September 7, 2007
Another Lie by the NEA: East Greenwich Teachers Would Take Pay Cuts Under School Committee Proposals
One of the other lies being spread by the NEA is that the proposals offered by the East Greenwich School Committee would result in pay cuts for teachers.
The NEA tried to pass off this lie as fact in 2004-05 and Anchor Rising showed it was a lie then.
And it is a lie in 2007, too.
An example of the propaganda being spread this year came earlier from Pam, a teacher in East Greenwich, who wrote these words in the Comments section of another Anchor Rising post:
Please ask the administrators to take the same pay cut I would take if my contribution to health care went up to 15-20% and my salary increased 1-2%.
In the early years of my career, I served as a Chief Financial Officer at several companies. Bear with me while we go granular in this post and do a CFO analysis to blow this latest lie out of the water.
As a citizen concerned about this NEA claim, the first step I took was to have a meeting with Maryanne Crawford, Director of Administration for the East Greenwich School Department. I met with her on September 6 for the purpose of getting empirical data so I could complete my own independent analysis. Therefore, please note that this analysis has not been prepared by the East Greenwich School Department.
After the meeting, I completed this Excel spreadsheet with 7 tables so my analysis would be completely transparent and subject to public scrutiny on this blog, unlike the NEA's claims. If you want to dive into this issue, I would encourage you to open the spreadsheet and read the rest of this post while referring to the tables in the spreadsheet.
Here we go:
TABLE I: MASTER'S DEGREE PROJECTED SALARY SCHEDULE (2006-07 THROUGH 2009-10)
Maryanne informed me that 156 of the 231 East Greenwich teachers employed last year held Master's degrees. I then chose to use that salary schedule because it represents the most likely pay scenario for teachers.
The first 2 columns present the actual 10 job step salaries for Master's degree teachers in 2006-07, based on the most recent signed contract.
According to the East Greenwich Pendulum issue on September 6, the School Committee's most recent offer was to increase salaries for every job step and education grade by 2.5% in 2007-08, 2% each in 2008-09 and 2009-10.
The balance of Table I then calculates the higher salaries for the 3 upcoming years based on those rates of increase.
TABLE II: MASTER'S DEGREE PROJECTED SALARY INCREASES (2007-08 THROUGH 2009-10)
For every job step below the top step 10, a teacher moves up each year to the next higher step. This is how teachers in job steps 1-9 realize 8-12%/year salary increases. I picked job step 5 as the example to review as it is the mid-point between step 1 and step 10 and would, therefore, have roughly the average increase among non-step 10 teachers.
Once at step 10, however, the salary increase each year equals just the rate of increase shown in Table I. Maryanne told me that just under 60% of last year's East Greenwich teachers were at step 10. Therefore, if anyone is going to suffer a "pay cut" in a new contract, it will be these teachers who receive the smallest annual increase in salaries (albeit after up to 9 years of receiving 8-12%/year increases).
Table II shows that:
- Step 5 teachers receive $4,372-4,525/year salary increases over the next three years
- Step 10 teachers receive $1,431-1,745/year salary increases over the next three years.
TABLE III: HEALTH INSURANCE PREMIUM PROJECTED COSTS
Table III notes that family coverage with Blue Cross Blue Shield - Healthmate is the most common form of health insurance utilized by East Greenwich teachers, with 110 FTE's out of 231 teachers using such coverage last school year.
Second highest is the single person coverage with Blue Cross Blue Shield - Healthmate, with 37 FTE's using such coverage last year.
All other school department health insurance options were only used by 16 additional FTE's as the remaining 68 FTE's did not use any form of the East Greenwich schools-based health insurance coverage and instead took a buyback cash bonus of $5,000 in 2006-07.
Therefore, Table III focuses on the family and single person health insurance premium costs for Healthmate over the next 3 years. Actual premium costs in 2007-08 for such family coverage costs the school department $13,618 and the actual single coverage costs them $5,229.
Premium costs are assumed to go up 10%/year in the two years following 2007-08. The East Greenwich School Department's policy is a self-insured, claims-based policy through the West Bay Collaborative.
TABLE IV: HEALTH INSURANCE CO-PAYMENT EXPENSES PROJECTED TO BE INCURRED BY TEACHERS
In 2006-07, teachers at job steps 1-4 paid a 5% co-pay while teachers at job steps 5-10 paid a 10% co-pay.
According to the East Greenwich Pendulum, the School Committee's most recent offer proposed increasing co-pays for all job steps to 12% in 2007-08, 15% in 2008-09, and 18% in 2009-10. Table IV assumes those percentages and computes what the teachers would pay in co-payments for the next three years:
- Family coverage annual co-pays would increase from last year's $655-1,311 to $1,634, $2,247, and $2,966.
- Single coverage annual co-pays would increase from last year's $260-519 to $627, $863, and $1,139.
TABLE V: NET INCREASES IN PRE-TAX HEALTH INSURANCE CO-PAYMENT EXPENSES PROJECTED TO BE INCURRED BY TEACHERS
Table V simply takes the data in Table IV and calculates the annual net increases in pre-tax co-pays made by the teachers.
- The single step 5 and step 10 teachers would pay $235-368/year in higher pre-tax health insurance premium co-payments.
- The married step 5 and step 10 teachers would pay $323-719/year in higher pre-tax health insurance premium co-payments.
The East Greenwich School Departments offers what is called a Section 125 plan where teachers can pay their health insurance premium co-payments in pre-tax dollars, thereby lowering their taxable income and subsequent taxes.
Using a 2006 Federal Tax Rate Schedule, married couples filing jointly pay 25% income taxes on every marginal dollar earned above $61,300. So I assumed 25% plus the Rhode Island income tax rate is about 25% of the Federal rate or about 6.25%. I rounded the two percentages to 30% and Table VI calculates the true, after-tax cost to teachers of the higher health insurance co-payments.
- The single step 5 and step 10 teachers would pay $165-257/year in higher after-tax health insurance premium co-payments.
- The married step 5 and step 10 teachers would pay $226-503/year in higher after-tax health insurance premium co-payments.
Bluntly, that is not asking very much and suggests the School Committee should be more aggressive in demanding higher co-pay percentages in its next offer.
TABLE VII: NET CHANGE IN CASH COMPENSATION PROJECTED TO BE REALIZED BY TEACHERS
Table VII gives us the "bottom line" and proves the NEA has lied once again when they claimed that the offer from the School Committee would result in the teachers taking pay cuts.
- The single step 5 teacher would realize annual net cash compensation increases of $4,207-4,332/year.
- The married step 5 teacher would realize annual net cash compensation increases of $3,943-4,243/year.
- The single step 10 teacher would realize annual net cash compensation increases of $1,266-1,487/year.
- The married step 10 teacher would realize annual net cash compensation increases of $956-1,518/year.
No negative numbers anywhere to be found.
[Later Note: Enjoy Bob Walsh's challenge of this conclusion in the Comments section - and my response debunking his claim. To provide the numbers in support of my conclusions, I have added an additional summary analysis of the net cash compensation numbers for the original School Committee offer - even adding the modified spreadsheets for public scrutiny. It can be found at the bottom of the Extended Entry section below.]
As an aside, the negotiating teams can debate whether step 10 teachers should get larger increases but my position - if I was on the team - would be that such changes are only possible if the hefty increases to steps 1-9 teachers are reduced to at least offset the additional step 10 salary increases.
CONCLUSION #1 ABOUT INTENT
Every East Greenwich teacher should bluntly ask their union leadership why the NEA is lying to them. And then every adult resident in town should ask the NEA the very same question.
The NEA likes to run around and accuse School Committees of negotiating in bad faith. But the NEA is the only party which has been shown - multiple times now - to lie to the taxpaying public and even its own members.
CONCLUSION #2 ABOUT ECONOMICS
It is not at all clear that the School Committee's latest proposal will allow its budget increases to remain under the tax cap restrictions. (That is a separate analysis for another day. Stay tuned.)
