I don't see any mystery, here. There's an "escape velocity" threshold at which the kitty has enough in it at retirement that the assumed return on investment increases each year at a sufficient rate to compensate for COLAs and last indefinitely. The lower the assumed return, the higher the threshold will be. Clearly, it's in Bob's interest to have sat at his desk, one day, and figure out the golden assumptions.

Of course, even that doesn't factor in such things as seeking three years of heavy extras, as well as effects of all union members compensating for each other, in the fund. And then, of course, the government's inability to watch a pot of money sit and grow.

All the more reason for a 401K type plan; invested in index funds; annuitized into a lifetime income stream at retirement.

Which begs the question, exactly why are the unions so opposed to the 401k alternative? There must be a reason.

Over the past 30 years, 8.25% was shown to be doable - just go with Vanguard 500 Index - 11.69% since 1976. Actually, it wouldn't be prudent to use straight index funds because you can have several straight down years. You might look towards funds with lower volatility in exchange for lower rates. American Funds is one such family; I'm sure there are others, and they still beat the 8% or so return. And you'll need some cash and bonds. If I get a chance this weekend I'll run some of Andrew's numbers with Fidelity Investment's retirement calculator, which uses a composite of 250 Monte Carlo simulations to project the likely outcome with some randomness in returns year to year factored in.

The real problem is one that anyone nearing retirement learns. The magic of compounding works disproportionately in the last years. Working even one more year makes a huge difference. These numbers would be a lot different for someone retiring under the more generous earlier rules. My local suburban paper just announced the retirement of two teachers. Nice ladies, both of them; one taught my kids in elementary school. But I can do the math and retiring after 28 years means they are tapping in 10 years sooner than the above example. Ten years less compounding, less contributions and more drawdowns. Most of the people hired under the plan Bob Walsh is talking about won't be retiring for a long time.

Lastly, the other real problem is that our politicians can't keep their hands off the pot of money. And every election year - ie, every other year - its tempting to short or completely skip the 4-4.5% contribution. Just another way of saying they can't keep their hands off the money, I guess.

>>Over the past 30 years, 8.25% was shown to be doable - just go with Vanguard 500 Index - 11.69% since 1976. Actually, it wouldn't be prudent to use straight index funds because you can have several straight down years. You might look towards funds with lower volatility in exchange for lower rates.

FWIW, I wasn't thinking just an S&P 500 index fund. With Vanguard you can also index small and mid-cap domestics and bonds, as well as international, such as the Euro-Asis EAFE index. A combo of those would give plenty of diversity.

>>Lastly, the other real problem is that our politicians can't keep their hands off the pot of money. And every election year - ie, every other year - its tempting to short or completely skip the 4-4.5% contribution. Just another way of saying they can't keep their hands off the money, I guess.

Another reason why I believe if unions were smart they'd be pushing for 401k's with matches. Ultimately if someone else holds your money it is at risk - corporations go out of business and take the pensions down with them (PBGC notwithstanding); politicians underfund; Congress can legally reduce or eliminate Social Security benefits at any time, etc.

That plus outside the public sector who stays in one job long enough to vest in a traditional pension anyway (and for a whole host of reasons we need to get the public sector away from this lifetime employment mindset as well).

The cynic in me might suppose that one reason that the public sector union bosses like pensions / defined benefit is that it is a form of golden handcuffs for the rank and file - binding them to the job, making them dependent on the union and thus helping to ensure that they'll keep paying those dues. People with job mobility are far less inclined to see the need for a union in a particular workplace, or the need to assume the expense of union dues.

Andrew,

The problem with your analysis is the same problem one finds with a lot of online "how much do I need to save for my retirement" calculators: Over a 30 or 35 year horizon, an investor doesn't earn 8.25% -- or whatever average you are assuming. Instead, the size and timing of the actual returns earned is critical.

For example, the posts above this one refer to average returns on U.S. equity since 1976 (which, conveniently, doesn't include the deep market losses in the early 70s). Clearly, they are higher, on average, than what would have been earned on an investment in government bonds. However, the inescapable trade-off is that more risk was taken on, as measured by the variability of equity versus bond returns over the historical holding period. This means that a pension asset allocation that is heaviily weighted towards equities (as it must be to generate your assumed 8.25% average nominal return over the holding period) also has a sigificant probability of delivering negative returns (indeed, quite large negative returns) at some point over the holding period.

Moreover, said negative returns interact with the fact that the ages of your pension plan members aren't equally distributed -- if memory serves, RI has the oldest average age for its public sector employees of any state in the nation. Hence, the finances of a real life defined benefit pension plan can be severely affected by the combination of a spike in retirements (and associated cash outflows) and a prolonged slump in equity markets.

