Brown seeks ‘hybrid’ pension/401(k) reform plan

Gov. Brown is proposing that the state give CalPERS $1.5 million to identify and study alternatives for a “hybrid” retirement plan, a cost-cutting combination of pensions and 401(k)-style individual investment plans.

The item in the governor’s revised state budget plan last week is a reminder that the “12-point pension reform plan” he proposed last March listed a “hybrid option” as one of five points still under development.

Brown issued the reform plan after a breakdown in talks with a handful of Republican legislators, who must provide at least four of the votes needed to extend an expiring tax increase.

The Republicans are said to be seeking pension reform along with a state spending limit and business-friendly regulatory changes. A news release in March said Brown intends to “introduce these pension reforms with or without Republican support.”

At a news conference last week, the governor said he is willing to put a spending limit on the ballot as part of a budget deal. He was asked if he also would put a pension reform on the ballot.

“We are going to propose pension reform,” Brown said. “That’s more contentious, and I’m told there is going to be a lot of pension reform on next year’s ballot, anyway. So, one way or the other, I think we are going to get whatever pension reform we need.”

Polls show voter support for cost-cutting pension reforms. Among the proposals for local pension ballot measures are switching new hires to 401(k)-style plans in San Diego and cutting pensions earned by current workers in the future in San Jose.

Several statewide pension reform initiatives have been proposed in recent years. But they lacked the funding needed to gather enough voter signatures to place the measures on the ballot.

Now former Assemblyman Roger Niello, R-Fair Oaks, has filed an initiative that would extend retirement ages, cap pension amounts and require employees to pay more toward their pensions.

Dan Pellissier, president of California Pension Reform, is working on an initiative aimed at the ballot next year. He has talked about several possibilities, including a cap on employer contributions and a switch to a 401(k)-style plan.

The watchdog Little Hoover Commission, warning that pension costs could “crush” government, suggested a court test of whether pensions not yet earned by vested current workers can be cut, which likely would result from the San Jose plan.

The commission report in February also recommended a federal-like hybrid plan, calling it “a breakthrough model for pension reform that is gaining renewed attention as states struggle to address rapidly increasing pension costs.”

The three-part federal plan adopted in 1985 for new hires combines a lower pension, a 401(k)-style plan with a federal match and Social Security. As of 2009, the hybrid was said to be fully funded, while the old pension plan was 39 percent funded.

In Orange County, unions agreed to a plan authorized by legislation last year that gives new and current workers the option of choosing a hybrid plan. But the plan is on hold awaiting federal approve of pre-tax employee contributions to the 401(k) plan.

A Utah hybrid plan, opposed by unions but approved by voters in an initiative drive last year led by a Republican state senator, Daniel Liljenquist, is getting some national attention.

All full-time state and local government workers in Utah hired after July 1 will be able to choose between a hybrid and a 401(k)-style plan. The state contributes 10 percent of pay (12 percent for police and firefighters) to the plan the worker chooses.

In a new wrinkle, if the cost of the pension part of the Utah hybrid goes above 10 percent, because of investment losses or other problems, the employee has to cover the increased cost.

But if the actuarially required contribution to the pension part is less than 10 percent (it’s set to begin at about 7.5 percent) the excess goes into the 401(k) part of the employee’s hybrid plan.

Liljenquist expects most employees planning a long career on the job to choose the hybrid plan. He thinks many short-term employees will choose the 401(k)-style plan, which is portable and can be transferred to another job.

Most private-sector employers offering a retirement plan have switched to 401(k) plans. For the employer, a 401(k) has the advantage of an annual “defined contribution” with no long-term debt.

A pension is a lifetime monthly payment or “defined benefit,” which can result in massive debt if investment earnings or contributions fall short. Brown said last week the state has a $181 billion “unfunded liability” for pensions and retiree health care.

Critics say the 401(k), originally a pension supplement, can be a bad deal for employees due to poor investment decisions, high management fees and little time to recover losses if the stock market plunges shortly before retirement.

Perhaps most importantly, the risk borne by the employer in a pension plan is shifted to the employee in a 401(k) plan. Advocates say a hybrid plan can protect employers against crushing debt and employees against an impoverished retirement.

“The debate between a defined-benefit and a defined-contribution system, however, does not need to be an either-or choice,” said the Little Hoover Commission report.

A hybrid plan was one of two cost-cutting pension options recommended in February by the nonpartisan Legislative Analyst. The other “cost-sharing” option would increase employee and employer contributions when pensions are under-funded.

Last week, the Legislative Analyst “strongly” urged rejection of the governor’s proposal to have the California Public Employees Retirement System conduct a hybrid study, calling the $1.5 million budget item “uncommonly amorphous and inscrutable.”

The analyst said CalPERS, with its hard-won independence and legal duty to give priority to the interests of retirees, must be able to raise employer contribution rates in response to reforms and, if necessary, go to court.

In addition, said the analyst, a Wall Street Journal story on May 19 said CalPERS officials “now see the fund playing a leadership role in the national debate over whether to overhaul public pensions and replace them with 401(k)-style plans popular in the private sector, a change CalPERS opposes.”

The CalPERS chief actuary, Alan Milligan, wrote in an article published in Capitol Weekly on April 28 that an analysis, “The Impact of Closing the Defined Benefit Plan at CalPERS,” found that phasing out pensions may not yield the expected savings.

For example, the pension system would have management costs for at least 60 years, the life expectancy of young members, and investments would be more conservative to provide liquidity, requiring higher employer contributions.

About a third of CalPERS members are not in Social Security. Putting them in Social Security, as under the federal hybrid plan, would require government employers to pay an additional federal tax amounting to 6.2 percent of worker pay.

“The topic of pensions and retirement benefits is complex,” Milligan concluded. “If done wrong, pension changes could result in higher costs to taxpayers while providing lower benefits to employees.

“If done right, pension changes could result in a system that better meets the needs of both taxpayers and employees. Policymakers should conduct a thorough analysis before embarking on any changes.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 24 May 11

49 Responses to “Brown seeks ‘hybrid’ pension/401(k) reform plan”

  1. spension Says:

    Strange how inaccurate information has gotten caught in the echo chamber and is now accepted as fact… Defined Benefit Pensions are simply more economical than Defined Contribution Pensions, for the same benefit. The reason is simple… when 100,000 people’s pensions are pooled together, you don’t have to plan for everyone living to age 95, because statistically you’ll get people who die early compensating for those who live a long time. However, every single solitary person has to prepare for their Defined Contribution fund to support them to age 95… raises the necessary principal accumulation by 50%! But the investment bankers *love* that, 50% more transaction fees!

    The real problem is that the Defined Benefit Pensions have been woefully mismanaged, due to a `this time is different’ philosophy of the financial advisors who have guided our politicians. Had the pension management been abstemious, and had the managers done `back testing’ over the 200 or so years of available securities history, the benefits packages like `2.5% at 60′ would never, never have been promised at the low contribution rates the advisors calculated.

  2. Marlinman Says:

    Well said spension. But it goes much deeper than that. One of the biggest issues with the system currently is the fact the the governments have been both given “pension holidays” and reneged without penalty on making their fair share of the payments needed for the system to be stable.