Whether all of us want to admit it, the gravy train ride is over. Welcome to the real world of constraints, like ordinary working families and retirees live with every year.
I believe the only really effective contract that both does right by deserving teachers and lives within the tax cap will require wholesale changes to the 10-step salary schedules. That kind of change won't happen quickly and it certainly won't happen with a mediator trying to split the status-quo baby. The latter is a process which ensures the unsustainable economics of past contracts is only tweaked when it needs a complete overhaul.
I am concerned that the School Committee, which has shown decidely more courage than the norm so far, is still not thinking sufficiently outside the box.
Nobody expects the NEA to think outside the box. After all, their agenda here is to blow up the tax cap so uncontrolled spending can continue.
I hope the School Committee appreciates how much support there is already for them taking a firm stand to find a new way. It is too bad that the negotiating party across the table is only capable of lying instead of being constructive problem solvers.
Remember: Anchor Rising is THE place to go for information on the teachers' strikes issues in Rhode Island. See the Extended Entry for all relevant links.
To get up to speed, here are the links - in chronological order - to other Anchor Rising posts about the East Greenwich teachers' strike and the NEA:
Saying "No" to Legalized Extortion
Education Partnership Reports: Learning a lot more about RI teachers' union contracts
Reflecting on Labor Unions on Labor Day
Update on the East Greenwich Teachers' Contract & Suggested Future Actions
Breaking News on Anchor Rising: East Greenwich Teachers to Strike on Tuesday
More on the Issues in the East Greenwich Teachers' Union Strike (This is a particularly important post on the substantive issues in dispute.)
The NEA's Latest Disinformation Campaign in East Greenwich
Sometimes What is Old is New: Misguided Incentives Drive Public Sector Taxation
East Greenwich School Committee: Press Release & General Update
Mr. Subliminal Must Have Written the EG Teachers "Open Letter"
The Continuing NEA Disinformation Campaign in East Greenwich: Lies, More Lies & Even Some Melodrama
News Flash: Judge Orders East Greenwich Teachers Back to Work on Friday, September 7
Other relevant posts on Anchor Rising include:
Burrillville Teachers to Students: Let the Pawns Skip School
Crowley, You Charmer
Researching from Outside the Library
Children Are Their Life? No, Children Are Their Leverage.
Citizen Context for Negotiations
One Side of the Phone Conversation
My Favorite Samuel Gompers Quote
The Guidebook to Public-Abuse
Not Quite Breaking (Except of Taxpayers' Backs)
The Other Side of the Conversation in Tiverton
The Rhode Island Right's Bizarro Politics
A Case of Crossed Hands
Best We Can Do Is Get Involved Every Time
The Continuing Saga of the Funding Formula Distraction -- A Tale of Two Cities
(These three posts immediately above in this section address the important questions of (i) what RI law and court decisions say about teachers' strikes; (ii) the tax cap and level funding of education; and, (iii) statewide education funding formula.)
This Is the Way the System Works, the System Works, the System Works
ADDITIONAL SCENARIO ANALYSIS
In response to Bob Walsh's challenge that failed, here are the spreadsheets analyzing the original School Committee offer of 2%, 1.75%, and 1.75% salary increases to the 10 steps over the 3 years plus 20% health insurance premium co-payments in all 3 years.
The Table VII in this modified analysis gives us the "bottom line" and proves the NEA has lied once again when they claimed that the offer from the School Committee would result in the teachers taking pay cuts.
- The single step 5 teacher would realize annual net cash compensation increases of $3,652-4,256/year.
- The married step 5 teacher would realize annual net cash compensation increases of $3,213-4,127/year.
- The single step 10 teacher would realize annual net cash compensation increases of $846-1,187/year.
- The married step 10 teacher would realize annual net cash compensation increases of $407-1,058/year.
Some lower numbers, as you would expect. But, again, no negative numbers anywhere to be found. So who is being personally dishonest and manipulative of data?
What, the teacher's union lied to ALL of us again? NO big surprise there.
Great work, Don.
It's striking how quiet the NEA commentors have become all of a sudden. The data analysis must have scared them away.
Posted by: Frank at September 7, 2007 12:19 PMDon,
You accuse others of lies, but your own charts prove your personal dishonesty and manipulation of the data.
You quoted Pam as follows:
“Please ask the administrators to take the same pay cut I would take if my contribution to health care went up to 15-20% and my salary increased 1-2%.
Plug those numbers into your spreadsheet, as opposed to the proposal made by the School Committee AFTER Pam’s comments, and most of the scenarios are indeed pay cuts for most teachers, who are at the top step (as they are for two-thirds of their careers).
You owe Pam, and the readers of this blog, an apology for such a cheap stunt.
Sadly, the only conclusion your data suggests is that the East Greenwich School Committee takes negotiations seriously only prior to a court date and after a job action.
By the way, all the pay for performance advocates on this blog are curiously silent when East Greenwich is considered - since the test scores and overall student performance in East Greenwich are among the best in the country, I though there would be calls for the highest compensation package in the state, at least.
Bob, we all take a 'pay cut' when our insurance premiums go up. I'm curious why you and yours feel that, instead of living in the real world and sucking it up like the rest of us, you feel that we the taxpayer should take the cut in OUR pay for YOUR increased costs.
When all of us with means move out and your test scores drop to the floor (you keep telling us test scores are tied to economic opportunities) what will be your battle cry then?
Posted by: Greg at September 7, 2007 12:39 PM>>By the way, all the pay for performance advocates on this blog are curiously silent when East Greenwich is considered - since the test scores and overall student performance in East Greenwich are among the best in the country, I though there would be calls for the highest compensation package in the state, at least.
Disingenuous.
Pay for performance proposals deal with individual teachers' performance, not an entire district. I know the union model is collectivist, but we know have the benefit of 20th century experience, and collectivism is a discredited artifact that should be "discarded on the ash heap of history" in the public sector, just as it (mostly) has been in the private sector.
Also, EG's performance may look good in comparison to, e.g., Providence, but:
a) How much of that performance is attributable to favorable demographics and how much (if any) to teachers adding value?
After all, the entire RI teaching force comes out of the RIC "education college" (and similar non-rigorous teachers colleges) - so there is little reason to believe that the EG teaching force is all that different from anywhere else it RI. Variations in district performance appear to correlate with community demographics, not teachers.
b) How does EG's performance stack against world-class performance, and not just against low-performing RI and mediocre-performing U.S.?
Posted by: Tom W at September 7, 2007 12:54 PMMr. Walsh - As a txpayer in this town and as one who currently pays for about 35% of my share of health ins. what should I do? My private employer switched to a more affordable group policy and we all got hit and guess what? In the real world we have to accept it. The economy is not great not only in RI but in the rest of country. I took a "net" pay loss as well.
Why don't your members move to where they think they will get a better deal? If your members are so sure that they are getting screwed why didn't they stick up for their beliefs and those of all NEA members and refuse to work today? If Ms. Hayes and the local NEA members believe is they are being coerced or worse by the SC, why work at all? Why not go to jail to make a "statement" about their civil rights being trampled?
Trust me when I say as a parent who has lived here for a while, that most parents are disgusted. We realize that working here is a hell of lot better then working in in the city or some of the larger towns. Parents volunteer to help make the lot of the pampered EG teacher even easier. If a teacher asks, parents bring in extra supplies without a whimper. We line up to chaperone field trips, etc.
Spare me the "poor teacher" act
Posted by: Cheryl at September 7, 2007 2:00 PMHey Bob,
How come the Union refused to speak with members of United Health Care when their plan offered a 500K savings over 3 years? The Town and Police Dept are on United as well as the Fire Fighters. Why didn't you do the same and save the taxpayers some money?
You could have used that money to pay your salary demands.