In sum, the real situation is more complicated than your example. All roads still lead back to the points made by George, TomW, and me in previous threads. Like it or not, the current system is unsustainable, absent either a substantial cut in plan participants' future benefits, and/or a substantial infusion of taxpayer funds into the plan, to make up for all those years the Democrats chose to underfund the unions' pension plans and instead raise spending on RI's many welfare programs.

Thank you Andrew for your integrity. I know that many of your readers are shocked to learn the facts. Some are still trying to spin their way away from the truth. The pension system is not only fully sustainable, it is actually cheaper to maintain than the proposed alternatives.

As I have noted numerous times in the past, we support DB plans over DC plans for several reasons - individual investors cannot hope to duplicate the returns or lower fees that collective investing provides, and, bluntly, individuals cannot predict how long they will live after retirement. That is what retirement security is ultimately all about - having enough to last the rest of your life. Every worker should have this opportunity, and that is what the naysayers should be supporting. Our country, and our economy, would be stronger for it.

Thanks again, Andrew, for letting the facts speak for themselves, even when they have challenged an underlying thesis that was widely supported over here. I gues that's what a think tank does!

Hey Bob,

We're STILL waiting to see the numbers when the "Schedule A" people are included in the RI pension calculation.

You keep avoiding the issue of everyone hired prior to 1995.

>>As I have noted numerous times in the past, we support DB plans over DC plans for several reasons - individual investors cannot hope to duplicate the returns or lower fees that collective investing provides, and, bluntly, individuals cannot predict how long they will live after retirement. That is what retirement security is ultimately all about - having enough to last the rest of your life. Every worker should have this opportunity, and that is what the naysayers should be supporting. Our country, and our economy, would be stronger for it.

Sounds like Social Security. Which is a few years away from imploding.

Individual accounts with limited and responsible investment options, and a lifetime annuity at the end, are the SAFE way to go.

The current state of the RI State pension system (pun intended) shows the folly of putting one's retirement security in the hands of the government.

Geez, this is a state that can't fix potholes, maintain bridges, teach children the "three R's" or avoid public corruption indictments. So what person in their right mind would want RI government handling their retirement security????

Given the above analysis, it would seem to me that the union workers would want the 401k option.
It is theirs to keep and take with them, not chaining them to a job they don't particularly like. And, when they die, it goes to their heirs. A pension is gone forever once the husband/wife beneficiary team dies.
Also, am I correct in understanding Bob Walsh's argument that people individually would not be able to get the returns that a larger group would? Why that is rather meaningless in that a company 401k tends to be a large group. Additionally, is he saying that the current bankrupt system is preferable? What thought process could yield that?

It is rather obvious that Walsh has alterior motives with his excuses for not going with a 401k type plan. Almost certainly it has to do with the slave mentality - keeping people against their will; don't let them think for themselves.

Also, what is the effect of health plan benefits in all of this? Is that, perhaps, the key to Walsh's pig-headedness? Does the health care part blow the number away?

Instituting a 401K (actually a 403b) doesn't address the current problems including pre-1995 hires who won't finally retire until 2025 and won't pass away until 2055. As above commenters have mentioned, you have to factor these people in, and at the correct percentage of all state/muni workers. And the health care benefits should be charged to the pension as well - all part of the overall retirement benefits package.

I think the most important priority is to keep people working longer - look at the compounding in the last few years of Andrew's examples. Second, just like Social Security, they shouldn't be collecting in their 50s. Those two features are the largest part of what makes the current system unsustainable.

But FWIW, a 403b program would have helped - enough gov't workers would notice when the politicos try to short deposits in any year - it would be right on their statement. The Fed TIP program shows that gov't workers can be trusted with their own investments - they don't need their union leaders or the politicos to "help" them.

Does the health care part blow the number away?
Posted by Jim at May 9, 2008 4:33 PM
XXX
BINGO. Health care is increasing waaaay over 8.5% per year.

OK, so here is the deal. Have Andrew make one small change in his assumptions. Instead of using a 13.5% contribution (which represents the employee contribution of 9.5% plus the employer (taxpayer) contribution of 4%), just use the employee contribution of 9.5%.

And what it will show is that you don't even need the taxpayer contribution to keep the kitty positive all the way out to age 89.

So then that begs the question, if it stays positive until age 89 without employer contributions(i.e. it is self funding via employee contributions & earnings), then why is the fund $5B UNDER-Funded?

The answer is simple: the silly "Walshian Assumptions" are pie in the sky.

