Teacher Tenure/Unions/Government/Pensions

[macrockett]

Mar 29, 2010 11:33:23 GMT -6 sam2 said:

Is there anyone reading this board that can summarize the differences between goveernment and non- government pension accounting?

The article above mentions GASB, which I believe should be Government accounting standards board, but doesn't compare the proposed or existing disclosure to what non-govenrment companies must report -- I believe under FASB (financial accounting standards board) FAS-87.

I',m most interested in assumptions about investment return or discount rate and whether the future liabilities are recorded on the balance sheets or just in the footnotes.

I've done a quick online search without success, but I'm guessing a CPA with a larger firm will know the answer to this as they audit both government and non-government entities.

Thanks

Sorry, can't help you sam2 as the rules aren't posted anywhere. I think there are some documents out there that do summarize some of the issues but I don't have time to find them at that moment. As you noted, in neither public or private pensions are the unfunded liabilities part of the balance sheet. That is supposedly coming along with the OPEB liabilities (Other Post Empl Benefits (like health care).

[macrockett]

I think I forgot to post this.

online.wsj.com/article/SB10001424052702303429804575150180908011798.html?mod=WSJ_Opinion_AboveLEFTTop#printMode

This CNBC video discusses this article: www.cnbc.com/id/15840232?video=1452447304&play=1

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

It turns out there really is growing inequality in America. It's the 45% premium in pay and benefits that government workers receive over the poor saps who create wealth in the private economy.

And the gap is growing. According to the U.S. Bureau of Labor Statistics (BLS), from 1998 to 2008 public employee compensation grew by 28.6%, compared with 19.3% for private workers. In the recession year of 2009, with almost no inflation and record budget deficits, more than half the states awarded pay raises to their employees. Even as deficits in state capitals widen and are forcing cuts in services, few politicians are willing to eliminate these pay inequities that enrich the few who wield political power.

Let's walk through the math. In 2008 almost half of all state and local government expenditures, or an estimated $1.1 trillion, went toward the pay and benefits of public workers. According to the BLS, in 2009 the average state or local public employee received $39.66 in total compensation per hour versus $27.42 for private workers. This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.

The BLS study breaks down where that 45% premium comes from. It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked. But the real windfall for government workers is in benefits. Those are 70% higher than what standard private employers offer, as shown in the nearby table. Government health benefits are twice as generous as what workers employed by private employees earn. By the way, nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive.

What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.

In a separate survey, the federal Bureau of Economic Analysis compares the compensation of public versus private workers in each of the 50 states. Perhaps not coincidentally, the pay gap is widest in states that have the biggest budget deficits, such as New Jersey, Nevada and Hawaii. Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers.

But these current fiscal problems are a picnic compared to the long-term benefit commitments that state and local politicians have made to public retirees. A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.

The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.

Illinois's pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.

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

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

The union response is that government workers deserve all this because they are more educated and highly skilled. That may account for some of the pay differential but not the blowout benefits. The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off.

If government workers were underpaid, we'd expect high attrition rates, as they pursued better private opportunities. The reality is the opposite. Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers.

So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America's privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It's time to close the biggest pay gap in America.
Printed in The Wall Street Journal, page A18

Copyright 2009 Dow Jones & Company

[macrockett]

online.wsj.com/article/SB10001424052702303429804575150180908011798.html?mod=WSJ_Opinion_AboveLEFTTop#printMode

Executive Power Politics MARCH 29, 2010

Obama does the SEIU's bidding.


Remember all of those liberal and media complaints during the George W. Bush years about the "Imperial Presidency" and runaway executive power? We haven't heard much of that now that a Democrat occupies the White House, and President Obama's weekend decision to install 15 officials as recess executive appointments without Senate approval is even being hailed on the left as proof that he's capable of LBJ-style muscle-flexing.

As we said regarding Mr. Bush, Mr. Obama has every right to make such appointments under the Constitution. In some of his weekend decisions, the President was also responding to what appear to be abuses by Senate Republicans of their power to put a "hold" on nominees. We didn't like it when Democrats did this to GOP Presidents, and it's no better when Republicans play the same game, often for parochial political ends.

It is notable, however, that Mr. Obama sang a different tune when he was in the Senate and called Mr. Bush's recess appointment of John Bolton to be U.S. Ambassador to the United Nations an abuse of power. At the time, Mr. Bolton had bipartisan support but Democrats used a filibuster to deny him an up or down vote.

The same can't be said of Mr. Obama's most controversial recess appointee, labor lawyer Craig Becker to the National Labor Relations Board. The SEIU stalwart, who has written that the NLRB can rewrite labor law without the consent of Congress, was opposed by every Republican as well as Democrats Ben Nelson and Blanche Lincoln.