Posted by: John at September 7, 2007 2:14 PMBob Walsh of the NEA writes in an earlier comment:
Don,You accuse others of lies, but your own charts prove your personal dishonesty and manipulation of the data.
You quoted Pam as follows:
“Please ask the administrators to take the same pay cut I would take if my contribution to health care went up to 15-20% and my salary increased 1-2%.
Plug those numbers into your spreadsheet, as opposed to the proposal made by the School Committee AFTER Pam’s comments, and most of the scenarios are indeed pay cuts for most teachers, who are at the top step...
First of all, Bob, the NEA and its members have persisted in sending out letters and emails spreading the "pay cut" story as recently as the last 48 hours - a time period which is after the School Committee offer I analyzed was presented to the NEA negotiating team on September 5. I ran those numbers in my analysis because they aligned with the timeframe the NEA was still spreading the "pay cut" story. So who then is being personally dishonest and manipulative of the data, even with your own union membership?
Second, Pam references a 1-2% annual increase when the Pendulum story notes that the lowest salary increase proposal was 2%, 1.75%, and 1.75% over the 3 years. 1.75% doesn't round to 1% in any educated person's mind. So who then is being dishonest and manipulative of the data?
Third, I did plug the numbers from the original School Committee offer (2%, 1.75%, and 1.75% salary increases over the 3 years and 20% co-pay in all 3 years) into my spreadsheet. Guess what? There are still NO pay cuts for a step 10 teacher in any of the 3 years. So who then is being personally dishonest and manipulative of the data?
The bottom line is I don't owe anybody an apology for anything on this issue. Do you?
As soon as I am done with this comment, I will post the summaries for the additional analysis at the end of the Extended Entry on this blog post.
Bob, your response here is symptomatic of the problem with your NEA organization: Either your data analysis people are incompetent or your organization tells lies. I don't really care which it is but what cannot be disputed is that your organization conducts an aggressive disinformation campaign which has been shown to mislead everybody on multiple issues. This blog has documented the many other lies spread by the NEA and its activist members in recent days. Readers can see prior links in the Extended Entry for details.
Finally, I loved your attempt to change the subject by raising pay-for-performance. But Maslow Level 1 says that if we don't address basic survival as a state or town first - i.e., overall spending - then we won't be around to talk more esoteric topics like pay-for-performance. Plus, the predicate event for having differential pay for top performers is for the NEA to stop advocating 9-12%/year salary increases for teachers who just show up. When you publicly renounce the NEA principle that the best and worst teachers get the same economic reward, I will gladly engage with you in a pay-for-performance debate. I am not holding my breath.
Posted by: Donald B. Hawthorne at September 7, 2007 2:19 PMHi!
I am NOT a NEA member but I think Bob Walsh at least should be credited for posting on Anchor Rising.I have met him one to a couple of times,not sure how many,and he seems like a sociable fellow.However that does not mean I would necessarily agree with him.
I would like to know how many school districts in Rhode Island have co-pays?I know the Chariho Regional School District the teacher's do.Also when was the last time your school dept. had an outside independent management study? As a point of disclosure my second cousin Pam Hawkins is NEA Chariho President but I do not keep in contact with her.
I think school districts meed to undergo from time to time outside management studies.We often know how our school districts compare academically but usually don't discuss at least often how it is run procedurally wise in a business/management sense like we should and how districts compare with each other in other things than academics and sports.
Regards,
Scott Bill Hirst
>>Also when was the last time your school dept. had an outside independent management study?
Fair question - but unless the management study is one with a "clean slate" - that is, what recommendations would be made without regard to what is in the teachers contract, "work rules" - I submit that it would be of limited use.
As for Mr. Walsh, and Mr. Crowley for that matter, they do deserve credit for posting.
I've never met Mr. Walsh, but I've been told multiple times, from multiple people, that he's a nice guy in person.
Posted by: Tom W at September 7, 2007 4:11 PMHi!
I am a avid viewer of the local PBS "A Lively Experiment" now on Thursday at 7 PM and at other times.I do not know its ratings but I do know many people watch it.
Bob Walsh is frequently a guest.I hope quite sincerely those responsible for Anchor Rising are invited to appear on the show.I have met Andrew Morse in person and saw him TWICE one a repeat recently with Jim Hummel on Channel#6,.
I do not know how many hits this discussion group gets but it has to be many.
BTW Bill Felkner,a Chariho Regional School Committee memberw ill be on September 20TH on the show and obviously repeats of the show.
Regards,
Scott
>>I do not know its ratings but I do know many people watch it.
Yeah, but how many of them are awake? ;-)
Posted by: Tom W at September 7, 2007 5:55 PMIn response to, "After all, the entire RI teaching force comes out of the RIC "education college" (and similar non-rigorous teachers colleges) - so there is little reason to believe that the EG teaching force is all that different from anywhere else it RI. Variations in district performance appear to correlate with community demographics, not teachers."
Such an interesting and well-thought out notion! Why not fire all the teachers, since they are useless, undeducated, selfish beings. Each child could then be home-schooled, since you note that teachers have little to do with the academic and social development of adolescents in this community. Think of all the money that would be saved - and how brilliant all of the children would be.
You should start a movement across every suburban town in the state. Use this blog as the rallying point. It seems to have the support of such intelligent, open-minded, and thoughtful individuals. And I am sure none of the followers would have graduated from RIC.
Sign me up.
Posted by: Robert S. at September 7, 2007 6:17 PMRobert S.,
No one but yourself has claimed that teachers are useless or uneducated. The data, if you care to look it, suggests that what seperates the various school districts with respect to student performance is socioeconomics, not the teachers. Don't you recall that even RIs teacher unions have blamed socioeconomics (i.e. poverty) for poor student performance.
Ignoring your sarcasm for the moment, if you're in the mood to start a movement why don't you begin with trying to educate the public on seperating fact from fiction in public education. That would be very useful to parents and who knows what reforms it could lead to. You may even get your homeschoolers (just curious - why wouldn't you want to include the urban areas?).
Posted by: Frank at September 7, 2007 6:46 PMRobert S:
I didn't say all teachers were useless - there are many fine, diligent and effective educators out there.
What I was responding to was Bob Walsh's assertion that the teachers in East Greenwich are superior in performance to those elsewhere in Rhode Island - and I WAS asserting that since the teachers all come from the same pool, that his assertion doesn't fly.
I ALSO DID assert that colleges of education are a cruel joke - I've stated before on this blog that they're essentially diploma mills.
The low caliber and lack of rigor in those institutions is established fact - merely "Google" the subject and you'll find lots of confirmation.
While you may take that as a slam against teachers, it is not. Just as teachers unions are not the same as teachers, neither are colleges of education.
Many graduates of those programs go on to become fine educators - but that is in spite of those programs, not thanks to them.
Posted by: Tom W at September 7, 2007 8:00 PMOlive,
A few observations. First, three points about compensation in the private sector that seem to have escaped you and your fellow teachers: (1) performance based pay -- at all levels, not just for executives -- now accounts for a very substantial portion of most professional and managerial workers' total potential compensation; (2) as multiple people have noted on this blog, workers in the private sector pay a much higher percentage of their health care costs than teachers; and (3) most workers in the private sector don't have defined benefit pensions like you do (they have 401ks, to which they contribute a higher percentage of pay than teachers do), much less the post-retirement health care benefits that teachers get.
Second, with respect to performance based pay, the relevant question is EG teachers' value added above and beyond the outcomes one would expect (statistically) to observe based on the demographics of the inputs (i.e., students) you are working with. While one can criticize its methodology, the Infoworks reports attempt to measure this value added. And in fact, EG generally looks quite good -- at Hanaford Elementary, Cole Jr HS and EGHS, scores are above what one would expect to see based on demographic inputs; this represents evidence of real value added by the EG teachers in these schools (Eldredge Elementary does not display value added in reading or writing, only in math).