    Anytime you make a loan, there are interest costs added to the principle money borrowed. Same with pensions. When payments due are not paid, it’s like taking out a loan. When the State missed a $150M payment and still hasn’t paid it back 10 years ago, the interest has grown to $500M.

    THAT’s not a failure of the pension system, that’s a failure of the employer to meet the agreed obligation previously promised. All the while not one employee has failed to pay THEIR share.

    Now the employees (at State level) are paying more into the system and once the State “catches up with their past delinquency”, the States rates will fall. Once the dishonest practice of “pension spiking” is outlawed for managers and safety personnel, the rates will fall even further. Now that new hires will receive less and have to work to an older age, the rates will plummet. A defined benefit pension isn’t a bad idea, it’s the abuse and corruption that’s been allowed to damage it that must be remedied.

  3. Tough Love Says:

    ANY significant (50+%) cut in future service pension accruals is good, but as the Little Hoover Commission clearly said, it MUST be include CURRENT, not just new employees …. or it will CRUSH government.

    Without this (or a hard freeze of the current DB Plan) nothing else will matter.

  4. Tough Love Says:

    Quoting …”The CalPERS chief actuary, Alan Milligan, wrote in an article published in Capitol Weekly on April 28 that an analysis, “The Impact of Closing the Defined Benefit Plan at CalPERS,” found that phasing out pensions may not yield the expected savings.”

    It won’t in the near future, but it CERTAINLY will long-term. Every day current employees continue to earn pension credits that are unaffordable. We need to STOP digging this hole deeper.

    Alan … I challenge you to say that there would NOT be a LONG-TERM savings !

  5. SeeSaw Says:

    Orange County already wasted millions of taxpayer’s funds, and three years, in its effort to retract retroactive pension benefits–the County lost. There is no reason to waste more millions, trying to take back already contracted future benefits. Let’s get busy and pass the tax extensions, which are badly needed for survival of the State of CA. Pension reform has been in the works in many CA entities for the past several years. Such efforts will be ongoing, while we try to get CA back on track. TL, you should concentrate on recommending solutions in your own state of residence–leave CA alone. We will survive without your input.

  6. Reilleyfam Says:

    NO LONG TERM SAVINGS. Not only will the investment earnings get the pension system back fully funded but there will be excess. The State would lose money switching to DC. I think current workers should get an increase in pensions in anticipation of the profits to come 3% at 50. I think Tough Love should be strung up at an SEIU picnic like a pinata.

  7. Tough Love Says:

    Quoting SeeSaw …

    (1) “There is no reason to waste more millions, trying to take back already contracted future benefits.”

    Ludicrous …. “takekback” ….. “future” ?. Changes for FUTURE service are ROUTINE in Private Sector Plans. What makes Civil Servants so “special” that such changes should not also apply to them, when current benefits are so clearly unaffordable ?

    (2) “Let’s get busy and pass the tax extensions”.

    That’s always the Civil Servants’ answer … RAISE TAXES. Do you know why ? It’s because THEY get 75+% of all additional income raised (generally to support their excessive pensions and benefits) while only paying 10-20% of the additional taxes. The epitome of arrogance and self-interest.

    (3) “Pension reform has been in the works in many CA entities for the past several years. Such efforts will be ongoing, while we try to get CA back on track.”

    The Public Sector Unions fight tooth-and-nail to stop all MATERIAL changes. The only real efforts afoot are the huge layoffs in one City, and the proposal to freeze the DB Plans for CURRENT workers in another. All the rest will do squat, ESPECIALLY changes that apply only to NEW workers.

  8. Tough Love Says:

    Dear Reilleyfam, Let me guess, your handle “Reilleyfam” suggests perhaps you are part of an entire family of Civil Servant Reilleys. That would certainly explain your ludicrous comment (above).

    Doing your part to keep the gravy train rolling ?

  9. Tough Love Says:

    Dear spension, What BS ! Another Civil Servants doing his part to defer/stop the VERY needed reforms. Here’s the TRUE facts about how excessive your pensions are and who PAYS for them:

    So let’s cut to the chase …….

    Private sector employers typically contribute 3%-8% of an employee’s cash pay towards retirement, yet the total cost (expressed as a level annual % of cash pay throughout one’s career) of Public Sector Defined Benefit pensions (for a 30-year employee retiring at age 55) ranges from 29% to 58% depending on the richness of the benefit formula (with safety workers generally at the highest end).

    More specifically, for the noted formulas, the level annual %s of cash pay are as follows:
    2% per year of service w/o COLA – 29%
    2% per year of service with COLA – 39%
    3% per year of service w/o COLA – 44%
    3% per year of service with COLA – 58%

    Even after deducting the typical employee contribution of about 5% of pay, that still leaves the employer (meaning TAXPAYERS) contributing 24% to 53% of pay. The middle of these %s is 38.5% vs 5.5% (the middle of the range of what Private Sector employers contribute) or SEVEN (yes SEVEN) times greater.

    This is completely absurd, and the very modest “tweaking” at the edges by practically begging employees for a few more percent of pay contributions will NOT even begin solve the HUGE financial problem.

    TOTAL COMPENSATION (Cash Pay plus Pensions plus Benefits) should be comparable in the Public and Private Sectors for similar jobs, and with Cash Pay in the Public Sector now AT LEAST equal to (if not greater) than that in the Private Sector, there is ZERO justification for greater Public Sector Pensions and Benefits .

    Not for PAST service, but for FUTURE service, Public Sector pension accruals must immediately be brought FULLY down to the level of their Private Sector counterparts. Due to the huge reduction needed, the ONLY way to do this is to freeze the current defined benefit plans for CURRENT (yes CURRENT) workers, and switch everyone into a 401K-style Defined Contribution Plan with an employer contribution in the same 3%-8% range granted Private Sector workers.

    Additionally, since Private Sector retirees rarely get any retiree healthcare subsidy before eligibility for Medicare at age 65, similar restrictions should apply to Public Sector retirees.

    It’s TAXPAYERS’ money and Civil Servants are NOT more worthy of bigger pensions and better benefits.

  10. authoritay Says:

    I’m amazed (and terrified) that government is talking about taking away the pension plan I’ve been paying into for the past 16 years. I just checked my pay stubs, and they say I made my contribution (as has my employer) for the last 16 years. Since we’re both making our contributions (as part of my agreed upon pay/ benefits package) how can it suddenly be swiped away? Amazing.

  11. Tough Love Says:

    Dear authority, because your elected representatives (as payback for your Union’s campaign contributions and member’s election support) promised you pensions and benefits that were unaffordable WHEN THE PROMISES WERE MADE, and are even MORE unaffordable today.

  12. SeeSaw Says:

    Who says authoritay is a union member? The people getting the big bucks are not union members. My former CM receives six times more in retirement benefits than I (good for him, I think)–but he was never a union member.

  13. spension Says:

    Tough Love, you are confusing the level of benefits with the nature of the pension (Defined Benefit versus Defined Contribution).