With Mr. Becker at the NLRB, Democrats now have a majority, and business will need to be on 24/7 watch for decisions that rig union organizing rules to help Mr. Becker's Big Labor patrons. Mr. Obama may have the power to ignore the Senate and install Mr. Becker, but his decision shows once again that this President's 2008 talk about bipartisanship was mostly for campaign show.
Printed in The Wall Street Journal, page A22

[macrockett]

www.politico.com/news/stories/0310/35050.html



2,000 House staffers make six figures
By: Erika Lovley
March 26, 2010 05:10 AM EDT

Nearly 2,000 House of Representatives staffers pulled down six-figure salaries in 2009, including 43 staffers who earned the maximum $172,500 — or more than three times the median U.S. household income.

Starting salaries on Capitol Hill are still low — many entry-level congressional jobs pay less than $30,000 a year. And many of the most highly paid staffers could make several times the maximum by jumping to lobbying and consulting jobs in the private sector.

But the salary data, compiled for POLITICO by LegiStorm.com, show that it’s possible to make an enviable living in Congress, even without winning an election.

The 43 staffers who maxed out at $172,500 — the salary cap for leadership and committee staffers — include John Lawrence, chief of staff to House Speaker Nancy Pelosi; Paula Nowakowski, the late chief of staff to House Minority Leader John Boehner; and House Parliamentarian John Sullivan. They earned only slightly less than rank-and-file members of Congress, who make $174,000.

All the salary data are part of the public record and are culled from congressional office disbursement reports.

Most of the staffers at the top salary level serve on upper-level committee and leadership office staffs as staff directors, policy advisers and legislative counsels — positions that have often had direct input on the formation of major legislation, such as health care. Many of those staffers also have law degrees.

But while these top earners are a small percentage of the overall congressional work force, their numbers are growing at a rapid rate under the Democratic Congress. The number of staffers earning within the upper 3 percent of House salaries — currently $163,358 or more — has increased by nearly 39 percent in the past four years, according to LegiStorm data. In 2005, there were 203 staffers earning in the top 3 percent. That number spiked to 304 people in 2008 but then dropped in 2009 to 282, likely caused in part by the economic downturn.

Pelosi’s leadership office has several high earners, including Arshi Siddiqui, a tax and trade policy adviser who was closely involved in the formation of the Democratic health care legislation.

In a recent health care speech on the House floor, Pelosi praised Siddiqui’s work, saying that she was one of several who had done a “remarkable job — dazzling us with their knowledge and know-how.”

“These are people who could be making a lot more money in the private sector, but they choose to work here,” said Pelosi spokesman Brendan Daly, who also makes $172,500. “Often some of the junior-level staffers make $25,000 a year and work very long hours. They’re certainly not being overpaid. Many of these people have a great deal of expertise.”

Between 2009 and 2010, the speaker did not increase top-level salaries for members or top-earning staffers, meaning staffers who already earned the maximum amount did not receive a raise over the past year.

There are approximately 10,000 House staffers, including district office workers, according to the chief administrative officer.

According to LegiStorm’s data, 53 personal office House staffers are making the most money possible in a regular congressional office — $168,411. Among those are Kathy Perdue, the House’s assistant chief administrator for administrative and financial services, , and Jedd Moskowitz, chief of staff to Rep. Gary Ackerman (D-N.Y.).

Ryan Ellis, tax policy director of Americans for Tax Reform, says that the sheer number of staffers who are earning the maximum amount of pay — or are creeping close — is troubling for taxpayers.

An additional 80 staffers are only a raise away — about $2,000 — from hitting that $168,411 cap. And 117 are a few thousand dollars away from hitting the $172,500 limit.

This trend is very likely setting a salary standard for new employees, Ellis said, making staffers more likely to demand certain pay levels based on the salaries of other workers — all of which are public record.

“When you have a whole bunch of people making very, very high salaries, you’ll have people who are expecting to be paid certain salaries and benefits. That’s not a good thing for taxpayers, because ultimately ... taxpayers are going into debt,” Ellis said.

Recent data from the Bureau of Labor Statistics show that in many cases, government jobs actually pay better than equivalent private-sector work. Average federal salaries in 2008 were higher than the average private-sector pay in 83 percent of comparable work, the data show.

But several congressional offices with highly paid employees — including the Chief Administrative Office, where CAO Dan Beard makes $172,500 ($90,000 from the House payroll, $82,500 in federal retirement benefits from his previous government service) — say their pay levels reflect talent and experience. For instance, many CAO staffers have been with the office their entire careers.

“Staff are compensated appropriately according to their skill sets, length of career within the CAO ... and in direct relation to the salary grade similar professional credentials could achieve in the executive branch or in the private sector in a major metropolitan area like Washington, D.C.,” said CAO spokesman Jeff Ventura. “Salaries are designed to retain the talent necessary to successfully maintain operations of the House of Representatives.”