Given this, I can't help but wonder why, apart from fear or retribution in the teachers room from your local union reps (whom, as we all know, tend to be the weakest teachers) EG teachers don't offer up the following deal to EG taxpayers: we'll pony up for a higher share of our health care expenses (and give up the buybacks), if you will pony up for performance based pay -- whether on an individual teacher or school based level. Frankly, a lot of taxpayers would go for that.
Sadly, your cowardly fear of bully boys like Walsh and Crowley and your local union leaders will prevent a proposal like this from ever seeing the light of day.
One last point: has it ever occured to you and your fellow teachers that the reason you are in this mess is because your "leaders" -- Walsh, Purtill, Crowley (and Reback if you're AFT) et all have been supporting the nation's most generous welfare program here in RI and paying for it with taxes that have driven lots of businesses and high/middle income taxpayers out of the state? Has any member of your leadership had the guts to look you in the eye and tell you that you should be happy that they put your pension and post retirement healthcare at risk for the sake of maintaining their left wing ideological purity via their support of high taxes and extremely generous welfare programs?
If they have and if you and your colleagues have signed on to this deal then, like all other mature adults, you have to accept the consequences of your actions. And if they haven't been up front with you, and/or if you have known that NEARI was on the wrong course but kept silent for fear of retribution, then I can only say you are reaping what you sowed. And shame on you.
So, Olive, which one is true?
Posted by: John at September 7, 2007 11:51 PMIt seems to me that this entire predicament could be resolved if all the bloggers on this site left their jobs to become public educators. Imagine the dramatic pay and pension increases that each blogger would receive...not to mention the exceptional health insurance package! And, each blogger could leave the drudgery and challenge of his/her prior job behind and enter the opulent life of a public school teacher...think of how much your life would change. No more stress, no more financial concerns.. just constant praise, respect, and appreciation..and so much free time. Imagine how the children would benefit from each blogger's superior knowledge base in pedagogy and content areas. Problem solved.
BTW, every public school teacher that I have ever met decided to get into education because he/she knew it would be a "cushy job" with great pay, benefits, and require minimal effort/knowledge/training. Intelligence, a passion for education, a desire to create a positive change in the life of a child/adolscent, certainly had nothing to do with their decisions to become teachers.
Bloggers of this site - Unite! Become public educators in the state of Rhode Island. ( Just make sure that you have a Bachelor's degree from a nationally accredited institution, have passed the mandated tests, are working on or have completed your Master's, have certification in the required content areas, continually take professional development courses, have an approved I-Plan, and are able to prove your intelligence, management skills, and superb teaching style in yearly observations.) Piece of cake!
Robert S.:
When you can't attack an argument's logic or the facts upon which it is based, go ad hominem. Pretty revealing strategy there, my friend...
Posted by: John at September 8, 2007 10:05 AMRobert S,
Any explanation offered on how such highly educated 'public educators' are not able to identify illiterate children in their midst and pass those illiterate children on to their equally highly educated 'public educator' colleagues who then pass these illiterate children on to a high school graduation ceremony?
Robert S any explanation on why union leadership supports the cause of illegal aliens when those same illegals not only make life very difficult for their own public educators working in the urban core but whose presence drains taxpayers dollars from potential public educator salaries and benes? Any explanation on why rank and file tolerate union leadership that works against their own best interest? Robert S the bloggers are not who you need to worry about.
Back in the day those who became teachers did so to make a difference in the world. All too often in today's world those entering the 'public educators' sphere do so for the perks and not due to some greater calling.
Sad but true!
Scott,
Bob Walsh as with Ducky Crowley is a paid liar aka propagandist for the NEA. Tell us again why Walsh deserves credit for posting here? If anything Walsh coming here and responding is a compliment to the truthful and fact based heat and light Donald and the Anchor Risisng team is producing on this and other subjects.
Thank you Robert S!
What I don't understand is how these bloggers find the time to write these long diatribes if they are so busy working and lack all this free time they claim teachers have.
Posted by: Frederick at September 8, 2007 10:54 AMIn response to John's statement of, "When you can't attack an argument's logic or the facts upon which it is based, go ad hominem. Pretty revealing strategy there, my friend..."
Actually it is... I have included a definition of "satire" from American Heritage Dictionary (note that I actually cite my sources as opposed to stating a diatribe of non-referenced information)
satire (n.)
Irony, sarcasm, or caustic wit used to attack or expose folly, vice, or stupidity.
Need I say more...
Posted by: Robert Smith at September 8, 2007 3:15 PMTo the extent that I deserve "credit" for posting here, it is because I have learned to mostly ignore folks like Tim and actually take the time to listen to, learn from, and discuss issues with a group of people who disagree with me on quite a few issues, and with whom I share common ground on many others. If I had lived in the saem college dorm with many of the people here, I suspect we would have annoyed many people by arguing issues like these late into the night.
There is no doubt that my worldview is generally liberal, or progressive, or whatever the next one-word summary they come up with will be, and that I am pro-labor as well (I have been around long enough to recognize that progressive is not always pro-labor, and vice-versa, so I make the distinction that I am both). That said, my views are more nuanced and my background more extensive than a one-word summary can ever provide.
I sometimes find it amusing to see how my views are characterized by others here - but, that, too is important to know, as we are all aware of the relationship between perception and reality. For example, no one actually asked me what I personally thought about how the public sector negotiating process actually works. (Not very well is answer - for example, there is entirely too much "tradition" among both labor and management in too many communities that if you don't wait until the last minute, you are not getting the best deal - and the timelines for requesting mediation, etc. are clearly no longer effective.)
Posted by: Bob Walsh at September 8, 2007 4:41 PMSorry I'm late to the party.
Don, you are correct; but only to a point.
Time was, people who took public sector jobs did so for the benefits & the job security, knowing that they would make less money than they would in the private sector.
Now, they got the security, the benefits, AND they're making a darn good salary.
Surprised I'm agreeing?
What you fail--or refuse--to realize is that the problem is that public sector wages have become unsupportable only because private sector wages have stagnated.
I just wrote this on another thread; I've written it pretty much every time I've commented here. A man in his 30s today makes less than a man in his 30s did in the 1970s. (And please, please don't make me explain the difference between real and nominal wages again.)
So, you are correct. Teachers' salaries are out of hand. And teachers are insulated from the real world. But, so, it seems, are you.
You harp on teachers, without ever acknowledging the context that makes this true. What has changed since the 70s? The prevalence of supply-side econ theory, and tax cuts for the ultra-wealthy. Those are what have driven teachers' salaries to the point they're at. Raise taxes back to Reagan-era levels, re-distribute that money to states & municipalities, distribute some of those record corporate profits in the form of salary increases, and then a 4% teacher's raise won't seem like highway robbery.
And, it would be different if I felt that the people railing against the teachers were concerned about education. They're not. For them, it's the money. What does neo-classical econ theory say will happen when you drive the price of labor down? You get fewer applicants, and of lower quality.
Do you disagree with that?
Is that what you want to happen? You want to drive away the best and the brightest, those who can compete elsewhere, and be stuck with the dregs? Is that the goal?
So, until you guys 'fess up and face some of these issues, you're just blowing hot air. Your Republican policies have brought us to this juncture. And you want to continue the race to the bottom even faster.
Excuse me if I don't consider that progress.
And remember: the unions can't agree to the contract. The school committee has to do that. And the school committee is elected. Elect people who will negotiate a tough contract. Who realize there won't be a mass exodus of teachers if they don't get a 4% raise, or have to kick in substantially for their health care.
But, first, be honest about the nature of the problem. Can you do that? Sure you can.
Posted by: klaus at September 8, 2007 7:38 PM>>It seems to me that this entire predicament could be resolved if all the bloggers on this site left their jobs to become public educators.
Robert S-
Yes, there is much to be said for "walking a mile in the other person's shoes."
