An official analysis of two public pension reform initiatives last week raised an issue quickly seized by opponents — a potential cost increase of $1 billion or more a year for state and local governments during the next two or three decades.
Much of the focus in the pension debate has been on court rulings widely believed to mean that pensions promised state and local government workers on the date of hire can’t be cut, not even for future service as is allowed in private-sector pensions.
Now the analysis of the two proposed initiatives makes the point that switching new hires to cheaper retirement plans can drive up costs, mainly by cutting the cash flow used to help pay pensions under the old plan.
To replace the cash from new hires the old plans would have to switch some investments to yield cash not capital gains, lowering expected earnings. And a lower earnings forecast can increase employer contributions to the old plans and long-term debt.
The nonpartisan Legislative Analyst’s Office review of two versions of an initiative proposed by California Pension Reform, led by Dan Pellissier, said putting new state and local government hires in cheaper retirement plans could trigger major costs.
The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”
Over a similar period, the analyst said an initiative giving new hires a “hybrid” retirement plan combining a smaller pension with a 401(k)-style plan could cost employers “$1 billion more per year (in current dollars).”
But the initiatives also would cap employer contributions, raise the contributions of current employees to help pay off pension debt and make other cost-cutting changes virtually certain to be challenged in court by public employee unions.
The analyst’s summary of the fiscal effect of the 401(k) initiative, similar to the hybrid summary, reflects the uncertainty and concludes that government costs could go up or down:
“Over the next two or three decades, potentially significant increased annual costs or some savings in state and local government personnel costs, depending on how this measure is interpreted and administered.”
The analyst’s summary is more certain about what happens under the 401(k) initiative, and potentially under the hybrid plan depending on its structure, when most workers are in the cheaper retirement plan.
“In the long run (several decades from now), annual savings in state and local government personnel costs of billions of dollars per year (in current dollars), offset to some extent by increases in other employee compensation costs.”
The analyst thinks that if retirement benefits are cut by the initiative, pay or compensation for government jobs is likely to be increased to keep them competitive in the labor market.
A labor coalition, Californians for Retirement Security, issued a news release about the Legislative Analyst’s Office review of the initiatives that emphasizes the potential cost increase.
“LAO: GOP Pension-Slashing Measures Would Mean ‘Large Uncertainty’ and $1 Billion a Year in New Costs for at Least 30 Years,” said the headline on the labor news release. “Legislature’s Fiscal Watchdog Says Proposals Threaten Massive Legal Challenges, Reduced Returns and Would Hurt CalPERS and CalSTRS.”
The author of the initiatives, Pellissier, a former aide to a Republican governor and legislator, said part of the potential increased cost of the initiative would be covered by increased employee contributions.
Pellissier said he had expected a more detailed analysis, perhaps using data available from the 20 largest public pension plans that cover about 90 percent of the state and local government employees.
For example, he said, the initiatives would save employers money by more quickly paying off pension debt or unfunded liabilities. He said the analysis is “more of a discussion of the concepts” than an evaluation based on assumptions and work sheets.
Pellissier said the group will use the title and summary of the initiatives, expected from the attorney general later this month, in polling to determine which version of the initiative to place on the November ballot by gathering voter signatures.
“We have hired fundraisers in all the major markets,” he said. “We are seeing enough money to do what we need to do.”
In San Diego, a pension official said an initiative on the June ballot that would give all new city hires except police a 401(k)-style plan instead of a pension could increase costs by about $90 million over the first six years.
If the pension plan is closed to new hires, said Mark Hovey, the pension system’s chief executive, government accounting rules require the $2.1 billion pension deficit to be paid off more quickly.
Gov. Brown fired back last month when the California Public Employees Retirement System said the hybrid plan for new hires in his 12-point pension reform plan could increase employer costs.
“As a matter of fact when I read the PERS analysis they say if you close the system of defined benefit (pensions) and don’t let any more people in, then the system would become shaky,” Brown told a legislative hearing.
“Well, that tells you you’ve got a Ponzi scheme,” the governor said.
“Because if you have to keep bringing in new members then the current system itself is not in a sustainable position,” he said. “So I don’t accept that, and we don’t need to close it off, anyway. But we do have to make sure that this system is sustainable over the long term.”
In a Ponzi investment fraud, recently made famous by convicted swindler Bernie Madoff, money used to pay investors if they cash out their account comes not from earnings but from new investors.
The CalPERS chief actuary, Alan Milligan, told the legislators he does not think carrying out the governor’s plan requires closing the current pension systems to new hires.
“However, that is one possible way of accomplishing the governor’s proposal, so it’s important to understand what it means when that happens,” he said.
After explaining how less cash flow from new hires can lower investment earnings, Milligan said it’s also important to know that the “same effect” can result from giving new hires lower pensions.
He said it’s not clear that the “significant” reduction of pensions for new hires in the governor’s plan would trigger lower earnings. But if it did, that would not happen for many years.
“So this is a concern,” Milligan told the legislators. “This is something that you want to think about. But this is not a boogeyman in the night that means you should be scared away from any particular course of action.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 3 Jan 12
Calpensions 
January 3, 2012 at 2:45 pm
Oh my gosh—- duh! Of course this is the obvious result! Please tell me the folks on the initiative side didn’t see this beforehand??? This is why the issue of so called pension reform will of course in the end be decided at the collective bargaining table……..not however after a ton of wasted energy and yaking on and on and on!
January 3, 2012 at 3:49 pm
Anyone who thinks that by replacing this extraordinarily costly system with one providing LOWER pensions (as would a 401k style DC plan with a reasonable employee match … routine in the Private Sector) is a fool, buying into Union fear tactics. Do you thing the 99% of Corporations that have ALREADY done so, did so to INCREASE their costs ?
Additionally, the employees of the Legislative Analyst’s Office are Public Sector employees most certainly in one of these same DB Plans. I question whether such an employee (with an obvious conflict of interest) would recommend shutting down THEIR OWN Pension.
January 3, 2012 at 3:51 pm
Ooophs …. The 1-st paragraph above is supposed to say ….
Anyone who thinks that by replacing this extraordinarily costly system with one providing LOWER pensions (as would a 401k style DC plan with a reasonable employee match … routine in the Private Sector) would actually INCREASE Plan costs, is a fool, buying into Union fear tactics. Do you thing the 99% of Corporations that have ALREADY done so, did so to INCREASE their costs ?
January 3, 2012 at 4:25 pm
Yes TL, we all know that the current system is out of whack and you are-as usual – 100% correct.
The only ones objecting are the troughies.