Despite the significant income of some staffers, there are many within LegiStorm’s data who barely make enough to pay rent in Washington, one of the most expensive cities in the country.

For example, Chris Schaeffer, a staff assistant for Rep. Brian Baird (D-Wash.), made $30,833. California GOP Rep. Daniel Lungren’s congressional aide, Jonathan Langford, made only $28,583.

© 2010 Capitol News Company, LLC

[macrockett]

online.wsj.com/article/SB10001424052748704059004575127991641216702.html?mod=WSJ_WSJ_US_News_6

APRIL 1, 2010

Cash-Poor Cities Take On Unions

By CONOR DOUGHERTY

LOS ANGELES—Mayor Antonio Villaraigosa once organized for a teacher's union here, and later ran a branch of the American Federation of Government Employees. That makes him an unlikely advocate for cutting the benefits of the city's workers.

Politicians in cash-strapped municipalities are pushing for budget cuts that are forcing confrontations with politically powerful public unions. Conor Dougherty discusses on the News Hub.

But with the city facing a budget deficit that could drain its reserves by summer, Mayor Villaraigosa wants to re-open contract talks with 45,000 cops, firefighters, librarians and other city employees in hopes of persuading them to contribute more to their pensions and health-care costs. His deputy chief of staff, Matt Szabo, puts it bluntly: "Unions have priced themselves out of a job."

Nationwide, politicians looking for budget cuts are confronting politically powerful unions that represent state and local government employees—15% of U.S. workers and organized labor's biggest stronghold.

In Memphis, the city's health-care committee recently recommended raising current and retired employees' health-insurance premiums by as much as 15%. And Toledo's city council last week wrung $3.1 million in concessions from its firefighters' union as part of a measure to close its budget gap.

Similar things are happening at the state level. Over the past two years, 17 states have cut benefits for employees or increased the amount that individuals must contribute to their pension plans. Three of those states—Kentucky, Texas and Vermont—did both, according to the Pew Center on the States, a public-policy think tank.

View Full Image
UNION2
Associated Press

Los Angeles Mayor Antonio Villaraigosa announces the elimination of the Environmental Affairs and Human Services Departments in February, cutting 46 jobs.
UNION2
UNION2

At the heart of this fight is an unbalanced equation: The economy is shrinking cities' and states' tax income as their pension and health-care costs have soared. As a result, some governments are diverting money from services to cover benefits, or raising taxes and fees. That doesn't sit well with some taxpayers—many frustrated at seeing their own benefits being cut by private-sector employers.

So governments are seeking cuts in union benefits long considered sacrosanct. This has risks. Public-employee unions are among the biggest political spenders, and their members vote in droves. Also, cutting benefits could make it tougher to keep the best employees.

It is tough to compare government pay to private-sector pay because many government jobs—firefighters, police officers—don't have private counterparts. But, on average, government workers make more in wages and benefits. In December, state and local governments spent an average of $39.60 in wages and benefits per hour worked on their employees, versus an average $27.42 for private employers, the Labor Department said.

The fight over benefits represents a defining moment for public employees and their unions. Government is by far the most unionized sector of the work force, and among the few places left where blue-collar workers can retire with traditional lifetime pensions. In 2009, the nation's 7.9 million unionized government workers eclipsed the number of private-sector union members for the first time since the Labor Department began keeping track in 1983.

"What comes out of all these negotiations will set the tone for public employees for a while," says Ken Jacobs of the Center for Labor Research and Education at University of California, Berkeley.

In New Jersey, outrage over state deficits helped Republican Chris Christie defeat incumbent Democrat Jon Corzine last November. A few weeks after Mr. Christie's victory, a Quinnipiac University poll found that three-fourths of state voters supported a wage freeze for state workers, and 61% favored layoffs. Last month, Gov. Christie signed a set of bills that would, among other things, cut pension benefits for future employees.

Public-employee unions argue that it's unfair to penalize them for a financial crisis that isn't their fault. They say cities and states are opportunistically taking advantage of a short-term crisis to gut benefit plans in place for decades.
[UNIONSjump]

Many private-company workers have seen their retirement accounts shrivel, while public-sector benefits have been relatively unscathed. Defined-contribution plans such as 401(k)s had $3.33 trillion in assets at the end of 2009, down 4% from $3.48 trillion in 2006, according to the Federal Reserve. Such accounts have lost value even though companies and workers contributed $100 billion over that period.

The rise in public-sector benefits has attracted the ire of citizens like Paul Nelson, a semi-retired investor in Upper Saddle River, N.J. Mr. Nelson, 59 years old, has a son at Northern Highlands Regional High School, where the principal says the school may have to cut teachers and increase class size. "Most public employees have retirement and health-care plans that private-sector employees can only dream of," says Mr. Nelson.