    For the *same level of benefits*, say, 50% of final salary, Defined Benefit is more economical than Defined Contribution. There is one really big reason… in your Defined Contribution situation, everyone must prepare to make their money last until they are 95 or so. In a Defined Benefit, where you pool 100,000 people or so, the law of averages (really, law of large numbers) takes over and you only have to plan for the average age, about 85 years. So 30 years of pension in the first case (Defined Contribution) and 20 years of pension on average in the second (Defined Benefit). A huge savings, however.

    A second benefit involves time-averaging… the single solitary person has to plan on a worst-case withdrawal percentage… in the past 100 years the worst case came for people retiring in the 1960’s… they could only take out 4% of their savings each year and make their Defined Contribution last 30 years. But when you average over time by having a pool of 100,000, you can take out 6% a year…

    In the end *for the same benefit* Defined Benefit is about 1/2 the cost of Defined Contribution.

    I think to get 50% of final salary after 30 years while retiring at 65, you need to save about 1/6=16.7% of your cash for a Defined Contribution pension, w/o COLA. I say: the long-term average Defined Benefit contribution for the same benefit would be 1/2 that, or 8.4% of salary. Of course, the public contribution system does not accrue liability until you are vested… a big mistake, BTW… a failing of `present value’ accounting.

    Now the numbers you quote are *not* long term averages, they are the recent amounts that public Defined Benefit pensions have had to pay because of the market crash. As I said and believe, the public pension funds have been mismanaged… the promised benefits exceeded the contributions. One reason, as I mentioned earlier, is the benefits are way too rich (I think 1.8%/year @ 65 was reasonable given the contributions). The managers did not back test their models and see if they could survive the Great Depression, pure and simple. Had they done that, they’d never have supported 2%/year @55 or 3%/year @50.

    Additionally, the `present value’ system used by the financial managers is faulty. Not a penny is contributed to the pension pool until you are vested… usually takes a few years. That is wasteful… the first few years are the most important for pension contributions, because you the longest compounding duration. That is an aspect of Defined Contribution that is superior to the standard public Defined Benefit.

    Actually CALSTRS has done a very good job at regular contributions… it is CALPERS and most particularly UCRS that have messed up big time.

  14. Tough Love Says:

    Spension, Your statement that “For the *same level of benefits*, say, 50% of final salary, Defined Benefit is more economical than Defined Contribution.” is absolutely true, but solely because the administrative costs of a DB plan are more than a DC Plan.

    Your argument about a DC plan generating 50% of salary to age 95 is easily overcome by the purchase of a single premium annuity at the point of retirement (for exactly the same pension , including a COLA if so designed).

    Where your comment misses the mark is in the incredible generosity of Public Sector pensions … read my LONG comment above for the level % of cash pay to fund a variety of typical Public Sector pension. These % are what the equivalent DC contributions would have to be to generate the SAME pension, but there is no DC plan in existence which contributes even remotely close to these very high percentages.

    The ROOT CAUSE of the financial mess we’re in is not due to the type of pension, but the very simple fact that Public Sectors pensions are just WAY WAY WAY too generous. And, being formula driven, this excessive generosity (compared to what comparably paid Private Sector workers get from their employers) exists at EVERY income level.

    PS … I know all the math … I don’t need a lesson … been there, done that.

  15. spension Says:

    But, using your DC plan to purchase an annuity makes that idea no longer a DC plan. Not a bad idea, but definitely a changing of the goal posts of the discussion. And actually you’d have to contribute to the annuity continuously for the 30 years of your employment to realize the benefit of the time averaging… buying at age 65 does not do the trick, you are stuck with the next 30 years of return rate that starts with the instant you retire.

    But continuous contribution to an annuity amounts to…
    building a defined-benefit pension,!which is fine, and good to know you recognize the economic superiority of defined benefit over defined contribution. It is not just fees, but the law of large numbers, or the central limit theorem, or whatever you call it in your field. The same mathematical concept underlies the whole concept of insurance (well, not current health insurance, which has mutated into something else).

    Actually, you assigned the label `Public Sector Defined Benefit ‘ above in your 7:43pm post. My point is… being Defined Benefit is immaterial, and actually, Defined Benefit pensions are cheaper (by a LOT) than Defined Contribution pensions that provide the same benefit, as we now both agree upon.

    The richness of the public pension benefit *is* the issue. And the way we got there was the innumeracy of the financial advisors used by the unions and by our politicians… those advisors thought a Great Depression-like downturn such as we’ve experienced would never come again, so they believed their low contribution rates would support the high benefits.

    And I do believe your contributions rates are *not* long term averages, but rates the are only applicable in our current downturn. But the richness of the benefit is still the basic problem, and it was the innumeracy of the financial wizards that allowed those rich benefits in the first place.

  16. Tough Love Says:

    spension, Your last sentence sums it up … except that it wasn’t the “innumeracy of the financial wizards that allowed those rich benefits”, it was the insatiable greed of your Unions and the corrupt/enabling politicians, so willing to sell theri integrity for your Unions campaign contributions and members’ election support. THEY knew when the Sh** hit the fan, they’d be long gone.

  17. SeeSaw Says:

    What you say, TL, is a lie! Public employees and/or those that belong to unions, do not sit around conspiring about how to strong arm politicians, into giving them certain benefits. PUBLIC EMPLOYEES ARE NOT GREEDY! They are ordinary citizens. At my entity we knew nothing about the pension upgrade until we were told about it in 2002. We were happy–end of story. No one knew what was looming, as far as the economy goes, and no previous planning was ever part of what happened in 2008. Go live your life TL. Nothing new here. CA public employees are going to continue to receive the benefits they were promised, and you can go on living in NJ, and worrying about pensions in your own state.

  18. Tough Love Says:

    Quoting Seesaw, “Public employees and/or those that belong to unions, do not sit around conspiring about how to strong arm politicians” and “PUBLIC EMPLOYEES ARE NOT GREEDY!”

    Wake up … you’re either clueless or in a state of denial.

  19. SeeSaw Says:

    I worked in a public sector environment for 40+ years, TL. I think I know what I am talking about. You are the one who is clueless.

  20. spension Says:

    The forming of organized groups to influence the US political system is American as Apple Pie… whether the groups consist of investment bankers, medical insurers, physicians, armament manufacturers, cherry and other pitted fruit growers, AIPAC, public unions, private unions, veterans, lesbians, billionaires, gay billionaires, raw milk producers, etc. Ranting against political influence is pretty much ranting against America itself.

    The deeper problem is that our politicians get fooled by financial confidence games. We as a political system have a predilection to equate careful mathematical analysis with overregulation and the stifling of creativity.

    So the pension systems (public *and* private) have not been run in a mathematically enlightened way, which led to overpromising of benefits.

    Similarly, Wall Street in the 2000’s (and the 1980’s and the 1920’s) got out of control… anyone who says the 2008 meltdown was unpredictable is dead wrong… a fair number of people, who carefully did their homework and understood what was going on, sold mortgage securities short and became billionaires and 100 millionaires.