January 3, 2012 at 4:31 pm
TL— Nice job on the republican talking points but not a good solution…
January 3, 2012 at 4:35 pm
Pension reform, has been ongoing, at the respective bargaining tables, in CA, for the past three years. The Governor is wrong. The hybrid proposal should be eliminated by the Legislature, and all focus should be on requiring entities, that have not set up second tier plans for new hires, pass their own amendments, through Collective Bargaining. The DB pension plans should be preserved, for all public employees. There are many ways that pension costs can be trimmed; the pension formulas could all be cut back to one of the two former, 2% at 55 and 2% at 60 plans–the plans that I worked under for 30 years. The amount of salary that is used in the final pension calculation could be capped–such, would leave the elite managers free, to make all they could negotiate with their employers, beyond the cap.
If Dan Pellisier, who is already is line for a $100,000+ State pension himself, does not ditch his own proposal, he should be run out of town,on a rail! Let the Legislature solve the pension funding crisis soon; we need to move on to the Governor’s tax initiative!
January 3, 2012 at 4:46 pm
TL, The LAO is a non-partisan operation, set up to collect and discern the facts, without interference, from outside individuals, or groups. It has no connection to the public sector unions.
January 3, 2012 at 5:22 pm
Seesaw— I agree with your position— There ARE ways to keep db’s afloat and trim, trim, trim and CB is the cleanest and most efficient way as no costs go to legal time wasting through litigation etc….
January 3, 2012 at 5:24 pm
SeeSaw, I didn’t say that the LOA isn’t non-partisan. I said that the LOA staff are Public Sector employees and therefore participants in the same rich Pension Plans as all other state employee.
Someone participating in these rich Pans is hardly in an arms-length position to evaluate whether or not they are too rich and should be replaced by cheaper Plans.
It’s called a conflict of interest.
January 3, 2012 at 6:40 pm
In the private sector, guys like Ivan Boesky would take over companies and drain the pension funds of assets, and turn over the pensioners to the PGBTC. Amazing pension benefits are given to the executives to this day in the private sector; I don’t think references to the private sector are probative in any useful way.
In an well-managed pension system, where the fund is pooled between many people, risk is reduced. Removing new employees introduces risk that wasn’t there before, and the fund ends up needing more money to keep in the safe zone.
401(k) type systems are expensive because the pool size is one; every saver must save enough to survive to 100; in a pooled system those who die young subsidize those who live to 100. If the contributions come from the employer not employee in the first place, those who die young can’t say they are losing value. That was the whole point of funding pensions from mostly employer contributions and not employee contributions.
That the new hybrid systems are more expensive doesn’t surprise me at all, then, although it is really unwise for our governor, who must not understand risk management, to call very sober risk analyses `Ponzi Schemes’.
Of course, our state DB systems have not saved enough in their pool for the benefits that have been promised; our state DB systems assumed rates of return that were too optimistic, or, promised benefits that were too high. Either way. The system is in deep, deep trouble because of the careless management of the past.
Personally, I’ve strongly felt that benefits for existing retirees and existing employees simply need to be reduced, along with a reduction in the payouts to all California debt holders. The only way to do this that might be legal is sovereign default of the State of California… a number of states did this in the 1800’s, so it seems to have legal precedent.
The consequences would be cataclysmic, of course, but many countries in the past have survived and thrived after sovereign default as have a number of US states. Let’s just get on with it and quit all the chatter.
The main argument against sovereign default is that California bond holders, who tend to be wealthy and conservative, would have to lose some skin too; not just the pensioners who are a bit poorer on average and less conservative. The State would go through a number of years of high interest rates for its borrowing.
But there would be a light at the end of the tunnel, at least.
January 3, 2012 at 6:54 pm
“The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”
Over a similar period, the analyst said an initiative giving new hires a “hybrid” retirement plan combining a smaller pension with a 401(k)-style plan could cost employers “$1 billion more per year (in current dollars).”
Why? The pensions “normal cost” is the cost of the benefit, and that number barely moves. For public safety the normal cost to the employer is about 16 percent for the 3@50 plan (increased to 17-18% in most cases because a small portion of increased benefit costs (pensions based on final 12 months compensation, etc.) gets added to the normal cost while the rest of the cost is added to the unfunded liability. The other 18% of payroll (in my city) added on top of the normal cost is a smoothed & re-smoothed number that represent the annual “payment” toward the unfunded liability (DEBT). The unfunded liability portion of the payment is spread evenly to all members of the plan regardless if they‘re tier 1 or tier 2 (as a percentage of payroll), and the combined numbers represent the annual payment the city makes to CalPERS (35%).
If a second tier employee has a pension with a 12% normal cost and has the same percentage of payroll applied to the service of the unfunded debt, how does that increase cost in the hybrid plan? Shouldn’t it decrease the cost by about 5% of pay TIMES the number of employees in the second tier, MINUS the 401K match? How does that add a billion?
Also, is it the payment that goes up by a billion while unfunded debt is paid down by the same amount? Or is this article telling me that the unfunded liability would grow by 1 billion, which would raise even more red flags regarding CalPERS? Are we talking about increased payments or increased unfunded liability?
January 3, 2012 at 7:23 pm
Cap–
While I agree with the first few graphs of your post…remember –most of the defaulting states repaid– it is really a risk shift and nothing more—and—what Grossman et al declared in thier famous paper from the late 80’s:
…and even now in 2011 we all recognize that history suggests the following stylized facts about default on sovereign debt:(1) Defaults are associated with identifiably bad states of the world. (2) Defaults are usually partial, rather than complete.(3) Sovereign states usually are able to borrow again soon after a default. There is a reputational equilibrium in a model that interprets sovereign debts as contingent claims that both finance investments and facilitate risk shifting. Loans are a useful device to facilitate risk shifting because they permit the prepayment of indemnities. Nevertheless, because the power to abrogate commitments without having to answer to a higher enforcement authority is an essential aspect of sovereignty, a decision by a sovereign to validate lender expectations about debt servicing depends on the sovereign’s concern for its trust worthy reputation. A trustworthy reputation is valuable because it provides continued access to loans. A key aspect of the analysis is that lenders differentiate excusable default, which is associated with implicitly understood contingencies, from unjustifiable repudiation.
Repudiation is what you and others assert California needs to do— it’s hard to say NEVER but I highly doubt we will ever be there…the cost is just way to high and the Zeitgeist is now— cut, cut cut……which will and is doimng something at a minimum.
Ted
January 3, 2012 at 7:25 pm
sorry fellas and ladies– I meant to direct my last to spensions!
January 3, 2012 at 8:25 pm
Sure Ted, there will be details as to how the default works. `Complete repudiation’ is not something I suggest, although I think one or two US states did so in the 1800s. Totally repudiating all pension payments is not something I suggest.