Please Bob, have Andrew run the numbers with all your "assumptions", except NO employer contribution and you see that the Kitty stays positive until well after 83. Then please explain why, even with the taxpayer contributions that have been made over the years (albeit not to the levels you'd like, but contributions non the less), why is the Pension fund so drastically underfunded?

Could it be because your "assumptions" are garbage and because we pay out such lavish benefits?

Also, Andrew should take a current teacher's contract and grow the salary STRUCTURE (not the starting salary)by 3.25% every year and he will see that an avg contract has a Step 1 Starting Salary of about $36,000 and it will grow to $90,000 in 10 years under the union step structure.

George Elbow (and your many alter egos),

Congratulations. You get the Hillary Clinton award for hanging on long after the fight has ended. The good news is that reality will eventually prevail, and you will no doubt go on to tilt at many new windmills in the future. It was fun while it lasted, but time to move on to the next topic.

Bob,
Once again, you fail to answer a simple question.

I guess that comes from you being used to leading a flock of sheep that have never once asked a probing question, such as "Bob, how is that I am able to retire so young when all the people I know in the private sector have to work into their 60s"?

Oh, well. It matters not, as your world of Entitlements are finally coming crashing down upon you and your entitlement loving flock.

Andrew,

You might want to add State of Indiana to “The Walshian Assumptions”.

State of Indiana did a 50 pension comparison to see where they stood.

Indiana Legislative Services Agency Office of Fiscal and Management Analysis;
“A Comparison Study of State Employee Pension Programs; Presentation to the Pension Management Oversight Commission October 25, 2006 “

To quote the report: “On the other hand, Rhode Island has the lowest state effort of the states with a defined benefit program, with a present value of $16,168. Rhode Island employees are required to contribute the 3rd highest rate of 8.75% of salary, resulting in a present value of employee contributions of $32,903, in order to receive a $5,001 annual benefit (with a present value of $49,071 and a ranking of 32nd).”

Full Report:
http://www.in.gov/legislative/publications/PensionStudyReport.pdf

Ken,
Did the Indiana study use Walsh's bad assumptions too?

Rerun Andrew's calcs with no taxpayer contribution (i.e. a 9.5% employee contribution only). And guess what, the numbers still come out marvelous. The "kitty" stays positive until age 89.

So please, as Walsh himself won't, enlighten us as to why the fund is $5B underfunded.

I'll save you the trouble: Despite the "high" employee contributions, the fund is effectively insolvent due to the over the top GUARANTEED benefits payments made to people that retire in their 40s & 50s. Stop kidding yourself.

There's a lot of 8.75% assumptions floating around here.

What is the actual performance / investment return the RI state pension system for the last 10, 20 years???

>>Congratulations. You get the Hillary Clinton award for hanging on long after the fight has ended. The good news is that reality will eventually prevail, and you will no doubt go on to tilt at many new windmills in the future. It was fun while it lasted, but time to move on to the next topic.

Hah hah hah. You throw out a few Poverty Institute-like figures followed by Pat Crowley-like conclusions and expect us to swallow them!

You won't respond to legitimate questions and challenges to your conclusions.

That tells us all we need to know!

George Elbow.

The State of Indiana ran all sorts of numerical assumptions comparing themselves to each state. This was when Indiana was trying to decide to make changes to their retirement system or not. They wanted to see where they stood in the nation. There are some pretty good printed results in the report.

Oh by the way, Indiana was using State of RI employee contributions of 8.75% and not RI teachers that have to contribute 9.5% of gross salary.

As for the $5 billion under funding, according to a State treasure report, RI is on track to eliminate the underfunding and there is no problem according to schedule with current pay down of under funding to the retirement system.

You have to go back to Governor Bruce Sunderland and every administration thereafter. According to reports, RI was contributing 75% to the retirement fund where employees were contributing 100% but during the last large state financial crises Sunderland cut state contributions to 50%. Couple that with lower returns on some investments and compounding interest, you got the current $5 billion underfunding. My understanding is that a 5 year averaging is used and the 5 year can start or restart anytime the Governor wants.

Under law (other state employees have sued respective states (Hawaii was one) for dipping into retirement funds and won in court) RI must contribute all of the required funds it has (withheld) not contributed regardless if it starts a tandem 401k retirement plan or not.

Can anybody post a copy of the consulting actuary's reports that were done for the RI pension study commissions that have existed over the past few years? It would be helpful to all, I think, to have a look at their methodology.

For the record, I also think Bob W totally whimped out by not providing an integrated analysis that includes both Plan A and Plan B.

And Ken, those lawsuits are based on language in each state's constitution, as I recall. RI's language on the inviolability of public sector pension benefits is quite weak, which makes it easy to change them via legislation -- as evidenced by the unions not going to court the last time around.