    But most financial managers in the US acted like NASA before the Space Shuttle Challenger exploded… they believed their own PR and social networks more than their hardheaded numbers people and legal document readers. And our economy and pension systems crashed.

    Just as sad… PR still rules our financial systems, not mathematics. Wall Street got their 1,000 $10 million bonus contracts honored by taxpayer bailouts, but I don’t doubt at all that 100,000 retired California Teachers will end up taking $10,000/year haircuts on their $40,000/year pensions, to pay those Wall Street Bankers. At the same time the city managers, public hospital administrators, University Vice Chancellors and fire captains in California will protect their $200,000/year pensions completely because `executive quality’ most be protected.

    Welcome to America where the honest little guy is screwed, blued, and tattooed.

  21. Decisions to make Says:

    Hmmmmmm at the end of 2011 I will have 27 years on the job. Should I retire at the end of 2011 with 27 years at 81% which would equal 70,400.00 a year before my first 2% COLA in 2013 or wait 3 more years and retire at the end of 2014 with 90% which would equal about 80,000.00 a year??? Do I take a risk and wait hoping I don’t get caught in pension reforms which may reduce my pension income or when I can retire??? WTF to do.

  22. Tough Love Says:

    Dear “Decisions to make Says”,

    I can’t think of any Private Sector worker who wouldn’t be tickled pink to be in such a conundrum.

  23. spension Says:

    Plenty of private sector workers make an average of >$1 million/year in post employment benefits. It takes a nanosecond of googling to find 500 private sector workers, that is, the CEOs of the S&P 500 firms, who average $1,182,057/year in post-employment benefits.

    They would snicker at `Decisions to make Says’.

    In fact, the uses by private sector execs of post employment compensation as further wealth accumulation taught the public sector how to do it.

  24. Tough Love Says:

    Spension, 1000 CEOs with each with excessive $10 Million pensions (totaling $10 Billion) won’t bankrupt the country.

    But 20 Million Civil Servants EACH with $500K more in pensions than their Private sector counterparts (totaling $10 trillion) certainly will.

  25. spension Says:

    Whoops TL… 10,000 Wall Street Executives *DID* bankrupt the country, through their fraudulent financial manipulations… $24 trillion in public liability caused by private sector fraud, according to Neil Barofsky, the special inspector general. Maybe will be less than that in the end, but we won’t know until the fat lady sings, and she hasn’t yet…. and since when does Wall Street leave any public funds on the table, in the long run?

    Same as it ever was in the 1920’s, 1980’s, etc… entirely predictable… fraud pays in our Country, if you are a Wall Street executive. And… after the tax payer bails you out, you get extra $10 million bonuses for your cleverness!

    Now the public pension system has joined right in with underfunded (if proper backtesting had been done) overly high pension benefits. I actually don’t think the public pension interest groups were fraudsters like Wall Street Executives, but the public pension groups did learn the trick of greedily demanding deferred compensation as wealth accumulation from the private sector, where executive pensions (per person) dwarf anything in the public sector.

  26. Tough Love Says:

    spension ….. Nonsense, the financial crisis was 99% do to Regulatory failure and incompetents working at SEC, Fed, Treasury, etc. With ZERO “skin-in-the-game”, the mortgage collapse was hardly a surprise. Boys will be boys. It was the Gov’ts jobs to keep an eye on things.

    A clear example was shown with the Madoff fraud. Harry Markopolus HANDED the SEC the proof … and they didn’t have the collective understanding to do ANYTHING.

    By the way … the evil of big business in no way excuses the collectively greater greed of Civil Servants and their political enablers. You’re trying to change the subject … the subject is grossly excessive Public Sector pensions…. and the immediate need for significant (50+%) reductions for future years of service for CURRENT employees. Or better yet, 90+% outsourcing and/or a “hard freeze” on all DB Plans … replaced with a 401k-style DC Plan with a modest taxpayer match.

  27. spension Says:

    Well, how do you explain the 100,000’s of `liar loans’ made by just about every bank in the US, where no income, no job, no assets were verified? William K Black, a Federal prosecutor of the same fraud in the 1980’s has documented and described the situation over the past 2 years.

    Accepting fraudulent loan applications and then passing them on to securitization without analyzing the loan qualities was simply a crime. That regulators did not catch the crime is bad, but does not change the fact that the first criminal, the loan officer at the bank who did not diligently check the information and passed it on as if they had, committed a crime of fraud.

    A car thief cannot plead innocence simply because the police weren’t around to prevent the car theft.

    And up the food chain all the way to the executives on Wall Street, regulations were broken and loan quality was not checked, which is simple prosecutable fraud, regularly prosecuted during the S&L crisis of the 1980’s by Black and others…. 1000’s of convictions. So far in the 2000’s crisis, maybe 10 successful prosecutions although the frequency of fraud was greater in the 2000’s.

    Wall Street $ got did get congress (both parties) to defund the regulators… just like drug dealers controlling a police department. But drug dealing would still be a crime and both ethically and morally wrong, and Wall Street is full of the same type of criminals.

    Sorry, >99% of the current downturn was fraud originating in the private sector. And the $24 trillion cost dwarfs the pension crisis, or the tiny ($65 billion) fraud Madoff committed. Yes the SEC screwed up, but they are controlled by private sector graft.

    `Boys will be boys’ is the excuse used to justify all sorts of theft, violence, and rape. All of those are crimes as were Wall Street’s frauds. I expect citizens to have a moral compass… if Wall Street does not, they belong in jail, pure and simple. In any case, we can never rely principally on law enforcement; if citizens are usually criminals, like on Wall Street, no amount of law enforcement can stop the crime.

    The public pension debt amounts to maybe $3 Trillion. The Wall Street Fraud of the 2000’s has cost about 8 times as much, $24 Trillion, which greatly exceeds the public pension debt.

    Defined Benefit plans, for the same benefit, cost 1/2 of what Defined Contribution Plans cost. Switching to Defined Contribution would be a terrible waste of money. It would be terribly wasteful to switch to Defined Contribution plans.

    Now reducing public pension benefits does make sense. Capping at 2X the median salary of Californians makes sense to me. Average of 5 highest years of service, and 2%/year at 65, a ramp up from 1%/year 1t 55. Must include all safety employees… simplify to a one-size fits all for all California public pensioners.

    Retiree health is a whole other problem. The US Healthcare system is atrocious… we are first or second in the world (per person) in cost, and 37th in the world in health measures.

  28. Tough Love Says:

    The title of this article is …. “Brown seeks ‘hybrid’ pension/401(k) reform plan”.

    Yes, I agree Corporate America is also greedy and has lots of bad players, but that discussion is not today’s discussion. And remember, I can always decide not to buy a company’s product if it’s overpriced because of excessive executive pays or whatever. But, I’m a captive taxpayer forced to fund grossly excessive Civil Servant pay, pensions, and benefits….. with no options. THAT’s the problem.

