stubbornly refuse to share in any level of socio-economic sacrifice. We know this, not even deeply - and we refuse to protest it. It is this, not immigrants or Muslims or "socialist" health care reforms, that will prove to be our undoing.

"...short of legislation regarding limits of compensation for those whose earnings track over a certain level, I doubt there will be tax increases on any level that will cover the pension shortfalls..."

My apologies. These are separate things I'm mixng up, and that I didn't catch until I re-read the post. Sorry.

Perhaps what I could've said was something to the effect that said legislation could be an example of getting those with the most to share in the sacrifice, or something like that, other than or as an adjunct to higher tax rates.

Didn't mean to confuse anyone.

Overall, the vectors of so many of these arguments can be traced to the fact that we no longer have a sense of shared sacrifice

Everything I wanted to say, in one brief sentence.

Thank you sekajin.

Sebastian,

you seem to be committing a very basic logical fallacy. There's absolutely no reason it's unsustainable to pay someone 90% of their peak salary for 40 years. In the steady state: someone works for the city for 40 years, then gets 90% of their salary for 40 years. You're talking about roughly doubling salary costs. That's not inherently unsustainable; it depends what their actual salary was, how responsible the city is about funding these things, taxation revenue, etc.

I do wish people would stop playing the overly emotional "how much is too much for the broken-bodied firefighters who retire?" Because there clearly is a practical limit; there's no reason to assume that the current contracts are magically what they "should" be earning. That way lies the strong form of the efficient market hypothesis.

And, moreover, it's demeaning to people who aren't firefighters. People who are relatively healthy and haven't done heroics in their working life still should be able to retire with dignity. People who were counting on a retirement package of X should fairly get a chance at X, regardless of their occupation, health, etc.

I do wish people would stop playing the overly emotional "how much is too much for the broken-bodied firefighters who retire?"

The practical point there is that hands-on firefighting isn't something that most folks can do beyond the age of 50 or 55.

I have two uncles who were NYFD, both retired with 20 or 25 years in and went into other lines of work.

Most people, by which I mean probably more than 90% of people, just can't keep up with the physical side of the job for 30+ years, into and beyond late middle age.

Folks get old.

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