But, say, reducing the first $30K/year of pensions by 0%, the second $30K/year of pensions by 15%, the third $30K/year by 30%, he fourth $30K/year by 45%, the fifth $30K/year by 60% seems like a `restructuring’. A more elaborate scheme using length of service too could be devised.
But bondholders and other State debt holders also should get a haircut.
Don’t know if California is `bad’, but California has definitely been fiscally irresponsible. I don’t think there is any way to get out of the box we’re in without a default.
January 3, 2012 at 8:30 pm
I don’t see it spension— on balance the method is draconian and the wake too devestating etc etc—-
January 3, 2012 at 8:40 pm
spension– to be sure– my hope is that the Gov.s plan., or something close -passes because the next alternative will be the next CPR iteration which, as always, will be seriously legally flawed even if it is funded….no change will happen then; a bad result in my view.
January 3, 2012 at 9:04 pm
I ran out of time before getting to the part about the 401K plan (the most troubling finding by the LAO):
“The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”
Is that “several billion” 2-3-4 billion a year “in current dollars“? What does placing future employees into a 401K plan have to do with current/past employees? If future employees are NOT brought into the CalPERS system then the additional cost, in current dollars, is several billion per year – for 20-30 years! How many tens, or hundreds, of billions are we talking about? I think this is where Governor Jerry Brown chimes in that what you have here is a PONZI SCHEME. He followed that statement up with a disclaimer to the effect that he didn’t think that was the case. I wonder if he feels the same way after reading the LAO report? I doubt it!
How can anyone continue to defend CalPERS?
Bernie Madoff would still be in business if he could just demand investors, or tax payers, contribute more to his fund.
January 3, 2012 at 9:23 pm
Cap— Chuck Ponzi and Bernie M. harbored a “specific legal inent to defraud”. This is the only thing that makes Ponzi and Madoff crooks under US law. That is a term of art. Calpers is a veted, due processed, noticed, disclosed, legislativly enacted, published, audited, investment vehicle that while depending on attrition and recruitment as do all actuarialy sound annuities, differs from Ponzi schemes in every definable respect. While it makes a C+ sam 6-pack dull-normal sound bite for the couch potato American dim wit, it serves no meaningful purpose.
January 3, 2012 at 9:37 pm
Thanks Ted, but I’m not buying it. You’re only talking about shades of gray, IMO. I think Bernie actually started his career with the proper intent only to later morph into a crook that’s where he belongs. CalPERS path to infamy isn’t much different – we just haven’t gotten to the final chapter as is the case with Charles & Bernie.
January 3, 2012 at 11:59 pm
Ted, more devastating than gutting the public schools and just about all public services in California?
In the end nobody will vote to raise taxes in California if it is perceived that pensioners haven’t given their quarts of blood too.
January 4, 2012 at 12:27 am
Lads– lol— I hear your doom and gloom– we will see! On the specific intent note— facts are facts— Ponzi cases in criminal court require specific intent— sorry– it’s the law.
January 4, 2012 at 2:37 am
“Dr. Ted Steele DVM : Lads– lol— I hear your doom and gloom– we will see! On the specific intent note— facts are facts— Ponzi cases in criminal court require specific intent— sorry– it’s the law.”
Seems to me that many a CalPERS past/present Executive/Board member are involved in current court cases. The CalPERS internal investigation pointed to a culture of “look the other way”. SB 400 looks more and more fradulent evertime I see the numbers decline. The past Chief Actuary (censured) claimed the CalPERS pension system was “unsustainable”, back in August of 2009.
CalPers management then claimed (August 2009) that they need to engage all stakeholders in an effort to provide stability and credability. What happened in the past two and one half years – employer/taxpayer contributions have increased substantially, unfunded tapayer liability has increased substantially, and you, CalPERS, and every union are still claiming there isn’t a problem. Nothing happened!
Ted, can you answer my question(s)?
“The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”
Is that “several billion” 2-3-4 billion a year “in current dollars“? What does placing future employees into a 401K plan have to do with current/past employees? If future employees are NOT brought into the CalPERS system then the additional cost, in current dollars, is several billion per year – for 20-30 years! How many tens, or hundreds, of billions are we talking about? I think this is where Governor Jerry Brown chimes in that what you have here is a PONZI SCHEME. He followed that statement up with a disclaimer to the effect that he didn’t think that was the case. I wonder if he feels the same way after reading the LAO report? I doubt it!
How can anyone continue to defend CalPERS?
January 4, 2012 at 3:32 am
lol– ok Cap! No— I don’t want to answer your questions just to have to re answer them 10 times while you simply re ask them again 10 more times. Already answered your Ponzi question. See above answer. You’re wasting my time on that one.
And…I have no stake in or interest in the inside politics of Cal Pers re your other question. Have a good time though you are a world class internet poster!
God Bless!
January 4, 2012 at 4:11 am
Ted Steele, Says: “ol– ok Cap! No— I don’t want to answer your questions just to have to re answer them 10 times while you simply re ask them again 10 more times.”
Ted, that is the same cop-out you used on the previous Calpension thread. Either you have a counter-argument or you don’t. If you can’t defend the CalPERS PONZI scheme then why bother? If you can defend what you consider to be an upstanding pension fund then step-up! You can start by answering my simple question, or you can defer to CalPERS Responds”. Here is my question(s):
“The analyst said an initiative giving new hires 401(k)-style investment plans could increase employer costs for two or three decades by “up to several billion dollars more per year (in current dollars) to cover pension costs of current and past employees.”
Is that “several billion” 2-3-4 billion a year “in current dollars“? What does placing future employees into a 401K plan have to do with current/past employees? If future employees are NOT brought into the CalPERS system then the additional cost, in current dollars, is several billion per year – for 20-30 years! How many tens, or hundreds, of billions are we talking about? I think this is where Governor Jerry Brown chimes in that what you have here is a PONZI SCHEME. He followed that statement up with a disclaimer to the effect that he didn’t think that was the case. I wonder if he feels the same way after reading the LAO report? I doubt it!
How can anyone continue to defend CalPERS?
January 4, 2012 at 11:57 am
If Calpers is a Ponzi scheme, Social Security is a Ponzi scheme times at least 50. So the argument is put every one in SS when it is even worse? Back when SS was instigated by FDR twenty people were supporting one retiree. Now it’s more like 2-1/2 to one and before long it will be 2 to 1.
So you don’t like Ponzi schemes? Well you are in the biggest crapshoot in history.
January 4, 2012 at 2:43 pm
Cap— LOL— Cop out? I answered your Ponzi question. You reject the answer. Why on earth do you think I would repeat it? You need to research the legal elements of fraud and discover the answer for yourself– no specific intent to “perm deprive” in Calpers—-vis- no specific intent. There– I have answered it yet again……let me know if you have another question I may help you.