Virtually all full-time state- and local-government employees have access to retirement plans, and most are employer-funded. By contrast, only three-quarters of full-time workers in the private sector have access to retirement benefits.

Disparities like these give politicians ammunition for cost-cutting. "Public-employee benefits have to be reined in," says Andrew Koenig, a Republican state representative in Missouri.

Mr. Koenig is sponsoring a bill in his state that, over the next several decades, would shift away from a defined-benefit plan, where an employer puts as much money into a pension fund as needed to cover future retirement benefits. It would be replaced with a 401(k)-type of plan (similar to those now in place at many private-sector employers) where workers absorb the market's ups and downs.

Some argue that just because corporations have trimmed employee benefits doesn't mean the government should as well. "There has been an attack on American private-sector workers and benefits, with 401(k)s replacing traditional pensions," says Teresa Ghilarducci a professor at the New School for Social Research in New York City, "and they have failed" at providing retirement security.

At the root of governments' problems today are promises made in past decades. As a group, state and local governments have promised an estimated $3.35 trillion in pension and health-care benefits to be paid over the next three decades, but are estimated to have 70% of the money to cover those payments, according to the Pew Center on the States. Pension and health costs can consume 20% of city and state budgets.
[UNIONS]

California offers a view of the fallout. The state's largest pension fund, the California Public Employees' Retirement System, known as Calpers, is estimated to be only 57% to 65% funded. Having suffered investment losses in recent years, the state has had to dip deeper into its revenues to make up the funding gap. Last year, a budget impasse forced the state to issue IOUs for taxpayer refunds.

It wasn't long ago that California was going the other way, based on a different set of assumptions. In 1999, the state's Democratic-controlled legislature and then-governor Gray Davis passed a law expanding benefits for many state employees. A proposal prepared by Calpers—the $200 billion fund that manages money for 1.6 million of the state's employees, retirees and their beneficiaries—forecast that the boosted benefits would be paid for entirely by investment gains. "There are only two ways you can have this problem: One, the promised benefits are too big, or two, not enough money was put away," says David Crane, special adviser for Gov. Arnold Schwarzenegger.

California's contribution to its public-employee pension fund is projected at $3.5 billion in the fiscal year starting July 2010, 4% of the state's general-fund budget, the highest proportion in state history.

In Los Angeles, the battle is spilling into the public, including at a noisy City Council meeting in February. On the agenda was a plan to cut 1,000 workers and reopen contracts. Union members turned out to voice opposition.

Art Sweatman, a tree surgeon for the Department of Public Works, showed up wearing baseball cap that read "Deadwood." It was a reference to comments by Mayor Villaraigosa last year in which he said a new early-retirement program could rid the city of "deadwood" employees.

"We have to let them know we're here," says Mr. Sweatman, a member of the Service Employees International Union local 721. Mr. Sweatman's union says it is trying to meet the city half way. Local 721 has agreed to early-retirement programs and furlough days, says executive director John Tanner, but it has resisted health or pension rollbacks. "Our goal was to get through this without layoffs or cost-shifting on health care," he says.

Government benefits are almost as old as government itself. Military pensions stretch back to the Roman Empire, predating private-sector benefits by centuries. The U.S. offered retirement pay to soldiers who fought in the revolutionary war, and by 1930 the federal government gave pensions to all its employees. Pensions at private-sector employers came into widespread use only after World War II.

Lee Craig, an economics professor at North Carolina State University, says pressure has been building for years to cut government benefits, with the financial crisis accelerating that. "Their promises have finally outstripped the growth of their tax bases," he says.

California's Santa Barbara County, a coastal area known for wineries and Spanish architecture as well as Michael Jackson's former Neverland Ranch, has seen tax revenues fall over the past three years. The county has reduced its work force by 7.5% and management salaries have been frozen since 2008.

At a workshop conducted by the county's executive office, representatives from two dozen departments—the sheriff's office, mental services, and public works, among others—were required to suggest cuts. The proposals included eliminating two Spanish-speaking interpreters in the public defender's office, closing a camp for delinquent teenage boys that opened in 1944, and reducing staff in a child-abuse prevention program. Another proposed move could add four to six more weeks to the wait for food stamps.

In Redding, Calif., the mayor and city council are asking city workers to contribute 7% to 9% of their salaries to their pension funds; currently the city picks up that tab. Patrick Jones, who runs his family's gun shop in addition to serving as part-time mayor, says if the council doesn't win concessions it might use a November ballot initiative to ask voters to demand that the city negotiate benefit cuts. That move, he said, would give the city leverage in any union negotiations. "We're just trying to get as many tools as possible to quicken the time it takes" to get concessions, Mr. Jones says.

One group fighting back in Redding is the International Brotherhood of Electrical Workers, which represents 53 electrical workers on the city payroll. One recent morning, about two dozen members gathered in the "bull room," where linemen and electricians meet to get their work assignments. The workers listened to union representative Ray Thomas update them on the contract fight. Mr. Thomas said he hasn't any intention of agreeing to benefit cuts, but told his workers not to expect much.