So how about a little "job sharing" - I'll switch places with you, and vice versa.
I propose that I perform your job next June, July and August, and you mine.
If it works out, we can repeat the process every year.
How's about it?
Posted by: Ragin' Rhode Islander at September 8, 2007 9:21 PMDon,
To quote an earlier post of yours “They need to start living like the rest of us, the people who pay their salaries and benefits.”
In response to that, I recently found this out from an EG teacher. They (EG Teachers) do not receive FICA taxes as part of their employment at EG (verified through examination of pay stub). According to this EG teacher, EG is one of three school districts in Rhode Island that still does not get FICA taxes (unverified, if you can disprove please disprove).
If we are going to say that “They need to start living like the rest of us, the people who pay their salaries and benefits.” Shouldn't we also say that they should get FICA taxes like we do?
I hope we are both in agreement with that statement. Now to that end we should take away their pension (a now rare form of EE retirement plan) and put them into a 403(b) with a defined contribution of 3% of their annual salary, which many school systems seem to have adopted across the country. 3% only seems fair since in the real world most of us get some kind of employer match or profit sharing that should work out to around 3%-5% of compensation. As for the teachers pay I think we can all agree the 2.5% raise offered by the school committee is acceptable since it exceeds the current inflation rate of approximately 2.3%.
So now we have the teachers in the “real world.” The current pension rate that EG pays into the pension system is 8.72% per the Employees' Retirement System of Rhode Island per the latest annual report (for FY05, the EG Teachers are the only workers from EG part of this statewide pension plan) located at their website (I roughly backed into this per the Town’s financials and the School Budget reports). Granted that is more expensive then 7.62% for FICA taxes. However, in the "real world" we get some form of matching or profit sharing. Lets say at a minimum that works out to 3% of every teachers salary. That would be an annual increase in benefits of 1.9% per teacher.
Now using Step 5 as a conservative example for all teachers in the district and using the proposal numbers from the EG pendulam that you used, the additional cost per teacher using would be $982 (Using proposed 07-08 salary of $51,670 per your excel worksheet) per teacher or 231 teachers (Per your posting) an annual additional expense of $226,842 ($982 * 231). Obviously, that expense would be set off by an increase in healthcare co pay of 20%. For the coming year per your schedule family healthmate coverage will cost $13,618. A 20% copay would be $2,724, that would be an increase of $1,362 to the teacher. (Please note – I used family since it would give the greatest offset to the additional benefits expense and be as conservative as possible). So $1,362 times 231 teachers is a reduction in health care expense of $314,622. Offset against the additional benefits expense noted earlier that is a savings of $87,780 if the teachers lived in the “real world.”
So is $87,780 in possible savings (in reality would be less since all teachers do not use family) if the teachers lived in the “real world” really worth it? I think so only to get rid of the pension available to them and the future liability to the town. But at the same time believing that the teachers paying a 20% copay for their healthcare is breaking the town's budget, I just don't see it.
Couple of additional points
1) I am jealous that teachers get the summer off. But somebody needs to teach our children, and children need summers off to be kids and have fun. If we have the teachers work all summer for us what are they going to do? And how much in additional costs will we incur for having all of them work all summer to make us feel better that they are working during the summer?
2) An earlier poster stated that the teachers had great post retirement healthcare benefits. I have to disagree with that. Per the last EG Teachers contract the teachers get for two years the option to pay the current copay rate for healthcare, then after that buy healthcare at 100% of the EG group rate.
2) I can't stand that teachers and other state and municipal workers have ridiculas pensions.
3) We can't pick and choose which elements of the "real world" we look at. We have to be above the NEA.
4) We should try to be as informed as possible. Don has done an excellent job of doing that.
FICA is:
"An acronym for Federal Insurance Contributions Act. FICA taxes are deducted from the pay of most American workers to support Social Security programs."
Teachers, of course, do not receive social security and, therefore, are not obliged to contribute to it. This is all the more reason they should be concerned that their pensions are being endangered by the General Assembly's misguided spending priorities - more specifically, very generous social programs.
You bring up an important point, EG Observer. Because while you did not know what FICA is and did not understand the implication that teachers do not contribute to it, the unions which represent the teachers certainly do. And the studious lack of concern about this critical matter by the well informed union leadership which supposedly has its members' best interest at heart and is well paid to act on behalf of those interests is, to say no more, puzzling and irresponsible.
http://www.answers.com/topic/fica?cat=biz-fin
Susan D,
I do know what FICA is, and I have verified that Warwick teachers receive it.
Obvoiuosly, you do not know that your employer by law matches the 7.62% in FICA taxes that are deducted from your paycheck.
Ask someone who is self employed and files a Schedule C, they pay a SECA (Self-Employment Contributions Act) rate of 15.3%, double what you pay since their is no employer to match their contribution.
Posted by: EG Observer at September 9, 2007 8:33 AMAlso Susan please note if you scrolled down on your own link you would have came across this definition:
The noun FICA has one meaning:
Meaning #1: a tax on employees and EMPLOYERS that is used to fund the Social Security system
"EG is one of three school districts in Rhode Island that still does not get FICA taxes"
"I do know what FICA is, and I have verified that Warwick teachers receive it."
It's probably dangerous to continue this discussion because my possession of only basic information about FICA is matched by your citation of unverified facts. But let's try.
The one thing we agree on is that FICA is a tax, or contribution, paid by the employee and matched by another tax/contribution by the employer. And that this tax, or contribution, goes towards social security.
Now, when you say Warwick teachers "receive" a FICA tax (if they do, which is not established), you must mean that Warwick is making the employer matching FICA contribution on their behalf. Does this mean that Warwick teachers are also paying a FICA tax/contribution?
And are you further saying that EG teachers are paying the FICA tax/contribution (you saw the pay stub) but the town is not making the employer matching contribution?
Posted by: SusanD at September 9, 2007 9:11 AMMy understanding - I stand ready to be corrected on anything that follows by someone who knows for sure and can cite sources of data - is that approximately one-half of the school districts in RI are in the Social Security system; I'm not sure what percentage of RI teachers are in (it would depend upon the mix of large districts in SS).
NEARI often cites the non-availability of Social Security as justification for the pension (i.e., "it's the only retirement teachers have"). NEARI also cites the roughly 10% that teachers "contribute" toward the pension.
I'd gladly trade with those teachers, thank you very much:
1) A vested pension benefit cannot be reduced, whereas the U.S. Supreme Court has held that Congress can reduce or eliminate Social Security benefits at any time, without regard to the "contributions" that the workers has made over the decades (the case is "Fleming v. Nestor" for anyone who doesn't believe me and wants to look it up). BTW, that case goes back to the Kennedy administration - and note how in the succeeding decades the Democrat "protectors of seniors" have done nothing to change the Social Security law to provide "vesting" for workers.
The demographic numbers - plus the mythical "Social Security Trust Fund" which is just a myth, thanks to Congress' of both parties emptying and spending the money - make reductions in Social Security benefits inevitable (watch for the euphemism "means testing"). Any "baby boomer" (and those behind them) who isn't prepared for their Social Security "benefits" to be greatly reduced, if not forfeited, is situating themselves like an Ostrich with its head buried deep into one of Rhode Island's potholes - they won't see it coming, but the painful collision is only a matter of time.
2) The teacher pension contribution is in line with the Social Security "contribution" - straddling between the employee rate and the self-employed rate. So when the inevitable political discussions arise in RI regarding reforming the state pension system, we needn't feel any qualms concerning NEARI's inevitable chants regarding the teachers' pension contributions somehow creating a legal or moral obligation preventing reformation of the state pension system (see, e.g., Pat Crowley's crying that the newer teachers have been screwed by the very modest pension reforms of a couple of years ago).
3) The pension benefit is multiples of the Social Security benefit. It is calculated based on earnings over one's lifetime, and the average SS benefit is something around $12,000 a year (and, unlike the oft-cited justification for high teachers salaries, is not adjusted for areas with high costs of living). The maximum possible SS benefit is something around $24,000 a year.