January 4, 2012 at 7:17 pm
Captain, I must have missed the news about the CalPERS Actuary, Rod Seeling, being censured. What is your documented source for that statement?
January 4, 2012 at 7:26 pm
The statement that Rod Seeling made, about the sustainability of CalPERS, was made in August, of 2009. The gobal financial collapse occured, previous to that statement, in September, of 2008. The shock waves began in spring of 2008, with the downfall of Bear Strearns. Then, came Indy Mac, and everything else, going down like dominoes, until Sept.., while Presidential Candidate, John McCain, was exclaming that all was really well. There is no way, you will be able to pin purposeful, fraud on CalPERS, because, of SB400, Captain. It was a case of over-optimism, about the future of the Stock Market. Is funding CalPERS costing you, personally al lot money? I wonder, because I am a taxpayer, just like you, and I think my taxes are very reasonable.
January 4, 2012 at 8:05 pm
SeeSaw, It’s so interesting …. everyone at the table (none of whom were on the hook for the shortfall, if things didn’t pan out …i.e., the TAXPAYERS) looked around that table and said SB 400, which retroactively granted workers increased pensions, wouldn’t cost a dime.
Perhaps “honesty” would have added a little clause to SB400 that said …. Oh, by the way, if it turns out NOT to be free, the employees will have a choice :(a) forgo the increase, or (b) pay for the full cost.
By THAT wouldn’t serve the interests of the payers …. the employees and politicians, now would it ?
January 5, 2012 at 4:21 am
Everyone at that table were taxpayers, TL, so they were as much on the hook for any shortfall, as everyone else. Such clause, that you suggest, would never have been part, of any such Agreement. Things don’t work that way. The public sector employees were not responsble, for the biggest financial collapse, in our history, since the Great Depression. Things were going so good with the Stock Market, at the time, of the adoption of SB400, I do not believe that anyboy involved in the process, was thinking, in terms of, consciously, committing fraud.
I have been through many recessions in my lifetime, and had no idea about what was going to happen in 2008. You can say what you want–think what you want. I was just saying that, I do not believe CalPERS committed fraud, and doubt any such charges will ever occur. The fraud cases that Captain was referring to, involve past individuals on the Board and Staff of CalPERS, who were involved in committing and accepting bribery, in respect to the investments of CalPERS–nothing to do with the Agreements between CalPERS and its member entities.
January 5, 2012 at 6:39 am
Quoting SeeSaw …”Such clause, that you suggest, would never have been part, of any such Agreement. Things don’t work that way.”
Of Course they don’t …. The employees and those who approve the pensions they get (you know …. the ones with their hands out for campaign contributions) would NEVER include such a clause …. a clause actually protecting Taxpayers.
January 5, 2012 at 7:28 am
Like I said, TL. Say and think, whatever you will. You own your own opinions, but you don’t own the facts.
January 5, 2012 at 3:01 pm
TL— you are a classic— you live in a rep democracy, you elected your rep, they negotiated, the parties preformed, and now you want to undo it. Classic. In the law they call that breach.
January 5, 2012 at 6:51 pm
But the 2008 event wasn’t as bad as 1929. In my opinion, `100% funded’ should be (and should have been) defined as… imagine the market is today at its peak of Sept. 3, 1929, and imagine that in the immediate future the market performs just as the market performed after Sept. 3, 1929. Find the lowest funded level in that `1929′ future.
If that funded level is >100%, the pension fund is adequately funded. If not, no benefit raises should ever be allowed, and only contribution increases should be allowed.
Had a `1929′ definition been used, I doubt we’d have 3% at 50, or SB400, or be in the mess we’re in now.
I don’t think anyone committed fraud that led to our current pension crisis. There was willful ignorance of the history of the stock market, however: the stock market has always had a large helping of thievery and fraud, and to pretend it does not is simply willful ignorance.
January 5, 2012 at 9:06 pm
nooooooo— a 100% funded status is waaaaay not required– that would ignore market fluctuation, law and growth—-
January 6, 2012 at 5:27 am
Ted, 100% is the goal, as it should be.
January 6, 2012 at 5:43 am
Yup, 100% should always be the goal. Market fluctuations go both ways, BTW. But none of the CalXXXX pension systems recognized that when they were up above 100% that they were simply experiencing a fluctuation… they reduced payments and/or increased benefits.
Growth certainly is included in the `1929′ prescription I suggest.
As for law, the real law is people don’t want to raise their taxes to pay for substantially better pension benefits than they themselves receive.
January 6, 2012 at 2:52 pm
spension— the “real” law is the real law. Not the political notion about taxes you have posited.I agree about the politics but the real world is a balance between politics or what you may want and the law, what we as a people creating a social compact have set up for our protection and comfort. There is a process to change the law. It is solid. Politics and sentiment change like the wind.
Here endeth the lesson.
January 6, 2012 at 2:55 pm
speaking of fluctuation— ya gotta love the new employment numbers! Trend—- getting better! The econ coming back will help the gov spending piece of this. Go Pres. Obama!!!!
January 6, 2012 at 7:08 pm
Yes, and the real law allows sovereign default and even repudiation of debts by U.S. States.
The balance of politics at the moment is likely to result in a rejection of the new Brown tax proposal, because poorly thought-out benefits like 3% at 50, which goes well beyond protection and comfort and into gold-plating, are not altered for existing employees and retirees.
Legally, the only way to alter such agreements would be if the beneficiaries volunteer. I doubt they will, so we’ll end up with 3 weeks less of school for our kids, mediocre universities, rotten streets & highways, more poverty everywhere… the road to turning California into a banana republic.
But I’ll bet prison guards will stay gold plated.
January 6, 2012 at 7:24 pm
The prison guards deserve every penny they get, whatever it is. It appears you are just repeating hate-talking points, you have read. I doubt you were in the negotiations,and know all the details that came in to play, before the Agreement was reached.
There might have been some sovereign defaults in the 1800’s. That is about 200 years ago. I doubt its going to happen again in my lifetime. I wouldn’t place any bets on that happening, if I were you.
You are right, I will not volunteer to give up any portion of my pension. There is already 32% of it ,going for medical insurance premiums, before I have anything left to spend.
I am certainly going to vote for Governor Brown’s tax initiative though–it will affect me, and I will be helping CA. You might be surprised, in the end, about how many other people really care enough about CA, to pay more taxes.
January 6, 2012 at 7:48 pm
I definitely was not involved in prison guard’s negotiations.
Prison guards get a $1,560 bonus for just having aa yearly annual physical checkup, though….
Top prison guard salary paid in 2006 was… $252,270. Nice pay for a high-school education.
January 6, 2012 at 7:49 pm
Wow— kind of a cynial post spension. Have you ever had the chance to look up the definition of cynicism? It’s an eye opener! I would never want to imagine myself as a cynic.Skeptical maybe but never cynical.