    And you said …………. “Defined Benefit plans, for the same benefit, cost 1/2 of what Defined Contribution Plans cost. ”

    You’re clueless. The administrative costs of a Plan as large as CalPERS is probably 1-2% (tops) of benefits paid. The REAL reason you don’t want a shift to DC Plans is that it would no longer be possible to hide the huge cost of these excessive cureent DB Plans. An equivalent-benefit DC Plan would require a level annual contribution (combined from the employee and taxpayers) of from 30-60% of cash pay (with the higher end for safety workers). Taxpayer’s would NEVER stand for it.

  29. spension Says:

    Tough Love, you brought up the topic of whether 1000’s of private sector CEO’s bankrupted the country. They simply did, in a worse way than the public pension system has also caused excessive debt. You objected to my pointing out that the 24 trillion $ of government liability caused by the private sector fraud in the 2000’s exceeds greatly the 3 trillion $ of government liability in the public pension system.

    For me, it is simple: $24 trilion exceeds $3 trillion by a factor of 8. I guess you don’t see the real number system the same way I and most mathemeticians see it.

    You had no choice whether or not to support the Paulson/Geithner brokered $24 trillion dollar liability to bail out the US private sector. You pay whether you like it or not.

    I’m not talking about administrative costs of DB versus DC. I’m talking about the mathematical advantage of an employer (the public government) pooling benefits in a DB system. Pooling allows planning for pension to only the average age of 85, while in a single-person DC you must plan for pension all the way to age 95. Thus in a pooled DB, you need only plan for (on average) 20 years of pension (65 to 85) while a DC must plan for age 65 to 95. That saves 50%.

    Then you must plan for the worst case withdrawal rate in a DC… 4%. In a DB, the constant contributions over long periods of time allow a 6% withdrawal rate. Another 50% savings for DB.

    Buying an annuity at age 65 with your DC savings doesn’t work… simply because all the people who die by 75 will lose have 1/2 their money… that is how the annuities pay for those who live to 95. That pension money is handed to individuals will mean darn few families will risk loss of 1/2 of their personal DC just in case they live past 75.

    Your numbers for annual contribution do not represent long-term averages, but peak contributions in this time of the stock market crash. The long term averages are much lower. The problem is that CALPERS and other systems tried to use `market timing’ to buy when the market was down, and failed to use the more economical strategy of regular level contributions. Actually CALSTRS has been much better.

    I agree that public pension benefits are too high, but it is not all because the public pension system uses a Defined Benefit system. The Defined Benefit system run properly (with regular contributions and without the `present value’ pension calculations they adopted in lieu of regular contributions) will always be cheaper for the taxpayer for a given benefit than will a Defined Contribution system.

    I want to save the taxpayer money, which means: keep the DB structure, force regular level contributions without present-value fluctuations, and of course, greatly reduce the benefits, to something like 2%/year at 65.

    TL, I don’t know why you want to double the taxpayers’ costs by demanding the costly Defined Contribution structure. You are contradicting yourself.

  30. Tough Love Says:

    Quotubng …”I agree that public pension benefits are too high, but it is not all because the public pension system uses a Defined Benefit system. The Defined Benefit system run properly (with regular contributions and without the `present value’ pension calculations they adopted in lieu of regular contributions) will always be cheaper for the taxpayer for a given benefit than will a Defined Contribution system.”

    That’s accurate ….. all we need to do is LOWER the rate of accrual (for FUTURE service ) by 50-75% (YES, that’s accurate too !)to bring it down to what comparable Private Sector workers get from their employers.

  31. spension Says:

    Sorry, private sector workers comparable to the top level of our government get way, way, way, way better post-retirement benefits than our governmental top-level workers.

    Look at the $1,182,057/year average benefit of the CEO’s the S&P 500 companies. That is simply excessive too, and fueled, frankly, by fraud (see the long discussion of the fraud at all levels, from local banks all the way up to the top of Wall Street Investment Banks, above).

    In fact the enormous post-retirement benefits given in the private sector have pulled up the demands of the top layer of our public sector. And then the greed trickled down to all levels of our public sector.

    So I cannot agree, TL, that we need to make public sector post-retirement benefits comparable to the private sector, where hugely richer benefits are found at the top level. I think the top level of our public sector should have way, way less post-retirement benefits then comparable private sector. And I think there should be a prohibition for our public sector execs ever taking a job in the fraud-riddled private sector after working in our public sector

    And we must demand actual enforcement of fraud laws, a better SEC, and we must pay our *good* public sector execs with a currency better than $… honor and acclaim. Like we venerate Abraham Lincoln, Teddy Roosevelt, we should venerate the various government regulators who foresaw and tried to top the current meltdown, but who were crushed by paid-off politicians and graft at higher levels in our government. Some names; Walker Todd at the Fed in Cleveland, and Brooksley Born at the CFTC, and William K. Black, the S&L prosecutor from the 1980’s.

  32. spension Says:

    In case you don’t know about Walker Todd, who got reprimanded for writing an article in 1991 that criticized a Chris Dodd (former Democratic Senator from Connecticut) amendment which allowed our investment banks and insurance companies to get the $24 trillion bailout by Paulson and Geithner….

    “Ms. MORGENSON: It was interesting. It was 1991. So, again, this is after the savings and loan crisis had shaken everyone’s, you know, confidence in the financial – our financial system. There was a new law that was being written to beef up the FDIC’s ability to take over failing institutions. It was a good law that was really necessary that came out of the S&L crisis, and it gave regulators more power.

    So it was an interesting moment in the writing of that law, that there came a sort of an amendment that had been brought to the floor by Chris Dodd which enabled insurance companies, brokerage firms, non-bank financial companies to tap into the Federal Reserve’s special powers in time of crisis.

    What that means is that these firms that had not been able to gain access to Federal Reserve borrowings in time of crisis – insurance companies did not have access. Brokerage firms had not had access. It was really only banks that were able to call on the Fed in times of trouble. This small, unnoticed part of the bill that was carried by Dodd expanded the federal safety net to include these companies.

    It was a moment nobody noticed, except for Walker Todd, who was a research fellow at the Federal Reserve Bank of Cleveland. He thought this was fascinating, because the law that this was buried in was supposed to, you know, restrain the ability of financial companies to harm the taxpayer and to create losses that would be funded by the taxpayer. So it was counterintuitive. It was a paradox to Walker Todd that this small thing was inserted into the bill.

    He tried to write about it. He, in fact, did write about it. He discovered that it had been inserted by the financial services companies at their request, and he tried to publish a paper talking about this expansion of the federal safety net. He came up against a buzz saw of criticism from the Federal Reserve Board in Washington. They tried valiantly to prevent the Federal Reserve Bank of Cleveland from publishing Walker Todd’s report.

    They failed, happily, and the report was published. But it was very, very interesting the degree to which the Federal Reserve Board seemed to want to keep that little amendment under wraps and to keep it from having the sunlight shone on it by this report that Walker Todd had produced.

    DAVIES: So back in 1991, there’s this obscure provision which says that we will bailout not simply banks that have mom and dad savings account in them, but financial firms that can gamble and take risks, they’re also in the federal safety net. And the Fed says don’t worry about that.

    Ms. MORGENSON: Pay no attention to that.

    (Soundbite of laughter)

    DAVIES: Well, you know…

    Ms. MORGENSON: And not only that, but they actually put a critical letter of Walker criticizing – a letter criticizing Walker Todd in his file after the article was produced.”