Compare that with a teachers pension - something like 75% of the average of their HIGHEST CONSECUTIVE THREE YEARS pay. In turn, the teachers (quite rationally on their part) goose-up this amount by loading up on "extra pay" items such as participation in extra-curricular activities, CASHING IN YEARS OF ACCUMULATED BUT UNUSED SICK TIME, and BONUSES for merely telling the school district in advance that they're going to retire.
For example, in Portsmouth teachers get 20 sick days a year - equivalent to a whole month of their 9-month work year, which they can accumulate year after year. They also get a $5,000 bonus for telling the school department in advance that they're retiring effective the next school year. Add those in to your pension calculation for the remainder of your lifetime. Sweet, eh? These are the kinds of teachers compensation that the media miss, as they focus merely on increases in base salary formulas.
So compared with the Social Security numbers cited above, a Rhode Island teachers can easily retire with a pension starting well north of $50,000 a year (e.g., $70,000 x 75% = $52,500).
4) For teachers hired before circa 1995, there is no minimum age for collecting a pension - many can and do "retire" in their early fifties and start collecting the pension - and there is no offset for monies they earn in continuing to work in a second career.
For those teachers hired after circa 1995, the minimum retirement age to start collecting is something like age 59. Still awfully sweet compared to Social Security's minimum retirement ages, that a scaling up from 65 to 67 and beyond (a de facto reduction in benefit which, you'll recall, Congress can do, and do again, since "we" don't "vest" in a Social Security "benefit").
5) All this for a job that is arguably really a part-time job (look in your local teachers contract - available on the Education Partnership web site - and see how many hours your teachers are actually required to be teaching in a classroom! In some districts it can be as little as three hours a day! (So take teachers' claims about correcting papers at home, etc. with a grain of salt - there's plenty of time while on site, if they did that instead of socializing in the teachers lounge).
All this, and summers off!
No wonder the poor, abused teachers are mad at those nasty school committees who won't "bargain in good faith" (that appears to be NEARI's current spin) and cough up even more dough from those greedy property-tax payers!
Posted by: Tom W at September 9, 2007 11:31 AMWow - lots of misinformation on the retirement issues.
First, Social Security and pensions are entirely different systems created for entirely different purposes. There was never an expectation that social security become the American pension system - in fact, the benefits are weighted fairly heavily in favor of low income workers (and accidentally favor high income, short duration workers).
About half the teachers in the state, comprising a majority of the school districts, are not in social security, a condition that also exists community by community in two other states and entirely in about 15 others. The employee contribution to social security is 6.2% of the first $97,000 or so of salary, indexed upward every year, and the employer contributes the same amount. Medicare, not available to teachers in those districts employed before 1987 (and madatory for everyone since then), requires a 1.45% contribution from both sides, with no income cap.
Tom W. is partailly incorrect about "loading" on pensions - sick days, etc. are not counted in the teacher retirement system towards final average salary, only actual work. A simple mathematical analysis (break out the spreadsheets, Don, and test this out, becaseu no one will beleive me!) of a starting teacher in the new pension system, where benefits maximize at 75% of highest three years of salary at age 59 after 38 years of service, will show that the teachers own contributions of 9.5% of salary, invested at the pension system's average rate of return, cover the costs of that teacher's pension. While our country would be a lot better off if every employee had a similar arrangement, I don't represent everybody (yet!).
And yes, Tow W., there was a lot of messing around with the pension system before my time at NEARI - in fact, when I ran for office back then, I hit my opponent (then in the legislature) fairly heavily for abuses of the system. The unfunded liability mess is partially a result of the gameplaying.
Posted by: Bob Walsh at September 9, 2007 4:37 PM>>First, Social Security and pensions are entirely different systems created for entirely different purposes. There was never an expectation that social security become the American pension system - in fact, the benefits are weighted fairly heavily in favor of low income workers (and accidentally favor high income, short duration workers).
Well Bob, I’m glad that as a “progressive” you’re at least tacitly admitting that Social Security is really a welfare program – I wish that the Democratic Party was as honest, as for decades now it has been promoting the misconception that it is a retirement program, and allowing millions of seniors to operate under the misapprehension that their “benefits” are merely the return of the “contributions” they made during their working years.
>>About half the teachers in the state, comprising a majority of the school districts, are not in social security, a condition that also exists community by community in two other states and entirely in about 15 others. The employee contribution to social security is 6.2% of the first $97,000 or so of salary, indexed upward every year, and the employer contributes the same amount. Medicare, not available to teachers in those districts employed before 1987 (and madatory for everyone since then), requires a 1.45% contribution from both sides, with no income cap.
Oh, those lucky teachers in the districts which had the foresight to opt-out (I believe that they were given an opportunity in the 1970’s to either opt-in or opt-out of Social Security).
>>Tom W. is partailly incorrect about "loading" on pensions - sick days, etc. are not counted in the teacher retirement system towards final average salary, only actual work. A simple mathematical analysis (break out the spreadsheets, Don, and test this out, becaseu no one will beleive me!) of a starting teacher in the new pension system, where benefits maximize at 75% of highest three years of salary at age 59 after 38 years of service, will show that the teachers own contributions of 9.5% of salary, invested at the pension system's average rate of return, cover the costs of that teacher's pension. While our country would be a lot better off if every employee had a similar arrangement, I don't represent everybody (yet!).
I’ll take your word for it on the sick days.
I note that you state “starting teacher in the new pension system” – presumably indicating that your conclusion only applies to new / almost-new hires. What are you using for “the pension system’s average rate of return”?
If the numbers are as dramatic as you claim, I have to believe that the unfunded pension liability would be far less than the current 4-5 billion dollars - for while the modest changes to the “new” system (minimum retirement age of 59) would have a material impact, given that employee “contributions” haven’t changed, those “contributions” all along should have meant that even if the state was under-contributing (which it has been), the impact shouldn’t have been that great.
I very much agree that the country would be better off if every employee had a similar arrangement, e.g., a “Social Security” system in which an employee contributes to a pooled investment account (instead of to the government’s general fund to be spent by Congress) and is vested in the benefit (instead of hoping that every single Congress for the remainder of one’s lifetime doesn’t “adjust” the “benefit” downward). Can you say “privatization”?
>>And yes, Tow W., there was a lot of messing around with the pension system before my time at NEARI - in fact, when I ran for office back then, I hit my opponent (then in the legislature) fairly heavily for abuses of the system. The unfunded liability mess is partially a result of the gameplaying.
Fine, but that doesn’t answer the question. Name names – “enquiring minds want to know!”
Tom W,
I do call them as I see them - it is scary that so many people think that Social Security is a stand alone retirement system.
Well, under the old expectations when the "typical" case was someone starting teaching and staying in that career only, not being in social security probably makes more sense (but virtually no one is disciplined enough to save the funds that would otherwise be contributed, and for the pre-1987 folks, no Medicare was a big problem.) But with so many mid-career folks looking at teaching, and with much greater mobility between districts and states, the weird quirk in federal law that offsets social security and survivor benefits otherwise earned from those retiring from government systems not in Social Security has become a growing problem. (A teacher in a social security district and having earned 40 quarters of service will see that benefit virtually erased if they take a job and retire from a non-social security district, same problem for a career change to teaching - if you go to a non-social security district, lose up to 2/3 of your social security - hits the military folks particularly hard.)
-
Assume the same 8.25% annual average return that the retirement system does (and has achieved). Under the old system, if employees started working at a very early age (more state employees than teachers) and retired as early as possible, the numbers don't work, but even then the supplemental contribution needed was not great.
While many people question whether the system needs to be fully funded or if it is OK to keep reamortizing it, I am a full funding advocate although I understand the other arguments. That said, the unfunded liability is so huge mostly because of political decisions (demographics such as increasing lifespans play a part as well, but minor compared to the rest.)