Maybe you could relax a bit about sov default? I have never said that the concept is not within our law, have I? My point has been that it won’t happen here in Calif. for the many many many reasons I have posted supra.
On the new tax fix—-I disagree– Northern Calif, will carry it— will be sort of close–but it will pass. This is California amigo– we love Gerry Brown, to prove that point to you–you might’ve noticed that we keep electing him Gov.—see a pattern there? —he is an institution!
Now….I hope that helped. On the issue of changing 3% at 50—- as I have said….col bargaining is the key…….and you are seeing it….God Bless ya!
The Ted
January 6, 2012 at 8:16 pm
Love Jerry Brown? Seems to me he lost an election for US Senate in 1982. Also seems to me the uncompromising folks in the State Legislature held out and got their way in 2011 as well.
In California we spend $50k/year on each inmate… maybe $9k/year on each K-12 student. Maybe $15K/y per college student. A little extrapolation and in 2030 we’ll spend $100k/year on each inmate and less than $5K/year on any student, but we’ll honor those 3% at 50 pensions.
Maybe we can just incarcerate everyone… prison guards regard every person they see as just another future inmate already.
Sure would solve our traffic issues and remove the need for high speed rail.
January 6, 2012 at 9:25 pm
SeeSaw Says: “The prison guards deserve every penny they get, whatever it is…I am certainly going to vote for Governor Brown’s tax initiative.”
At least I now know what I’m dealing with.
January 6, 2012 at 9:33 pm
Ted Steele, American Says: nooooooo— a 100% funded status is waaaaay not required– that would ignore market fluctuation, law and growth—-”
Another Gem. I’ll add that if the funding level ever approaches 132% again, the unions will claim those taxpayer dollars belong to them and will plot another scheme, with the help of CalPERS, to redistribute those “excess” taxpayer dollars to themselves in the form of increased benefits. And, of course, those employees close to retirement wont want just future employees to slurp up all the gravy so they’ll want some retroactive compensation – just like SB 400.
January 6, 2012 at 9:42 pm
y tu Cap? Say it aint so….
January 6, 2012 at 9:59 pm
Hey Cap— on another note—-seriously—— ya know, if a public so called employee gets paid and puts his taxpayer derived salary into his savings account, who should get the interest? I say it reverts back to the gov. on an estopel theory…you?
January 6, 2012 at 10:07 pm
SeeSaw Says: “The statement that Rod Seeling made, about the sustainability of CalPERS, was made in August, of 2009….There is no way, you will be able to pin purposeful, fraud on CalPERS, because, of SB400, Captain.”
Not me, but maybe someone else. CalPERS had material information regarding SB 400 that they didn’t disclose. That information included a scenario that resembles our current state of affairs. Fraud, I don’t know. Distributing taxpayer funds to CalPERS members; funds that did not belong to anyone other than taxpayers – absolutely. The best case scenario regarding CalPERS involvement is that their actions were, at the very least, reckless and incompetent.
From the same 2009 Calpension article, where Ron Seeling used the word “UNSUSTAINABLE”:
“Anne Stausboll, the CalPERS chief executive officer, told the seminar that the CalPERS board talked about the “cost and sustainability of pension benefits” the previous week and decided that the system should take a “proactive role” on the issue.
“They asked us to formulate a way to convene our stakeholders — employers, labor, legislators and other stakeholders in our system — to convene everybody and start having a constructive dialogue on sustainability of pension benefits,” Stausboll said.”
What have they done in the pat 2 1/2 years? Well, they determined that:
– CalPERS members, and CalPERS staff, were receiving service credit years significantly below cost.
– Many members in the top 1% of pensions were receiviving inflated pensions that needed to be adjusted.
– they started the CalPERS responds website and the “truth squad”.
What else have they done?
January 6, 2012 at 10:37 pm
Ed, We are an employee benefits law firm and followers of your blog and we’d like to introduce you to our blog at http://focusonpublicbenefits.com/.
January 6, 2012 at 11:18 pm
The “Truth Squads” are not sponsored by CalPERS, Captain, and I have corrected you regarding that before–and you keep repeating it–it is false. They are sponsored and trained, by Steve Maviglio’s, pension protection group. CalPERS has organized an Ambassador program, where members, who join, are trained, on ways to respond, to the comments, such as your’s. I do not belong to the Ambassador’s program.
What else would you expect CalPERS to do, Captain? CalPERS is certainly not going to cut the legally contracted benefits, of its current members. Responses, to the many hateful and untruthful things, said about the Plan, should be done. It is up to the individual, respective, member entities, to work on the sustainability of their own plans. Over 200 local and county entities, throughout CA, have been involved in such processes, throughout the past year.
Spension, as to that Guard, that made $200+, in one year. I am not in that inner circle, but it doesn’t take a dummy, to surmize that, that particular guard worked a lot, of hours of overtime, due to short staffing, which is the same reason, that JB lifted the cap, on the Guard’s vacation accumulations. Those Guards are state employees–most likely, CalPERS members–if so, all that overtime will not be included, in the pension calculations–unlike the 37 Act County Plans. I am against pension spiking, myself.
January 6, 2012 at 11:42 pm
SeeSaw Says: “Spension, as to that Guard, that made $200+, in one year. I am not in that inner circle, but it doesn’t take a dummy, to surmize that, that particular guard worked a lot, of hours of overtime, due to short staffing, which is the same reason, that JB lifted the cap, on the Guard’s vacation accumulations.”
SeeSaw, isn’t your prior comment a better reflection of your true feelings about prison guard compensation, pension reform, and taxing everyone but yourself to pay for it -because increased taxes are a net gain for you and your pals. Here is what you said:
” The prison guards deserve every penny they get, whatever it is…I am certainly going to vote for Governor Brown’s tax initiative.”
I guess we just have a very different perspective as to what is actually fair to ALL Californians. BTW, the 200K + in compensation doesn’t even close to reflecting the total cost of that employee. No wonder corrections/pension costs are crowding out education funding which will lead to more corrections/pension costs.
Maybe instead of justifying these costs we should outsource them to one of the many states that do it at 1/3 the cost.
January 7, 2012 at 12:00 am
As I have said many time, Captain, I am a CA taxpayer just like you, and you will not be paying any more, to support the prisong guards, than I. I am not and never have been near a CA prison, and I don’t know any guards. I do have common sense, and I don’t need X-ray glasses, to see the dynamics, that have been at play, the past few years.
January 7, 2012 at 1:30 am
SeeSaw, I think we will just continue see things from very different perspectives. You’re OK in book. Have a nice weekend & a happy New Year.
January 7, 2012 at 1:42 am
Captain, Amen, and ditto.