"If it doesn't screw the future, it's something we'll have to discuss," Mr. Thomas said.

A member of the audience raised his hand and asked if it was true that deputy sheriffs in surrounding Shasta County had been considering a plan to pay more of their retirement costs.

"Did they vote to accept that?" another asked.

Mr. Thomas nodded his head yes.

Write to Conor Dougherty at [e-mail]

[macrockett]

One more voice that returns will be lower in the future, therefore pension expectations are overstated. Listen to Bill Gross: www.cnbc.com/id/15840232?video=1456368596&play=1

[macrockett]

online.wsj.com/article/SB10001424052702304620304575166192781597892.html?mod=WSJ_WSJ_US_News_5#printMode

U.S. NEWS
APRIL 5, 2010, 9:57 P.M. ET

Shortfall Awaits California's Big Pension Funds

By CARI TUNA

A study released Monday by Stanford University estimates that California's three largest state-operated, public-employee pension funds—the California Public Employees' Retirement System, California State Teachers' Retirement System and University of California Retirement System—currently face a total shortfall of more than $500 billion.

The figure dwarfs the funds' own combined shortfall estimate of $55 billion as of July 2008, according to the report, which doesn't account for the more than $100 billion loss sustained by the funds during the recession. That adds a further wrinkle to California's already precarious fiscal situation.

The study, prepared by Stanford graduate students for Gov. Arnold Schwarzenegger, used a more conservative formula to estimate the pension systems' unfunded obligations, an approach advocated by a growing chorus of experts. The report also recommended increasing contributions to the funds, investing in less risky assets and trimming pension benefits for future employees.

Gov. Schwarzenegger warned Monday that pension-fund shortfalls could lead California, which faces a $20 billion budget gap in the coming fiscal year, to divert more funds from other state programs to cover pension costs.

Write to Cari Tuna at [e-mail]

news.stanford.edu/news/2010/april/pension-fund-problem-040510.html?view=print

Stanford Report, April 5, 2010
California state pension funds going broke, Stanford study finds

New calculations by Stanford graduate students show that California's three main public employee pension funds are in more dire financial trouble than previously believed.
L.A. Cicero Howard Bornstein and Lisha Wang

Students Howard Bornstein and Lisha Wang spoke with reporters after a news conference where they and the other members of their research group announced their findings about the state retirement system.

BY GWYNETH DICKEY

California public employee pension systems are worse off than anyone previously projected, according to a new report generated by five graduate students in Stanford's Graduate Public Policy Program. The result could be greater pressure on the state budget and a shortage of pension funds in the future.

"This is a really dire situation," graduate student Howard Bornstein said today at a press conference at the Stanford Institute for Economic Policy Research, which is publishing the students' findings. "If we don't do something now, we're going to have major issues in just a few years."

Bornstein and his fellow graduate students examined public records of past performance of three pension funds – the California Public Employee's Retirement System (CalPERS), the California State Teachers' Retirement System (CalSTRS), and the University of California Retirement System (UCRS), which together administer pensions for approximately 2.6 million Californians.

The students ran computer simulations to predict the unfunded liabilities of the pension funds over the next 16 years.

Major investment needed

"The simulation shows that the state would need to invest more than $200 billion, and possibly as much as $350 billion, today to return the fund to a minimum responsible level of funding," said Bornstein, who noted that the figure is approximately four times the current state budget.

"It's an enormous number," said Joe Nation, a public policy lecturer at SIEPR and the advisor for the research team. He said it's important to look at the shortfall relative to state resources. Pension funds fluctuate with market performance, but state employees are guaranteed a fixed pension regardless. If the market performs poorly, the state is obligated to step in and provide the missing pension funds. That takes money away from other public projects, such as education and healthcare, Nation said.

"The students did an amazing job providing a better sense of unfunded liability for those three pension funds, and I hope observers out there will begin to understand that this is a financial train wreck that is not very far down the tracks," Nation said.

In the report, Bornstein and his fellow graduate students suggest policies to fix the shortfall and prevent a similar one in the future.

They propose that the managers of the pension funds project more realistic rates of return, which would indicate higher liabilities in the future.

"The whole approach that the state currently uses is inherently flawed. They look at averages as opposed to a fan of outcomes," said Bornstein. "If you instead look at the range of outcomes in the future, you'd see there's over a 60 percent chance of a deficit greater than $250 billion for CalPERS alone. This is something that really scares us."

The students suggest that the minimum level of caution should be for the funds to aim for an 80-percent probability of having at least 80 percent of the funds necessary to cover the pensions. They also advocate investing more conservatively, taking fewer risks.