For better or worse, this extended (multithread) discussion of the public sector pension deficit facing RI has not changed my view that the facts aren't going to have much of an impact on the GA (if not the public). Sad, but that's what I've come to cynically expect in RI. The real question is whether the GA will cut pension benefits -- to bring the system back into a sustainable state (as the Feds did with Social Security) -- or whether they will try, via tax hikes, asset sales and pension bonds -- to make up for all those years of funding welfare programs instead of public sector pensions (and allow all those "Plan A" types to plan on a nice retirement in Floriday while RI descends into near-Hobbesian fiscal and social chaos).

Time will tell. And Ken will get to watch it all unfold from Hawaii. Mahalo, dude.

John,

I did my 50 plus years working in Rhode Island private, federal and public sector.

First time I stepped into the state house was during John Chafee’s administration and last time was in 2006.

I paid my dues being born, growing up and making a basic living in RI.

I’ll tip a Mai Tai to you as sit on one of my 135 free sunny beaches with free parking; 85 degree daytime and 72 degree nighttime with a cool trade wind breeze and think of RI every time I pay my property tax of $325 a year.

Hawaii is already scheduling state tax rebates for next year due to budget surplus.

Aloha and Mahalo to you too!

John,
Like Bob Walsh, you fail to answer the simplist questions.

Using the "Walshian Assumptions" in Andrew's simulation, the Fund massively positive with only a 4% State contribution.

Even if you strip out the 4% State contribution and just go with the 9.5% Employee contribution, the fund remains positive (i.e. positive without a dime of taxpayer funding).

So, the question is, how can the Pension Fund possibly be under funded if it stays positive until age 89 in Andrew's simulation using "Walshian Assumptions"? Please, oh please explain.

As I expect you to respond as Walsh does (i.e. dodge the question), I will explain: Walsh's Assumptions used in Andrew's simulation are garbage ...the GUARANTEED benefits paid are far too excessive in comparison to the employee's contributions coupled with their ZERO risk with respect to "earnings". Hence, the taxpayers take it in the rear.

Andrew - help the uninformed and run your simulation with just the 9.5% employee contribution.

Woops ...my post above should have been addressed to Aloha Ken, not John.

With all due respects to Indiana, and Plan A and Plan B public sector employees, the ultimate basis of comparison /benchmark for public sector compensation packages - total values of salary and benefits, including post-retirement benefits - should be what is offered in the private sector.

The private sector is where the real economy resides and is the "thermometer" of how much wealth our economy is producing and what the market says particular skill levels are worth.

Public sector employees of like skill and duties should be compensated on par with those of their private sector brethren of like skill and duties.

For the average worker private sector compensation essentially peaked in the early 1970's. This is occurring as our country (like Great Britain post-WWI) is in relative economic decline compared to arising power (Japan for a while; India / China / Asia in general today).

That our public education quality peaked in the early 1960's, and then started declining as unionization of teachers took hold, has not helped our competitiveness.

Our social welfare "Great Society" programs don't help either, as those have created a class of low-skilled semi-workers and non-workers, who are a drag on our economy.

Meanwhile our political class in Washington, D.C. seems intent on continuing and expanding the policies fostering our economic decline, so there's no reason to expect that it won't continue over the long term (albeit with occasional "bear market rallies" such as the "Reagan boom" of the 1980's).

Since the early 1970's public sector compensation, insulated from competition, has continued the same kind of upward trajectory that private sector workers enjoyed in the post-WWII springboard of 1945-1968 or so (LBJ's "guns and butter" expansion of government and Vietnam, and its resulting inflation was the beginning of the end of the private sector upward springboard, and the die was cast with the early 1970's oil shocks followed by the continuous expansion of the welfare state drag on our economy).

As a result, today's public sector workers are like the workforce nobility exploiting the serf private sector workforce.

When one thinks about it, there's no way that such a differential can keep growing indefinitely. And the public sector compensation will inevitably adjust to become more aligned with private sector realities.

It may be accomplished in a rational, planned manner (such as freezing RI's pension system); or it may come through force (note that a city in California filed bankruptcy this week after it couldn't reach necessary concessions with its municipal unions - like airline employees have discovered, when their union bosses won't behave reasonably, a bankruptcy court has no qualms about shoving concessions down their throats, including the termination of pension plans).

Tom W.,

You are wasting your breath.

Bob Walsh can't explain why the Pension Plan is $5 Billion short, even though his "Walshian Assumptions" show that the Plan would be positive / solvent for an employee through age 89 even if just the employee contributed (i.e. ZERO contributions from the state/employer).