  33. Tough Love Says:


    So, your position seems to be that since a few really greedy Private Sector CEOs get outrageous pensions (which, come out of SHAREHOLDER pockets, not the taxpayers) then that justifies that the OTHER 99.99% of middle Class PRIVATE Sector workers should (via their taxes) provide 2, 4, even 6 times the pension to the 15% of America’s middle class Civil Servants, via pension contribution (which together with the interest earned thereon) pay for 80-90% of Civil Servant pensions.

    My above description is the structure NOW.

    Sorry, but you’re in for a rude awakening if you think this structure is not going to change radically (and NOT in your favor), and real soon.

  34. spension Says:

    The CEO pensions most certainly come out of the taxpayers’ pockets in all sorts of ways, including the $24 trillion Wall Street bailout, armaments contracts, public works contracts, royalty relationships for mineral extraction on public lands, tax breaks, tax deferrals, etc.

    I”ve never seen a comparison between public and private pensions that *included* the CEO’s post-employment costs on the private side. Every single comparison I’ve ever seen deletes those, which is grossly misleading. I bet the CEO pensions, added up over all of America, exceed the public sector pensions in total $. But I can’t prove it, and you’d need a crack squad of forensic accountants to even get the first set of numbers.

    How about we agree to pension limitations (same as public, 2%/year at 65 with cap of 2X median state salary) on executives in any company that takes 1 penny of public money in any form, whether in a tax break, tax deferral, royalty arrangement, armament contract, public works contract, etc.

    If your business never needs a public penny, you can give whatever pension you want. Just include every possible source of public pennies!

    I think a 2% at 65 arrangement, with a 2X state median salary cap in a Defined Benefit plan with constant contributions well calculated will cost the same or less than the current average DC plan given to middle-class private sector workers.

    That is not the current public pension system at all. I’m in favor of big cuts. You don’t seem to get that, Tough Love.

    What I can’t get is why, Tough Love, you accept fraud, rape, theft, etc, with the glib toss-off `Boys will be boys’. I guess for you crime is acceptable if there isn’t a cop there to observe it, or if Private Sector executives do it… they are your perfect angels. I suggest you tell people that right off, `Tough Love things fraud is GREAT as long as it is in the PERFECT PRIVATE SECTOR’.

  35. Tough Love Says:

    spension, You’ve repeated the $24 trillion many times … doing so does not make it accurate.

    If you’ve been reading the news lately, most of the companies who borrowed money have already paid it back, and where the US had equity positions, the gov’t has ALREADY profited on several.

    But I suppose these facts don’t support your agenda … keeping the Civil Servant gravy train rolling along.

    It’s not gonna work. The “math” doesn’t work. You can deceive, delay, lie, connive, BS, all you want, but the “math” doesn’t work, and when the money is gone, it’s game-over … for you.

    And Quoting …”How about we agree to pension limitations (same as public, 2%/year at 65 with cap of 2X median state salary)”

    When the typical Private Sector worker’s pension is rarely more than half what that formula would provide, why should we agree? With cash pay in the Public and Private sector relatively close, the is ZERO justification for ANY greater pension for Civil Servants.

    And that applies to retiree healthcare as well. Private Sector workers get Medicare at age 65, VERY RARELY anything before age 65 from their employer. ….. and neither should Civil Servants …. because taxpayers should not pay for someone ELSE to get something that THEY do not also get.

  36. spension Says:

    for the 24 trillion. Don’t trust me, trust Barofsky, the special inspector for the TARP program.

    2%/year at 65 in a well run Defined Benefit plan costs the same (in contributions) as the current typical private sector Defined Contribution. That is because of the law of large numbers and the ability to average payout costs over many years of performance. Defined Denefit is costs 1/2 of what Defined Contribution costs, per benefit.

    The losers are all the private sector employees who have been fooled by private sector CEOS into thinking Defined Contribution is somehow `cheaper’ than Defined Benefit. It is not, per benefit. Defined Benefit is cheaper.

    Anyone who puts math in quotations is innumerate.

    Retiree health care is a different issue… in the US we have the 37th worse health care system in the world by outcome, and we pay (per person). The fraudulent CEOs have long run our healthcare system.

  37. Tough Love Says:

    Quoting, “2%/year at 65 in a well run Defined Benefit plan costs the same (in contributions) as the current typical private sector Defined Contribution. That is because of the law of large numbers and the ability to average payout costs over many years of performance. Defined Denefit is costs 1/2 of what Defined Contribution costs, per benefit.”

    You’re simply wrong.

  38. spension Says:

    Tough Love… you’re simply incapable of doing the math to back up your assertion.

  39. Tough Love Says:

    Wrong again spension … I know the math, but you are so confused quoting bits & pieces, it’s not worth my time to educate you.

    But come back in 2 or 3 years and you’ll see I was right on the mark. Unfortunately, it won’t be pretty.

  40. spension Says:

    If you can do the math, write it up here. But you don’t so you won’t.

    You take the time to apologize for $24 trillion (according to the special inspector general of TARP) of taxpayer liability undertaken for Wall Street as, `Boys will be Boys’, the defense of rapists and thieves from time immemorial.

    You are simply not a serious pension analyst, Tough Love.

  41. Tough Love Says:

    Spension, I have no idea what you think I should “write-up”, so I chose something I put together a while back (yes, my original work) comparing the value of a California Police Officer’s pension with that of a comparably paid Private sector worker. It’s quite enlightening as to how all the elements come together to create an extraordinarily expensive pension for the officer….who pays for a VERY small porting of it. Read on:

    If you “do the math” ….

    The total “value” of benefits at retirement is the present value of all future payments, be they pensions benefits, healthcare premium subsidies, or anything else. Some of these future cash flows are definitively known at the time of retirement (e.g., fixed monthly pensions), and others need to be estimated (e.g., healthcare premiums, the incremental value of future COLA pension increases, etc.). However, all of these future payments can be reasonably estimated (sometimes with several options such as the low, medium, and high liability estimates routinely provided by the Social Security Administration). Once all known and estimated future payments have been determined, they can be discounted to the point of retirement at an assumed interest rate and an assumed mortality rate (for those payments that cease upon death). The interest rate used in this calculation is very important, but actuaries routinely do calculations of this sort and the range of reasonable interest assumptions for this purpose is fairly narrow.

    The present value of all retirement pension and benefit payments can be looked at as the answer to the question ….. How much would an insurance company charge in a single payment at the time of retirement to take on the guaranteed responsibility to make all future payments in lieu of the former employer.

    If we examine two 30-year service, age 55 workers (one Private Sector & one a Policeman or Fireman) making $100,000 in base pay + $20,000 in overtime at retirement, what would these present values be?

    Being somewhat versed in the subject of employee benefits I’ll describe the “likely” pensions & retirement benefits afforded each and then estimate their present values.