"Funds in other parts of the country are in similar situations, and they are beginning to invest in riskier assets," Nation said. "That's exactly the wrong thing to do. If the market doesn't perform well, the taxpayer ends up paying."

Suggested fixes

The students suggest either reducing pension benefits or moving to a hybrid system in which retirees receive a smaller fixed pension combined with a 401(k)-style plan. This would relieve some of the burden on the state and give employees more responsibility for their retirement. Two-thirds of Californians would support such a plan, according to a poll by the Public Policy Institute of California.

"The biggest challenge with this is making sure elected officials understand the severity of the problem," Nation said. "It's a political hot potato and most politicians shy away from the issue because you offend a lot of the constituencies by acknowledging the problem exists."

But, he said, citizens and institutions are increasingly aware of the situation and are speaking out.

"The University of California is engaged in this debate because they finally understand that as pension fund benefits grow, there will be fewer dollars for higher education," Nation said.

The report was prepared for the Office of Gov. Arnold Schwarzenegger as part of the graduate Practicum in Public Policy, a two-quarter sequence required for master's degree students in the Public Policy and International Policy Studies programs.

SIEPR conducts research on important economic policy issues facing the United States and other countries. SIEPR's goal is to inform policy makers and to influence their decisions with long-term policy solutions.

Gwyneth Dickey is an intern at the Stanford News Service.

daily news email »
Related Information

* 'Going for Broke: Reforming California's Public Employee Pension Systems'

siepr.stanford.edu/system/files/shared/GoingforBroke_pb.pdf

[macrockett]

Troubled labor looks to federal government for help on pensions
By Aleksandra Kulczuga - The Daily Caller 04/06/10 at 3:40 AM


Legislation introduced last week could shift costs of union pension plans to taxpayers in an attempt to stave off organized labor’s pension funding crisis.

Senator Bob Casey, Pennsylvania Democrat, introduced the Create Jobs & Save Benefits Act of 2010 to address the funding problems faced by union-administered multi-employer pension plans.

Multi-employer pension plans have to cover the benefits of members, even if their companies are defunct. Currently the costs are shared among the companies that remain in the pool, but Casey’s bill proposes offloading them to the Pension Benefit Guarantee Corporation (PBGC), a federal corporation, which backs the pensions of 44 million workers, more than 75 percent of which are nonunion.

“Multi-employer plans face unique challenges that are overburdening pension plans and the bottom lines of companies,” Casey said. “My legislation would help correct these problems to protect the pensions of workers and unburden companies stuck paying a crippling expense that threatens its existence and the jobs of its employees.”

Casey said his bill would cost the federal government $8 to 10 billion.

Teamsters for a Democratic Union endorsed the proposal, reporting on their Web site:

Senator Casey’s bill is similar to the bill, H.R. 3936, in the U.S. House sponsored by Earl Pomeroy (D-ND) and Patrick Tiberi (R-Ohio). It would allow seriously troubled multi-employer pension plans to be partitioned: responsibility for pension credits derived from bankrupt or closed companies would be transferred to the Pension Benefit Guaranty Corporation (PBGC), which would have to be adequately funded.

… While it would cost federal money, Senator Casey was right when he said that it’s “a bargain compared to what could happen if we let some of these multi-employer plans get in greater jeopardy than they are right now.”

Meanwhile, unions recruit new members with promises of enduring financial stability.

“The most important thing to know is that when unions advertise for recruitment, they make promises of guaranteed pensions and financial security, even though their pensions are on the critical list,” said Diana Furchtgott-Roth, director of the Center for Employment Policy at the Hudson Institute, and a former chief economist at the Department of Labor. “The financial data don’t back it up — it’s false advertising.”

Pensions are required by federal law to disclose any precarious financial position they find themselves in, and many multi-employer plans find themselves on the Department of Labor’s official tally of critically endangered plans.

Also last week, the Financial Accounting Standards Board issued new guidance calling for increased disclosure for any companies that invest in multi-employer pension plans because of such risks.

Part of the bill would create large liabilities for PBGC, which acts as an insurance policy for the pension plans that buy into it.

“It’s been quite clear to us, and to many people following this issue, that there is a real urgency driving big labor’s push for EFCA (Employee Free Choice Act) — it’s nakedly designed to improve labor’s ability to add people to its rolls,” said Mark McKinnon, spokesman for Workforce Fairness Institute. “It’s not good for business or the economy, but it’s clearly good for labor.”

“This is their No. 1 agenda item … and the pension fund problem is driving the urgency. Because their pension funds are significantly underfunded and they’re going broke, EFCA is the quickest fix they can get.”

Union pension plans suffer from the same aging demographic problem as social security suffers.

Before the economic downtown, when the latest pension data were available, only 17 percent of labor pensions were fully funded, compared to 35 percent in the non-union sector. More interestingly, pension funds of union staff and officers are well-funded — in the 90-plus percent range — while the funds of labor’s rank and file suffer.