When the state put through the early retirements in the late 1980's, time was allowed to be purchased at less than full actuarial value. The state and cities and towns saved money by replacing higher paid employees, but esssentially did so by borrowing from the pension system (at 8.25%!!!) Same thing happened when funds were not put in due to the banking crisis. Same thing used to happen everytime a benefit was given without considering the acturial cost. Same thing happened when Mayer was Treasurer (she was against it) and they marked the portfolio to market (essentially pretending the good years would last forever instead of smoothing returns over time, usually in five year windows). Whenever market returns were less then benchmarks, that cost the system. And everytime the system was reamortized (like remortgaging a house) we went on a new 30 year schedule, delaying full funding yet again. Again, I get the arguments on the other side (government will be here "forever, pressing needs, etc.) but the end result is that the public sees this benefit, which could be delivered at a significantly lower cost with no diminishment in value, as a big problem. If we had stayed on schedule and were fully funded, the entire employer contribution (state and local combined) to the teacher system would be less than 3.5%!
--
Back then, the General Assembly members were given pensions of $10,000 or $12,000 after 20 years of service (less for less time), and could "buy time" or get service credit for things like serving on town councils or school committees, among other things - or, they could count legislative service as time if they took higher paying state jobs upon leaving the legislature. If there was anything good to come out of the banking crisis, it was attention to and elimination of problems like that.
Perspective is interesting - I marvel on how far we have come in this state since I first got involved in these issues, well before I went to work for NEARI. I realize that we have much further to go.
Posted by: Bob Walsh at September 9, 2007 10:11 PMBob –
In what can only be described as a minor miracle, it appears that there may be some things about which we actually agree.
The General Assembly - as politicians are wont to do - is guilty of short-term thinking and political expediency, most notably for present purposes playing games with the pension system. The same has been true with their quick fixes over recent years, such as spending the tobacco money by selling the future annuity stream at a discount (would not it have been better had they left it intact and funneled the proceeds straight into the state pension system)?
On the one hand, the rank-and-file employees of the state and municipal governments are innocent parties in all of this. On the other hand they aren’t. Due to unionization and their status as a collective, we must treat them as a collective. In turn, the collective's leadership wields great influence, if not control over the decision-making at the General Assembly. to borrow a phrase from the law of equity, the union leadership and its members don’t exactly come to the table with “clean hands” regarding the budgetary antics at the General Assembly.
As you’ve gleaned from my prior postings, my opinion is that the pension system should be frozen and state and local employees converted to a 401(k) type plan (if memory serves, the counterpart in the public sector is a 403B plan). The older employees would still get attention based on their vesting to date, as with the younger employees who would still have time as well to accumulate assets in their 403B. As you also know, I am a proponent of banishing the teachers unions from Rhode Island. It is safe to say that you oppose both of those concepts.
But let’s say that for the foreseeable future a pension plan will remain in place, as will the teachers unions. Going forward, to prevent the fiscal machinations that the General assembly has engaged in prior years, a requirement - ideally in the Rhode Island Constitution so that the General Assembly couldn’t change the rules - that every fiscal year all future obligations be fully funded at present value (as calculated using an actuarially sound projected rate of return) would seem to be in the best interests of taxpayers and public-sector beneficiaries of these plans.
In turn, a requirement that changes in the plan, such as in eligibility or benefits, be immediately calculated for their fiscal impact and also be fully funded at present value would seem prudent, protecting both taxpayers and the public-sector beneficiaries (from unpleasant future surprises).
I don’t think I’m off-the-wall in supposing that if such proposals were made to public-sector unions in the state would oppose them, just as they opposed Jim Davey’s legislation that called for fiscal impact statements before ratification of new contracts – that legislation didn’t even require full funding at present value, merely calculation and disclosure of the fiscal impact.
For the unions have been participating in the Wimpy-like “I’ll gladly pay next Tuesday for the pension benefits you grant today” game. They’ve opposed financial disclosure that might inhibit the expansion of benefits, and haven’t been out there jumping up and down in protest as the General Assembly played fast and loose with finances, imperiling the future solvency of those benefit that have been granted. Indeed, the public sector unions (e.g., Paul Moura) have been at the table actually making those decisions to play fast and loose.
Indeed, much common ground - Gary Sasse (from RIPEC) has joked that I am the only other fiscal conservative left in Rhode Island. Don't misunderstand, I still want to spend much more government money than folks here are comfortable with - I just want to know where it is coming from first.
One time revenue sources should either go to the unfunded pension liability or to reduce bonded indebtedness, whichever makes the most economic sense at the time. This was one of the unanimous recommendations of the Governor's pension study committee a few years ago, and never acted upon.
I'd be pelased if the law required us to stick with the amortization schedule in place with no further tinkering - although it has about 23 years left to full funding, at least the goal would be in sight.
Posted by: Bob Walsh at September 10, 2007 10:07 AMBob,
1. Give me two more numbers (actually functions) to start:
- The schedule of salary increases, over the course of a career
- The cost-of-living increase in pension payments, post-retirement
1A. I've tinkered with some simple pension numbers in the past, and the results based on some of the current Rhode Island numbers I've been able to find seem largely sustainable, mainly because it's usually not a whopping large percentage of salary that gets paid out for shorter career lengths.
The problem comes, as I believe you have pointed out before (and correct me if I'm wrong [which I'm sure you will]) with plans that try to pay out a high-percentage of salary, after say a 20-year career, and expect to be solvent for 25 years after retirement. (And yes, that does present a special problem for people in physically demanding jobs like firefighting, but at some point the system won't be there for anyone, if it needs to pay out more than it takes in).
2. You don't need a defined pension plan to get everyone an average market rate of return on investment on 9.5% of their salary over their career; you can get the same result by offering everyone a 401(k) (or by using some of the even more radical proposals out there to drastically reduce or eliminate taxation on savings).
The additional advantages that come from a defined-benefit pension over a 401(k) is the free insurance effect not present in a 401(k), i.e. if a market rate of return doesn't generate the promised benefits, then it is assumed that the plan can tap money from an outside source (in the case of public pensions, taxpayers) to make up the difference.
However, this has led to what economists call, I believe, the problem of "moral hazard"; the fact that government officials believed everything about pensions could be fixed at a later date with the magic outside source of money led directly to the gameplaying you describe above.
Couldn't some really smart finance guys come up with a mechanism to create an insurance effect for a 401(k) type system? For example, people would have the option of buying into a fund that, in really good years, put a certain percentage of its return would go into an insurance fund that would be used to help bolster funds that weren't having such good years. This way, people would still legally own their own money, moving it beyond the possibility of governmental games?
This would even work in the union context, as could use its leverage to negotiate better insurance deals for their members that they might be able to get on their own.
3. To emphasize your point of agreement with Tom W, you're explanation of SS versus pensions is much more forward than standard Democratic party rhetoric. Ever thought about running against Sheldon Whitehouse in 2012 in the Democratic primary?
4. Wanting to spend only as much as you take in only makes you a "deficit hawk", not a "fiscal conservative". Fidel Castro or the folks in the IWW only want to spend as much as they take in too -- after they've seized 100% of everybody's income.
>>Couldn't some really smart finance guys come up with a mechanism to create an insurance effect for a 401(k) type system? For example, people would have the option of buying into a fund that, in really good years, put a certain percentage of its return would go into an insurance fund that would be used to help bolster funds that weren't having such good years. This way, people would still legally own their own money, moving it beyond the possibility of governmental games?
Andrew –
Great question!
After several years of contemplating Social Security (contemplation driven by the fact that I’m one of the people getting screwed by the system, i.e., I’ll never get back what I put in, much less the opportunity cost of what I could have made had I been allowed to invest my Social Security contributions in an IRA type account) I believe that I’ve developed an idea which would be a win-win for all concerned.