    Let’s assume the Private Sector worker is one of the few lucky enough to still have the older traditional-style defined benefit pension plan, and does NOT contribute towards its cost (common practice in Private Sector plans). With 30 years of service and with a typical formula that takes into account wages above and below Social Security “covered compensation”, this worker would likely receive about 40% of final 3-year average pay at normal retirement age, and overtime would NOT be included in benefits-bearing compensation.

    Here’s how the Present value would be calculated …

    Assume $95,000 is the AVERAGE of the last 3 year’s base salary, so 40% x 95,000 = $38,000. But this would be payable only if the employee waited until his plan’s “normal retirement age”. Let’s assume that his plan’s normal retirement age is 60. Since he will start collecting his pension 5 years early, there would be an “actuarial reduction” of 4 to 6% per year (just like Social Security applies when someone starts collecting early at age 62). Let’s assume the yearly reduction is 5%. So … we now have an annual pension of $38,000 x .75 = 28,500.

    Now, to convert this to a “present value” we need to apply a life annuity factor (which incorporates the interest and mortality discounts discussed earlier). For someone retiring at age 55 this “factor” would be a multiplier of about 15. So … the present value of this worker’s pension is $28,500 x 15 = $427,500.

    We will also assume there are no post-retirement healthcare benefits, as such benefits are VERY rare in the Private Sector.

    Now let’s calculate the present value of the Policeman’s pension & benefits.
    The pension formula for the policeman is often 3% of the last year’s salary (including overtime) per year of service and with no “actuarial reduction” for collecting benefits at age 55 (unlike for the private Sector worker). So … we have ($100,000+$20,000)x.03×30 =$108,000.

    But, we’re not done …
    The policeman’s pension includes a provision for post-retirement COLA increases (while essentially NO Private Sector plans do so). Although this may surprise the reader, the “value” of this added benefit is VERY significant. Even with a modest long-term inflation assumption of 3%/yr, the addition of a COLA benefit for life increases the value of the pension by at least 50%. Hence, the levelized annual pension (with the COLA) is now $108,000×1.5=$162,000.

    Using the same annuity factor of 15 (as used in the Private Sector workup above), we have a present value of 15x$162,000=$2,430,000.

    But wait, we’re still not done (2 more items to adjust for) …

    First, in fairness, the policeman contributes a percentage of his pay toward his pension (unlike the Private Sector worker), and the accumulated value (at interest) of these payments at retirement should be subtracted from the above $2,430,000 for a fair comparison. For this policeman whose final total pay was $120,000, I have calculated the accumulated value at retirement date of his contributions to be roughly $400,000. Hence the present value of this officer’s pension (offset by the accumulated vale of his contributions) is $2,430,000-$400,000=$2,030,000

    Second, this officer gets free or heavily subsidized retiree healthcare for himself AND his family. Since he is not eligible for Medicare until age 65, his healthcare premiums are very expensive and are expected to increase annually at 8-12%, triple the rate of regular (non-medical care) inflation. The present value of this benefit and the post Medicare age healthcare subsidy is roughly $500,000.

    Hence, the present value of this officer’s pension AND retiree healthcare benefit is $2,030,000+$500,000=$2,530,000.

    Now, let compare the present value for these 2 workers making the SAME pay, working for the SAME number of years, and retiring at the SAME age.
    The Private Sector worker’s EMPLOYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $427,500.

    The Policeman’s TAXPAYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $2,530,000.

    The crisis associated with funding Civil Servant Pensions and benefits is NOT a revenue shortfall issue. It is CLEARLY one of EXCESSIVELY GENEROUS pensions and benefits as the above calculations demonstrate.

    For 2 similarly situated workers (in pay, years of service, and retirement age) the Policeman’s package of retirement benefits costs the TAXPAYERS almost SIX TIMES what the typical Private Sector employer is willing to pay.

    Clearly, if the Private Sector employer provided the same benefits to his workers that the policeman receives, his company would likely go bankrupt in short order.

    These unreasonable benefits have been provided due to a political structure that rewards politicians for “giving-away-the-store” of not their own, but TAXPAYERS’ money, for personal gain. This “gain” may simply be to feed their ego, garner the union support needed to get re-elected, or perhaps worse … for current or future personal financial gain.

    In any event, the current situation is without doubt unsustainable and without MAJOR REDUCTIONS to the benefits provided CURRENT (not just NEW) public employees, towns, cities, and states will be filing bankruptcy with increasing frequency.

    Unfortunately, since difficult change is delayed and delayed and delayed to avoid the confrontation (with very aggressive unions), important public services will suffer tremendously until action is FINALLY taken.

    I’m sure there will be Civil Servants (with vested interest in the status quo) that will say my figures are wrong. Estimates are necessary, and small variations in assumptions will change the figures to a minor degree, but the final relationship is quite accurate …. TAXPAYERS are forced (via their taxes) to pay almost SIX times as much as the Private Sector employer is willing to pay.

    By-the-way … any qualified actuary can verify the reasonableness of my figures and conclusions, …. and I would welcome the actuary who offers to do so ……

    And, ……… I didn’t mention it above, but it’s worth a comment …… Civil Servants often take advantage of what’s commonly called “spiking” to unfairly boost one’s pension just before retirement. This takes many forms: large last minute promotions and/or raises, excessive/unusual overtime, cashout of sick and/or vacation days with the payout included in “compensation” for pension calculation purposes, or inclusion in “compensation” of miscellaneous “allowances” (housing, vehicle, parking, uniform, etc.).

    None of this is EVER allowed in Private Sector employer-sponsored plans (employers are spending THEIR OWN money, not TAXPAYER’S, and would never be so foolish). For every $10,000 of “spiking” that works its way into the above Policeman’s “compensation”, it costs the TAXPAYERS an additional $10,000x.03×30×1.5×15=$202,500 !

  42. Tough Love Says:

    spension, Here’s another comment I prepared. I think you’ll like this one:

    State & City Budgets are stressed all over the nation with supposed one-time “fixes”. Let me tell you something … this isn’t going to be a one-shot fix. Most States, cities, & towns have a FUNDAMENTAL structural problem which MUST be addressed.

    Long ago, Civil Servant “cash” pay was quite a bit less than Private Sector pay in comparable jobs. This justified a better pension & benefit package.
    Per the US Gov’t BLS, cash pay alone is now higher in the Public Sector than in the private sector. This justifies AT MOST comparable (but certainly NOT better) pensions & benefits.

    More valuable Public Sector pensions comes from multiple sources:(1) higher formula per year of service,(2) basing pensionable compensation on the final 1 year instead of 3 or 5 years of service,(3) including post retirement COLAs,(4) arbitrary end-of-career promotions or excessive raises to “spike” the pensionable compensation,(5) allowing the soon-to-be retired to load up on overtime includable in pensionable compensation,(6) including payouts of unused vacation, unused sick days, uniform, parking, and other miscellaneous “allowances” in pensionable compensation, etc.

    In MOST Corporate Pension Plans NONE of the above are included. Why? Because the cost would have to be paid for by the employer, and none of these being really justified, employers are not foolish enough to waste THEIR money this way.

    In the Public Sector ALL, of the above are generally included/allowed. Why? Our Politicians aren’t spending THEIR money, their spending YOUR money (via your taxes) while they curry favor for campaign contributions and election support.