January 7, 2012 at 2:15 am
Sorry, I can’t imagine a situation where an hourly high-school educated prison guard should get $252,270/year, no matter how much overtime was worked.
Our soldiers in Afghanistan work more hours in greater danger and get paid way less. Lots of business people with small convenience or liquor stores also work in substantial danger and more hours, and don’t get paid that kind of money.
As a practical political matter, I think a majority of California voters will vote `no’ on more taxes until prison guards are limited to, say, $120,000/year, and all public pensions are lowered to, say, 2% or even 1.5% at 65 from the current 3% at 50. Sure, there are currently vested benefits that exceed that, but… if those benefits are not voluntarily ceded, we’ll have 3 weeks less of school for our kids and crappy universities, at the very same time that China and India are educated their kids intensely.
Or we could have a nice Sovereign Default by the state of California.
If not enough prison guards or cops or fireman are hired to cover the hours, draw straws and cover the uncovered shifts just like the rest of us do. I’d be happy with $80K/year salary + $40K/year max overtime… but if there are uncovered shifts guards etc should just have to cover them even if they don’t get extra per hour compensation. Sorry about that, but $120K/year is not a `hateful’ wage. In other US states the wages for public safety are lower, and in China…
Teachers in California work a lot of extra hours without overtime at all. (I’m not a teacher, BTW). Working in a school in Richmond or Hunter’s Point is every bit as hard and dangerous as being a Prison Guard.
January 7, 2012 at 2:25 am
The minimum educational requirement is H.S.or a GED. There is nothing that says this, respective, Guard has only that level of education. He could have a Masters, for all I know. Go away, with your suggestion, that CA should just have, a sovereign default. I don’t have enough years of life, remaining, to see that light, at the end of the tunnel, you mentioned.
January 7, 2012 at 3:02 am
sov default is merely yet another goofy right wing/libertarian dream/nightmare like– abolish the fed–get us out of the UN–disband the military–stop all foreign aid etc etc etc……
no one with any sense is worried this will occur……
There—– let that be an end to it!
The Ted.
January 7, 2012 at 3:44 am
“THE TED”
Here is an excellent article from someone I have a great deal of respect and admiration for, Girard Miller. His column, “Pension Puffery: Here are 12 half-truths that deserve to be debunked in 2012.”, provides something for everyone:
http://www.governing.com/columns/public-money/col-pension-puffery.html
The article, and comments, are definntely worth reading. Happy New Year to you too!
January 7, 2012 at 7:01 pm
I don’t think a default by CA is out of the question. I only hope that if it comes to that,
(a) the Feds will NOT come to the rescue, and
(b) there is a BIG reset to pensions (and accruals of actives) to an amount (expressed as a % of pay) no greater than what the average CA Private Sector worker gets. FYI …. due to the MUCH richer formulas, earlier full retirement ages, inclusion of COLAs, retroactive increases, etc., that reduction would likely be 50-75% for non-safety workers, and a greater reduction for safety workers.
And for what it’s worth, I believe the greatest fools today are the younger Public Sector “actives” who knowingly throw their money away (going out the door today to fund the excessive payouts of current retirees, and those who will retire long before them) on a wish-and-a-prayer that these excessive Plan benefits will remain in place for them. Keep wishing …. fools.
January 7, 2012 at 7:41 pm
Retirement benefits are part of a public employee’s package at the time of hire, TL. When I first became a member, of CalPERS, as a part-time employee, I was assessed 7% of my wages, and there was no option, to consider whether, or not, the money was going to be well placed. As far as excessive pension payouts go, such situation applies to the retirements, of approximately 2%, of CalPERS’ 500,000+ current recipients. The average payout is $2332/mo. Your attempts to drive a wedge, between current retirees and actives, is spiteful, and non-productive. There is not now, and never has been, a civil war among the active and retired public employees. The issue is pension-plan stability, and it is up to the legislature, to pass proper legislation, and, then, up to the respective Pension Plans and their contracting entities, to operate within the laws, in effect, by adopting their own plans, according to the lawful paramenters, they face.
January 7, 2012 at 8:07 pm
Quoting SeeSaw …”As far as excessive pension payouts go, such situation applies to the retirements, of approximately 2%, of CalPERS’ 500,000+ current recipients. ”
Sorry SeeSaw, but with Public Sector pensions (as a % of pay …. which IS the meaningful measure for comparison), 2-4x (6X for safety workers) greater than their Private Sector counterparts retiring at the SAME age and with the SAME years of service, Public Sector pensions are …. by design … excessive at ALL income levels.
And we both know the “Average” Pension you quote from CalPERs is misleading because it is not representative of full-career, full-time workers, but includes (a) Part time workers, (b) short career workers, (c) survivor pensions at 50% of the deceased annuitant’s pension, and (d) the pensions of those who retired LONG age with less rich formulas and lower pay. A Private Sector average pension on an apples-to-apples basis to the $2,332/mo Calper average would likely be less than $1000/mo.
And, I’m not trying to drive a wedge between “active” and “retirees”…. I educating them.
January 7, 2012 at 8:57 pm
Cap– And exactly why to you respect and admire G. Miller? I skimmed the article– almost nothing new or noteworthy in it at all—all rehash and mostly false. For instance (and of course I could make comments on all of it…) his position that unions have to be dragged to the col bargaining table re pensions…WOW—- where is he from??? Every single col bargaining k and unit expires. All are renegotiated like clockwork– I used to do it. It is a constant process and pensions are exactly what they all want to talk about. So there you go– he says things like that with no basis in reality and it fills up a puff piece throwing red meat to the righties—–like these boards— a huge waste of time.
Have a nice day!
January 7, 2012 at 9:04 pm
Ted, you’re right….. Public Sector unions don’t have to be dragged to the col bargaining table re pensions.
It’s just that once there, they’ll never agree to give back more than 10 cents for each dollar they need to and SHOULD be giving back.
January 7, 2012 at 9:07 pm
Well TL– That’s a dif. issue then isn’t it? The article I just read posted above is full of exactly that kind of inaccuracy. This bogus info fuels the other side of this debate and does nothing useful.
January 7, 2012 at 9:36 pm
Ted, Yes, a different issue, but certainly one of the biggest problems to a fair resolution. If you are inclined, just yesterday a substantive summary of myths & truths re the pension reform debate was published here:
http://www.governing.com/columns/public-money/col-pension-puffery.html
January 7, 2012 at 9:50 pm
TL, your description of pension plans is correct. Pension plans come in all shapes and forms. There are at least five options available, to the CalPERS retiree. In fact, my beneficiary will receive the same pension I am now getting, if I should pass on, first. And, of course, I forfeited, more of my unmodified pension amount, to secure that benefit, for my spouse. Your are right, that the financial circumstances, of all the pensioners, on CalPERS, are quite varied. I say, “god bless”, for those people, who were part-timers, their whole careers, because it took them twice as long, to get, where they were going. Regardless, of all the scenarios, you describe, there is no getting away, from that average–the average age, is 60; the average monthly pension amount, among over 500,000+ beneficiares, is $2332. The people drawing modest pensions, outnumber those, with the large pensions, by 98%.