Read more: dailycaller.com/2010/04/06/troubled-labor-looks-to-federal-government-for-help-on-pensions/print/#ixzz0kTPW0N4n

[macrockett]

online.wsj.com/article/SB10001424052702304539404575157650864015706.html?mod=WSJ_Opinion_AboveLEFTTop#printMode

APRIL 8, 2010

In Praise of Illinois
Democrats take baby steps on pension reform.

The Pew Center on the States recently honored Illinois as the state with the biggest public pension mess. So it's a minor miracle that the state's Democratic legislature passed, and Democratic Governor Pat Quinn is expected to sign, a pension reform that at least takes baby steps in trimming the state's retirement largesse for its 700,000 government workers. Perhaps bankruptcy concentrates the mind.

A new report by Charles Wheeler of the University of Illinois Springfield summarizes the state's problem this way: "To say Illinois faces a hole in funding its public employee pension systems is like saying the Grand Canyon is an impressive ravine." He finds that the state's five retirement systems "will need roughly $131 billion to cover benefits already earned by public workers, with only $46 billion in expected revenues to cover the costs."

In other words, the state only has about 35 cents for every dollar it must pay in the future. If Illinois were to devote every penny for three years from its income and sales taxes, it still wouldn't have enough to met these unfunded liabilities. No wonder the state's credit rating is the second worst in the nation, behind only California.

State workers can retire with full benefits at age 55. Most get an automatic 3% wage increase each year, regardless of inflation. Workers can and do get retirement benefits while still working full-time for the state. More than 3,500 state workers pocket annual pensions of more than $100,000, and the highest pension is $391,000 a year, according to National Taxpayers United of Illinois.

It took public outrage over these benefits and a chronic budget deficit of $6 billion to get the legislature to act. The reforms include increasing the retirement age for full benefits to 67; capping annual pensions for the highest paid workers at a still high $106,800, and prohibiting double dipping on a pension and public paycheck at the same time.

As Kristina Rasmussen of the Illinois Policy Institute points out, "these were the bare minimum reforms. They only apply to newly hired employees, not existing employees." The reforms thus do nothing to close the existing unfunded liability. A worker that has been on the job for one month still qualifies for the old pension windfall.

Illinois unions are nonetheless furious and are blasting what they call a "pension slashing bill" that benefits the "elite corporate class," as if middle-class taxpayers are elites. The union solution: Raise taxes. Democrats rarely oppose union demands, so even though these pension reforms are far short of what's needed, we'll salute them. Let's hope this is the start of a nationwide backlash against the scandal of runaway public pensions.

[doctorwho]

Apr 7, 2010 22:57:22 GMT -6 macrockett said:

online.wsj.com/article/SB10001424052702304539404575157650864015706.html?mod=WSJ_Opinion_AboveLEFTTop#printMode

APRIL 8, 2010

In Praise of Illinois
Democrats take baby steps on pension reform.

The Pew Center on the States recently honored Illinois as the state with the biggest public pension mess. So it's a minor miracle that the state's Democratic legislature passed, and Democratic Governor Pat Quinn is expected to sign, a pension reform that at least takes baby steps in trimming the state's retirement largesse for its 700,000 government workers. Perhaps bankruptcy concentrates the mind.

A new report by Charles Wheeler of the University of Illinois Springfield summarizes the state's problem this way: "To say Illinois faces a hole in funding its public employee pension systems is like saying the Grand Canyon is an impressive ravine." He finds that the state's five retirement systems "will need roughly $131 billion to cover benefits already earned by public workers, with only $46 billion in expected revenues to cover the costs."

In other words, the state only has about 35 cents for every dollar it must pay in the future. If Illinois were to devote every penny for three years from its income and sales taxes, it still wouldn't have enough to met these unfunded liabilities. No wonder the state's credit rating is the second worst in the nation, behind only California.

State workers can retire with full benefits at age 55. Most get an automatic 3% wage increase each year, regardless of inflation. Workers can and do get retirement benefits while still working full-time for the state. More than 3,500 state workers pocket annual pensions of more than $100,000, and the highest pension is $391,000 a year, according to National Taxpayers United of Illinois.

It took public outrage over these benefits and a chronic budget deficit of $6 billion to get the legislature to act. The reforms include increasing the retirement age for full benefits to 67; capping annual pensions for the highest paid workers at a still high $106,800, and prohibiting double dipping on a pension and public paycheck at the same time.

As Kristina Rasmussen of the Illinois Policy Institute points out, "these were the bare minimum reforms. They only apply to newly hired employees, not existing employees." The reforms thus do nothing to close the existing unfunded liability. A worker that has been on the job for one month still qualifies for the old pension windfall.