    Sometimes, Corporate Sector Pension Plan sponsors realize that the plan is no longer affordable, so they reduce cost via formula reductions, increases in the retirement age, etc., for NEW employees and for FUTURE years of service for CURRENT (yes CURRENT) employees. This is ROUTINE in the Private Sector and is allowed by ERISA (the Federal Law that governs Private Sector Plans).
    ust as in the Private Sector, CURRENTLY EMPLOYED workers in the Public Sector have already “accrued” pension benefits for PAST service. To this will be added benefits for FUTURE years of service. However, in the Public Sector (and there are variations from State to State) the ability to reduce the pension formula for FUTURE years of service for CURRNT employees is “questionable”.

    Of course, the employees and their Unions say it cannot be reduced for anyone already employed (even for those very recently hired). There are many variations, e.g., NJ’s Office of Legislative Service said that cannot be changed only for current employees who already have 5 years of service. In some States, the rules that govern such potential Plan changes are in the State Constitution. In others, in Laws/Regs., and in others via Court Case law.

    One important consideration in examining the DIFFICULTY in reducing pensions for (FUTURE years of service ONLY) for CURRENT employees is that the legislators, judges, and staff (such as in the NJ example above) that “opine” that such reductions are not allowed are THEMSELVES participants in these same pension Plans and would be negatively impacted by such formula reductions.

    Hence, they are hardly disinterested parties, but come with a built-in conflict of interest. These persons should not be making decisions that favor THEM (as beneficiaries of their own decisions) but add to the taxpayers’ burden.

    The financial situation across the country is getting more dire, and the ROOT CAUSE must be addressed. Stated another way, we must once and for all, address the STRUCTURAL imbalance between income and expenses.
    Way too much focus has been placed on the government entity’s neglect to “fully fund” the Plans. This is certainly true (to varying degrees across the nation). What is often given short-shrift is the “expense” side of the income statement. No one ever says …gee … funding a VERY generous pension plan is VERY expensive, and then moves to the logical next questions, that being, is it too expensive BECAUSE it is too generous and perhaps we such make it less generous.

    But what exactly is “too generous”? Well, given that “cash” pay in the Public Sector now exceeds that of the Private Sector in comparable jobs, maybe a Public Pension Plan that is more than MARGINALLY higher is too expensive.

    Above, I enumerated 6 items which make Public Sector Plans more expensive. Few people not educated in pending funding understand just how VERY valuable (and hence EXPENSIVE) these differences are. One thing is certain, the Public employee Unions know. That’s why they fight tooth-and-nail to stop changes.

    Here is an accurate comparison of the costs of Public vs Private Sector retirement packages (pension plus retiree healthcare, if any)…. The value (i.e., cost to purchase the pension/benefit package) at the time of retirement of the employer-paid (i.e., Taxpayer) share of the typical (non-safety) worker’s retirement package is 2-4 times that of employer-paid share of the comparable (in pay, years of service, and age at retirement) Private Sector worker, and that multiple increases to 4-6 times for safety workers (policemen, firemen, corrections officers, etc.).

    I’ll bet you had no idea that this HUGE disparity exists. Given that it does, and given that Public Sector “cash” pay by itself is higher, is it surprising that States, cities, towns are being so squeezed to fund this? Not at all.
    So what is the solution? Of course Civil Servants deserve “fair” pay as well as “fair” pensions & benefits, but “fair” should mean COMPARABLE to what their Private Sector Taxpaying counterparts get. Right now, this is anything but true.

    The EXPENSE side of the income statement has been neglected far too long. To reach a “structural balance” we need to reduce current pensions (as well as retiree healthcare subsidies) in the Public Sector to a level comparable to that of the Private Sector. A few more progressive States & Cities (or perhaps, those in the greatest financial pain) know they must look at this and are beginning the baby steps.

    But the BIG problem is the conflict-of-interest conundrum that reducing pensions for CURRENT employees will (in many cases) reduce there own pensions. So, they ONLY propose plan reductions for NEW employees. To be fair, this may be happening not because they just “cave” on addressing such reduction, but because they really believe it is not possible.

    A disinterested party might look a bit harder. Perhaps we need to get opinions from outside this circle, e.g., from university scholars. Or perhaps challenges should be brought in the Federal Court system where the conflicted parties are no longer the decision-makers.

    Not addressing the huge cost of future accruals for current employees is wishing-away current financial reality. The dire financial problem is here NOW. Reducing pensions ONLY for NEW employees will have little impact for 20-30 years until they begin to retire. We will never make it. But also, given that most (objective) observers agree that current pensions & benefits are overly generous (compared to Private Sector plans … while appropriately taking into account compensation levels), why should we CONTINUE to layer on MORE excessive pension accruals?

    It’s been said that the first step in getting out of a big hole is to STOP DIGGING. Well, every day we allow the current plan to continue, the hole gets deeper.

    Somehow we need to find the way to reduce pensions (not for PAST) but for FUTURE years of service for CURRENT employees. That, along with a significant reduction in the retiree healthcare subsidy just MAY save us.

  43. spension Says:

    These examples are completely irrelevant to the 2%/year at 65 situation I suggest. As you know, I totally oppose 3% at 55. I totally oppose inclusion of overtime in the pension base. And retirement at 65 takes you right into Medicare.

    You can’t do the math for the case that matters, you’re just cribbing from somewhere else, Tough Love. You have descended into joke category now.

    A far more serious analysis is summarized at…

  44. Tough Love Says:

    spension, Seems to me like you oppose the pensions of your brethren whose pensions are greater (cops ?), but you want to go no lower than your own group’s formula.

    I smell self-interest … and as usual, the “entitlement mentality”.

    As the the “math” … keep looking over your shoulder, as in short order it’s gonna bit you and take quite a haircut from your pension. But first, the value of your retiree healthcare will be whittled away (via higher premiums, bigger deductibles, copays/coinsurance, caps, and benefit limitations) into nothingness.

  45. spension Says:

    Your speculations are hilarious, Tough Love. You are clueless and innumerate, utterly unable to understand these issues.

    You’ve been reduced to irrelevant wild threats. People like you are why the US can’t balance its budget… all hubris and no numerical ability.

  46. Tough Love Says:

    spension, We’ll see who is correct a few years from now.

    Good luck … you’re gonna need it.

    Greed has consequences…. and you can’t beat the “math”.

  47. spension Says:

    More irrelevant wild threats.

    But the consequences of greed in the private sector in US are very clear… people like Tough Love end up demanding that the taxpayer cover Wall Street CEO pensions at an average of $1,182,057/year per pensioner… adding up to $24 trillion dollars in 2008 alone.

    Go right ahead and be clear, Tough Love.. you love to pay $1,182,057/year in taxpayer funds to corporate CEOs who defraud the taxpaeyr. You just hate honest little guys who work hard and respect the law. `Boys will be boys’ is your defense of defrauding CEOs.

  48. Tough Love Says:

    spension, The conversation has been interesting, but I think you’re delusional.

  49. spension Says:

    I guess delusions are dear to you, Tough Love.

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