You are fighting a losing battle, when it comes to private vs. public, TL. You are looking, at apples and oranges. There is nothing stopping, the private sector, from modeling their respective salary and benefit packages, to match the public sector. How would you like it, if the public sector, started modeling the salary and benefit packages, of its professional ranks, like engineers, IT professionals, doctors, lawyers, CPA’s, etc., after those, of the private sector?
January 7, 2012 at 10:19 pm
Girad Miller appears to be, a very intelligent man. Just the same, his article is, another, of many op-ed pieces, geared toward increasing the level, of resentment, by the private sector, toward the public sector. Robert Reich could write a counter-op-ed, to Miller’s–but, Pension Tsunami would never include such, on its list, to inform, eeerr, inflame, the public–naturally.
January 7, 2012 at 11:04 pm
SeeSaw, Quoting …”And, of course, I forfeited, more of my unmodified pension amount, to secure that benefit, for my spouse. ”
Why must you “spin” everything to make it sound like you aren’t being treated fairly. Indeed the payout for a Joint and Survivor (J&S) annuity is less than that for a single like annuity …. BECAUSE (on average) the last survivor from two lives comes at a later date than from one life. If the calculation is done properly, the J&S and Single Life annuities are “actuarially equivalent” in value. In all likelihood, you got a bargain, with the J&S reduction less than what the actuarial equivalence would call for. I say this, because ALL elements of Public Sector pensions seems to offer extras at significantly less than he full cost of those extras (e.g., air time).
Another quote …”There is nothing stopping, the private sector, from modeling their respective salary and benefit packages, to match the public sector. ”
And where would the money to do so come from ? A Private firm that offered such pensions would be bankrupt in short order. And no, while many CEO’s are indeed overcompensated, in the total scheme of things the total excess isn’t financially material.
The ONLY reason Public Sector benefits are so rich (and yes, grossly excessive) is the collusion between the public Sector Unions and our self-serving, contribution-soliciting, vote-selling “elected representatives”. And “collective bargaining” is pointless when nobody at that bargaining table has, as there primary goal, the best interests of TAXPAYERS, not the employees, and not furthering their own political careers.
January 8, 2012 at 3:51 am
I never indicated that I thought I was being treated unfairly, and I was not intentionally doing any “spin”. I was simply stating that, in order, to choose the retirement option, that would secure the same amount for my spouse, if I were to pass on first, my forfeit amount, off the top, of the unmodified pension, was more, than, it would have been, if I had chosen another option. I consider my actions, before I commit them, and I am certainly not a,”spinner”. .
January 8, 2012 at 3:58 am
CEO’s are making millions, in compensation and benefits, TL. Don’t tell me, that they can’t spare a little, to enhance the salaries and benefits, of the workers!
January 8, 2012 at 4:01 am
The employees who get the rich benefits, are the elite managers, TL. They do not belong to unions.
January 8, 2012 at 4:09 am
SeeSaw, To put it in perspective, if all the CEO salaries were 1/4 of what they are, that might get us 1% (yes 1%) of the way towards giving the Private Sector workers pensions as rich as those granted just about EVERY Civil Servant.
Nationally, if 1,000 large Corp. CEO each make $2 Million more (on average) than they should (totaling $2 Billion in excess comp) it won’t bankrupt anyone, but with 20 Million Civil Servants (nationally) each with a pension whose “present value” at retirement is $500K more than is “fair”, totaling $10 TRILLION, it will CERTAINLY Bankrupt us.
January 8, 2012 at 4:43 am
TL, I don’t understand why you are so adamant that each sector should treated equally, when it comes to pensions and benefits. DB pensions still exist in the building trades, even though my spouse’s was frozen due to illegal immigration. There is no reason, why the private sector cannot offer DB pensions, instead of the 401k’s, only. The experience of 2008, showed how dangerous 401k’s, only, are. Because of the fact, that I have a DB pension, I was able to ride out the crashes, of my 457b. If a 401k is the only retirement vehicle, an employee has, they could lose half of it, one day before they retire. To me, it is wrong to demonize a particular segment of the population, because they work in a certain sector, or happen to belong to a union. It should be up to the desires of individuals–they can collect the information on the salaries and benefits available in each sector, and choose, where they want to set their goals. If they have an ideology that hates unions, as you do, they should steer clear, of working, in that type of environment.
January 8, 2012 at 6:26 am
SeeSaw, I support Public Sector Pensions and benefits that are no greater than those of Private Sector workers because Public Sector “total compensation” (pay + pensions + benefits) should not exceed those of Private Sector workers in comparable occupations (or in with jobs with similar risks). With “cash pay” now effectively equal for 95+% of jobs in the two sectors, greater pensions and benefits results in greater Public Sector Total Compensation.
This is unnecessary to attract and retain a qualified workforce, and is patently unfair to taxpayers whose pension contributions (and the investment earnings thereon) pay for 80-90% of Public Sector pensions.
It’s a matter of FAIRNESS. Since Public Sector workers earn no less in cash pay, if they want better pensions & benefits, fine,….. but pay for it 100% yourself.
January 8, 2012 at 4:41 pm
tl—–LOL– Are you saying that the problem is that management has done poorly in collective bargaining? Well……the remedy for that is lawful, strategic collective bargaining. That’s our system. Try it– it works.
The Ted System
January 8, 2012 at 5:42 pm
Sorry Ted, “collective bargaining” can’t work when nobody at the “bargaining table” has Taxpayer interests as primary, not the interests of the employees, and not furthering the careers of “cooperative” management, or the the contribution-soliciting politicians who pull the strings.
January 8, 2012 at 5:59 pm
Toughy–Well, you have a cynical point of view I would say. If you (not you personally sir) think we live in a world that will allow employment without ANY say by each party regarding the conditions of employment…….you live in a tea baggy dream state.
January 8, 2012 at 6:34 pm
Ted, The party paying the bills (the Taxpayers) MUST have the BIGGEST say, and that party is hardy represented at all.
The game is rigged and those like myself are trying our best to make that clear to the taxpayers in general, and to the few in positions of power who have the strength of character and stomach to implement the necessary reform. RI’s Treasurer Raimondo is one who comes to mind. When there is no money (now or in the foreseeable future), kicking the can down the road is NOT an answer.