Though my libertarian leanings make me uncomfortable with any coercive government program, such as forced individual savings, that train has left the station. On the other hand I recognize that human nature being what it is, most people when left to their own devices, will not save for retirement. As a conservative, I very much believe in so-called privatization of accounts, for a whole host of reasons including the fact that in the end one can’t have true human dignity if one is dependent upon a government program (e.g., that monthly Social Security check).
Of course Democrats vehemently oppose privatization, and want to keep Social Security as it is, which is really a welfare program disguised as a retirement program (in this welfare program eligibility is more determined by age than by income).
Hybrid proposals have been floated in which the so-called Social Security trust fund would be invested by the federal government, similar to what state and municipal pension plans are doing now. Unlike the current “trust fund,” which is drained by Congress every year to be spent on “bridges to nowhere” and stuffed with IOUs to be paid by future taxpayers, rendering the “trust fund” a cruel sham on senior citizens, these hybrid proposals at least have the benefit of keeping our excess FICA taxes out of the hands of Patrick Kennedy, Jack Reed et als. and capturing investment returns for future beneficiaries, instead of relying on the presumed good graces of future taxpayers. The danger seen by many, including me, is that given the enormity of the funds that we are talking about, the federal government would in effect become a major, if not the majority owner of business, rendering our economy a de facto socialist one, rather than a capitalistic system. Moreover, almost inevitably be investment decisions would become politicized-we’ve seen it here in Rhode Island with the state pension system buying office buildings and shopping centers of dubious investment potential, and with activist pension funds such as that of California (Calpers). Finally, this would still render “beneficiaries” financially dependent upon a government program, and the whims of future congresses.
A far better solution would be to allow (if not require) people to remit what they are paying into Social Security (employee and employer) into a private account like an IRA, in the employee’s name, over which they would have ownership a/k/a vesting. Investment risk could be moderated by limiting the range of investments to the use of vehicles such as those already existing in many 401(k) plans – so-called lifestyle funds which invest in a mix of index funds appropriate to the individual’s age and life expectancy.
When an individual gets into their 60s they would then be allowed to one of two options: either annuitize the investment fund that they’ve built up so that it would provide a stream of income for the remainder of their life ( presumably with survivor benefits for a spouse and it could be required that this have an inflation adjustment component) OR “donate” whatever they’ve accumulated into the Social Security system, in return for which they will receive the same benefits as currently offered under Social Security.
At the time of selection each individual would be provided with an analysis of which option would generate a higher income stream for the remainder of their life. For most people this would probably be the private annuity, but for low income workers or others who happen to be cashing out during a major stock market decline, there would be the buffer of Social Security. In either case, unlike current 401k’s or Social Security – folks won’t have to worry about “outliving their savings” or that a future Congress will reduce Social Security benefits.
As for the private annuities, a regulatory scheme could be set up so that the industry providing them would have to fund a FDIC like insurance program, so that if a particular provider goes under the beneficiaries would be made whole. The regulations could also ensure that income streams that are offered are realistic and reasonable vis-à-vis the purchase price.
In this way individuals would essentially control the investment funds, so we wouldn’t have a problem of a de facto socialization of the economy. Further, most individuals would be more protected than they are now since they would own the money, whereas currently there is no vesting or property interest in Social Security so people can lose everything that they have “contributed” (currently this particularly impacts minorities who pay in for a working lifetime but have shorter life spans but, as we know, one cannot bequeath Social Security contributions to heirs, creating another roadblock for accumulation of wealth by minorities).
Another benefit is that this program could legitimately be presented to seniors (and seniors to be) as a no lose proposition, for ultimately nobody will have an income stream less than that currently offered by Social Security, and most will have more. (This is been borne out by experience – a county in Texas opted out of Social Security back in the 70s, and instead the monies were invested in a pension type plan. By harnessing the power of investment returns, those retirees are now enjoying income streams averaging in the $30,000 a year range, rather than the $12,000 a year range they would have had they stayed in Social Security.)
The problem is that Democrats would oppose this plan, as they have all other Social Security reforms. Sometimes cynicism is well-placed, and I’ve concluded that the Democrats would much rather have an issue over which they can scare seniors into voting for them then to fix the system which everybody knows is headed for a major funding crisis, if not a demographically induced collapse.
It has also become clear over the years that philosophically Democrats are opposed to anything which would free seniors (or at least a large part of that population) from being hooked to / dependent upon a government program; and that Democrats are philosophically opposed to a program in which some would fare better / have more lucrative outcomes than others ( their socialist inclinations tend toward pulling everybody downward to achieve equality or, as Sir Winston Churchill put it: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”).
Knowing full well that Social Security, as presently constituted is unsustainable and headed for collapse, I find reprehensible the Democrat’s cynical use of “Mediscare” tactics to gain electoral advantage with today’s seniors, at the expense of future seniors and those behind them. How craven to portray themselves as “protectors” of seniors by fostering ignorance and falsities (such as their spin that Social Security is solvent until “2050” or whatever, when in fact this is only true if one accepts the myth – and the Democrats know it to be a myth – that there is money in the Social Security “trust fund” – when in fact Social Security goes cash-flow negative within ten years).
Probably the best figures to use are from Don's spreadsheet, so you get the effect of the steps for the first 10 years (remembering to additionally increase them by, say 3% each year, and then to inflate the top step annually by a similar amount each year. The COLA's are CPI capped at 3% starting 3 years after retirement - use the full 3% to see the "worst" (or best, depending on perspective) case scenario. (Under the old system, they were a straight 3% starting the January of the third year after retirement, which ususally meant 2 1/2 years for teachers.)
The five reasons that come to mind for pension plans over 401 (k) type systems are 1) employer benefits from return generated on fully funded plan, eventually lowering employer contributions for similar or better benefit; 2) pension plans usually contain a disability component, which would otherwise have to be purchased or negotiated separately; 3) pension plans smooth out market flucuations to increase probabilty of getting desired rate of return over time (versus individual investors chance of getting same) and allow immediate diversifacation of investments, which are hard for an individual to get (lower fees, too); 4) employer and employee have more predictability in retirement timing; and 5) the unpredictability of prevailing interest rates impacting retirement decisions is not a factor. Number 5 needs further explanation - most folks want predictable income to make the retirement decision, which ultimately means buying an annuity with all or part of the 401 (k) savings, the returns on which are impacted greatly by prevailing interest rates, so in an unfavorable interest rate environment, all those saving could be worth a lot less. One way around this is to structure 401 (k)'s to allow annuity purchases over time to smooth the interest rate impact, but then you are trading off the generally greater market rate returns gained by investing in equities over time, so you would need to put more into the 401 (k) to ensure the return.
Among the reasons why 401 (k) type investments are better are the portability issue, instant vesting, and inheritance for remaining assets.
I believe that a fairly structured pension is better for both employer and employee in the long run. I also believe that even with a pension, employees shold invest in 401 (k)'s if available. (Maybe that is what makes me a fiscal conservative.)
I don't know the solution to teh Social Security mess, but I know the blame is bipartisan and discussing the issue is the third rail of politics.
Posted by: Bob Walsh at September 11, 2007 8:44 PMThe option of investing in an annuity via periodic 401k investments are starting to appear, which takes care of the interest rate at time of purchase issue.
The problem with pensions is that given today's employee mobility within the private sector (hopefully coming to the public sector), employees aren't with a company for their working career, or even often enough to vest.
Also, companies go bankrupt, and their pensions defunct. Yes, there is PBGC, but its protection is limited (just ask all the airline pilots whose pensions are now just a fraction of what they anticipated).
Better that the employee own the money. Index funds and "life stage" combo funds more than adequately resolve the issue of employees' lack of knowledge of investing.
As for expenses, Vanguard index funds run about a .3% expense ratio. Peanuts.
Posted by: Tom W at September 11, 2007 11:35 PM