Illinois unions are nonetheless furious and are blasting what they call a "pension slashing bill" that benefits the "elite corporate class," as if middle-class taxpayers are elites. The union solution: Raise taxes. Democrats rarely oppose union demands, so even though these pension reforms are far short of what's needed, we'll salute them. Let's hope this is the start of a nationwide backlash against the scandal of runaway public pensions.

elite corporate class-- yeah right -- they should lose their pensions like I and others have and then see what that feels like...clueless

[southsidesignmaker]

Doc,

Speaking from a position of ignorance, as I have never been part of a defined pension plan, you speak of losing your plan after participating for many years. When a defined pension plan is removed from an employees benefit package is there any renumeration to those long time participates like your self.

Being more familiar with 401kk plans and their portability features I am curious if the same was available for defined pension plans.

[doctorwho]

Apr 8, 2010 7:10:48 GMT -6 southsidesignmaker said:

Doc,

Speaking from a position of ignorance, as I have never been part of a defined pension plan, you speak of losing your plan after participating for many years. When a defined pension plan is removed from an employees benefit package is there any renumeration to those long time participates like your self.

Being more familiar with 401kk plans and their portability features I am curious if the same was available for defined pension plans.

yes, most of the time money is put into a PPA ( personal pension account) - after an actuary determines some 'fair' amount. The tables used for this however are horrendous for the employee. And many times the company seems to want to screw the employee over even more ( I know you are shocked) - as was the case and they had to come back and add a little more .

I will use representative numbers so you can see what I mean.

Image:

24 years of service @ x$$salary - lets use $100,000K salary at the time for ease of math

then a pension what would be worth - say $3000 per month ( not the 70-80% lucrative plans public employees enjoy) - for life ( and full benefits for life after 30 years srvice or 15 years and 55 years of age.

the average PPA - one time fund - given to employees was less than $75K.

This was somehow deemed 'fair' after several court cases - a few wins at lower courts and losses as the class action suits moved up the chain.

The argument- you really didn't pay anything into it - so you are 100% vested in $0. Forgt verbal contracts and even written company benefit statements- private companies have an out.

So the $36K annuity for life becomes ( if taken at the time ) a $36K annuity for 2 years) -

I used the percentage they used applied to $100K salary to draw the inference..the % holds true at $50K yr salary or $200K..

and oh yeah, medial benefits upon leaving - $0 ( priceless)

this happened over and over again at companies.

Footnote: most of the companies abandoned the PPA accounts a few years later because they didn't want to manage them- (admin cost)- so they stopped contributing to them also and went to additional 401K offerings. So now those PPA's HAVE to be turned into annuities - regardless of how little one may have because otherwise you will take the tax hit in one year if you withdraw. Also while employed no way to move to 401K - accounts are locked out from doing that, so they earn T bill rate + 1% ( no other options) which sucks right now.


The major hit of course is thinking that you are 'saving' for the future and suddenly you have lost 15,20,25 years of savings time- which can never be made up. Very few (none that I know of) defined pension plans in the non-union corporate world were above 30%-40% of the average of the 5 highest years earnings. Were always told it was not meant to be entire retirement amount- add to SS and own savings. So always saved some, but again when I started in the 70's - 401K's weren't common until the next decade.

I hope that answers your query, if not ask anything you like.

[southsidesignmaker]

Doc, no questions here except to say I feel your pain. A family member has is in a very similar situation and I did not have the answers regarding this type of plan.

I can only hope you had 20-25 year to get back to even. The big thing I noticed was the lack of long term health care.

I assume you will be working forever.

[doctorwho]

Apr 8, 2010 7:36:27 GMT -6 southsidesignmaker said:

Doc, no questions here except to say I feel your pain. A family member has is in a very similar situation and I did not have the answers regarding this type of plan.

I can only hope you had 20-25 year to get back to even. The big thing I noticed was the lack of long term health care.

I assume you will be working forever.

You assume correctly, I already know retirement is not something I will ever enjoy.

And with corporations putting huge bullseyes on your backs the minute you turn 55 - the chance to continue to earn at current levels is always in danger..you become too expensive to them.

I got hit ( like your friend and so many others ) in 1999 - I was 44 already - so no way to make up those years ( 22 ) --

that's why when I read this nonsense from union leaders about the corporate elite- it's total BS. Or when I see groups whining about 70% and 80% return penions as not earning what their corporate counterparts are.-- with the exception of overpaid CEO's that get all the press, it's baloney.

Also why I do not like to see future tax obligations stacked up when they are not needed -- many people retiring ( choice or forced) and will not have the income to cover large increases...going to create a much larger underclass.

[asmodeus]

Doc,

Do know why your company apparently wasn't covered by the Pension Benefit Guaranty Corp? Did they not want to pay the premiums? I know the PBGC doesn't pay at 100% but it seems like it would have been better than a lump sum.