January 8, 2012 at 7:29 pm
Love– I disagree with you amigo.The taxpayers ARE represented by the electeds in the room. End of story. It will remain the same even AFTER your “revolution”. YOUR electeds (or their designates) will be in the room negotiating. Unless you propose a Constitutional revolution (good luck on that) the system is working. NOW—- if you don’t like the results of the bargaining (and frankly it is turning your ay in some points) YOU need to put different people in the room. This is sort of YOUR problem.
January 8, 2012 at 9:56 pm
Ted, Your adamant position that little will change and that Taxpayers are represented is clearly (colored by, and) coming from one with a vested interest in keeping the status quo. The status quo can’t continue for much longer …. it’s all in the math.
January 8, 2012 at 10:23 pm
Maybe democracies will always elect politicians who promise more expenditures than the people are willing to pay out.
And then pension agreements between the government and its workers, as Gov. Brown has pointed out, have more legal protections than just about any other legal arrangement.
So, the 3% at 50 pensions and other pension arrangements will either:
1)Cause sovereign default, which perhaps is inevitable in a democracy
2)Cause drastic reductions in schooling, support for the indigent, and all civic services
3)Have to be voluntarily reduced by those who got them via collective bargaining.
I’ve never heard anyone say (3) was in the cards for existing vested benefits, although (2) has been now placed on the table by Gov. Brown.
Nice article in the LA Times today on the 64 LA County employees who got >$100,000 payouts for unused vacation. As I said, those employees and others who take advantage of public funding (like the prison guard who made $252,270 in 2006) will simply destroy our school system because taxpayers see those $ figures as excessive and unworthy of new tax increases.
January 8, 2012 at 11:14 pm
I read the Times Article, Spension, and am on the comment forum following that article. That is what happens, if there are no caps for vacation leave. I understand why the cap was lifted ,for the Guards, because there are exceptions, to all rules, unless you deal with the realities, and the need to make some adjustments. This article focusses on the County Sheriffs, and then takes a swipe at local governments–kind of unfair, because local goverments, except the largest cities, are CalPERS members, and do not participate in this type of thing. My local has a vacation cap–when one gets to that point, they must take vacation, or they cannot accumulate more. Anything that has been accumulated, and is on the books, cannot be seized from the employee. I completely agree with the fact, that there is no cap on sick leave accumulation, because one cannot plan, to be sick. Most sick-leave buyouts, if they are still allowed, are for half, of the final accumulated time. One with a long career, as I had, does not usually go along, through the years, without having something serious, that requires the use, of a lot of that accumulation. My final check at termination, for unused vacation and sick leave accumulations, was less than $23,000.
January 8, 2012 at 11:54 pm
Love–hmmm– well…I do agree that property rights and contract rights are sacred in our democracy, yes. We would have no commerce without them.
But— obviously reform is coming so I disagree that things won’t change. There will be a rabbit in the snake for awhile but it will pass and contracts will survive.
I wish this site posted more articles to fulfill my insatiable need for pension controversy.
January 8, 2012 at 11:57 pm
spension– you left out several points including–
employees paying more. Why did you leave that out? I see it coming.
January 9, 2012 at 12:02 am
If there is to be even a chance of staving off a collapse of many pension Plans and insolvency (call it what you want …. but the nonpayment of moneys due on time), the absolutely necessary step #1 is to stop digging the hole deeper, by very significantly reducing (by 50+%) pension accruals for FUTURE service.
Do I believe the Unions or Plan participants (esp. in CA.) will agree to that? Of course not. That’s why the chance of Plan failure and/or insolvency is so great.
January 9, 2012 at 2:28 am
Why the arbitrary percentage for cutting future accruals? Are you on the inside of every pension plan in the State of CA, TL? And, on the inside, of all details, in the respective entities, of CA, where there are current employees, who are vested in their plans, as they exist? No, the employees, union or non-union, will not agree to a 50% reduction in their future pension credit. And, it will never happen.
January 9, 2012 at 3:31 am
SeeSaw, I picked 50% as the MINIMUM reasonable reduction. That would leave the accruals of almost all Public Sector plans STILL greater than their Private Sector counterparts. For a Public-Private Sector equivalence, the required reduction would be greater for those Plans with the richer formulas and provisions (e.g., very early full retirement ages). E.g., Safety Plans would likely require a reduction of 75%. And like I said before, I too do not believe substantive givebacks will happen in any but a very few Plans. That’s why many will ultimately fail. Not my wish, but an educated guess from someone VERY well versed in Pension Plan design and funding.
January 9, 2012 at 4:48 am
sounds like you have this all figured out toughlove—– we’re doomed I tell ya.
January 9, 2012 at 6:08 am
Ted, Not likely, but you and your ilk will need to tone down the greed.
January 9, 2012 at 7:29 am
TS, I think your point is included in point 3… by collective bargaining, more can be contributed, just as less can be paid out.
But the CalXXXX assumed exponential growth in asset values, which has not occurred.
Exponential growth in employee contributions won’t be agreed to.
Exponential growth in employer contributions is underway, and will drive the sovereign default, unless employees voluntarily accept reductions in payouts for existing retirees and employees.
January 9, 2012 at 8:57 am
How can employees voluntarily accept reductions in payouts for existing retirees? Once the employee is retired ,and is being paid by the Plan, the active employees have nothing to do, with it. What is to gain, on your part, by continually threatening public retirees and employees, with your forecasts, of a type of financial catastrophy, that has not happened in 200 years?
January 9, 2012 at 2:43 pm
TL– Exactly how is it greed when I was promised something– worked 30 years for it and now want to collect it? Hmmmm
January 9, 2012 at 3:27 pm
Retirees can voluntarily give up benefits.
I’m not the one who put the pension systems into vastly underfunded status; that was the innumerate pension managers; all the threatening scenarios would not exist if the system were 100% funded and not in need of vast new taxpayer contributions.
January 9, 2012 at 8:23 pm
I didn’t do it either. If you find someone, who volunteers to give up some of his/her retirement benefits, alert the media!
January 9, 2012 at 11:28 pm
spension—- wow—— I am trying to figure out how on any planet greedy is a word used to describe people who do not give up thier earned vested pension rights…..hmmmm—-that about takes the cake.
Should anyone give up anything else in your view?
Since mortgages are hard to pay should banks give the houses away for free?
January 10, 2012 at 12:43 am
Ted, go to the Secy of State’s website. There is actually, a petition being circulated, to get an initiative on the ballot, to force banks, to reset the mortgages, according to the current assessed value, of the property. It doesn’t have a prayer, in my estimation.
January 11, 2012 at 6:18 pm
FYI Ted: The mortgage initiative just failed. Dan Pellisier and his ilk have entered the signature drive, with his two pension-deduction initiatives.
January 13, 2012 at 12:04 am
thx seesaw