Cat got your tongue, Bob? Can't explain away the facts with your jibberish spin?

No problem. As Tom W. alluded to, the party is coming to an end, as your refusal to grasp basic economic principals and deal in a fair manner for ALL taxpayers, as opposed to only Union dues paying taxpayers, has succeeded in bankrupting the state.

Well done, Bob. You should be proud.

George Elbow,

While all children can learn, it appears that all adults cannot. Or maybe you simply can't handle the truth. Your tutorial is suspended, as you have failed the first lesson since your original thesis has been proven wrong. Perhaps if you were not embarrassed or afraid to reveal who you really are, and what your background is, we could help you further, and guide you to the appropriate resources to help you understand what you fail to grasp already, before we try to build upon those lessons to teach you even more.

(For the rest of our readers, we have explained many times how the unfunded liability came to be, dating back to the founding of the pension system in 1947. Review the records of the pension study commission, the multiple articles in the ProJo, or the report of the Governor's Pension Study Commission, if you need a refresher.)

Bob,

Though GE's tone may not be the most conducive to discussion, his question does relate to a valid issue that those of us wrestling with the fiscal questions around pensions are trying to understand: If a properly set up and managed pension system is pretty-well self-sustaining, why have so many funds in so many different states run in to trouble at the same time, i.e. now?

Andrew,

If you want a picture of what is going on with state pensions, just type “50 states pension” into a Google.com search

According to the PEW Chartable Trust report “Promises with a Price Public Sector Retirement Benefits”; Washington, D.C. - 12/18/2007:

“Only six states—Arizona, North Dakota, Ohio, Oregon, Utah and Wisconsin—were on track at the end of FY 2006 to have fully funded their non-pension promises for the next 30 years.

None of the five largest states—California, Texas, New York, Florida and Illinois—had put aside money for non-pension benefits as of FY 2006.

Eleven states face long-term liabilities in excess of $10 billion. These include New York at $50 billion, California at $48 billion, and Connecticut and New Jersey at nearly $22 billion each.

Rhode Island assumed 8.25% interest on its pension investments in 2006, compared to a 50-state median of 8%. It uses a five-year smoothing period to calculate the actuarial value of assets, similar to most states. In 2005, the state’s actuarial advisor, Gabriel Roeder Smith, conducted a study that looked back seven years, and concluded that Rhode Island had been overestimating investment returns and underestimating salary increases.”

Full Report:
http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/State_policy/pension_report.pdf

Detailed Rhode Island Report:
http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Fact_Sheets/State_policy/Rhode%20Island.pdf

I'm going to the beach for rest of the day.

Ken,

If politicans making bad fiscal decisions are the entire story of the pension funding crisis, that is a strong case against defined benefit plans, because there is no reason to believe that current and future pols are going to be any smarter than the ones who got us in to this mess.

Andrew & Bob W. - please forgive my tone. It is borne of the frustration that comes from watching our great state being driven off a financial cliff, while the Bob Walsh's of the world continue to demand more of the same, bad results be damned.

In terms of "discussion", I'd say it is Mr. Walsh that has refused to engage in productive discussion.

Mr. Walsh has posted numerous times and has not yet answered the simple question: If, using his "Walshian Assumptions", the pension fund is essentially self-sustaining (i.e. the kitty remains Positive all the way up to age 89 with only the 9.5% employee contributions), then why is the system so short of funds? Why do the taxpayers have to contribute another dime, given that the Walshian Assumptions show that the employee contributions are enough to pay for the benefits?

Unfortunately, nobody holds Mr. Walsh accountable.

His assumptions are bad assumptions. We are paying out benefits that are far too generous in terms of percentage of pay (60%, 75% ...who in the Private sector retires on 60% of 75% of their pay?). In addition, the early age at which you can begin collecting a Pension is crushing us. Again, who in the Private sector can retire in their 50s. Only the lucky few.

Mr. Walsh, one last time, without refering us to old Projo articles and your usual sound bites, please explain why we need taxpayer contributions if, when we use your "Walshian Assumptions", the 9.5% employee contribution is adequate to keep the fund positive to age 89? And why, in light of the results of your "Walshian Assumptions" do we have a $5B shortfall?

Clearly, the state contributed some funds over the years. If anything, using your assumptions, we should have a massive surplus as reflected in Andrew's calculations using 13.5% funding (9.5% employee + 4% employer).

Could it be that your assumptions are faulty and misleading? Could it be that we are giving away the store to young retirees? Please enlighten us with more than dodges and sound bites. Seriously, I want to learn.

Lastly, if the problem is the Politicians Bob, please tell us exactly who we should get rid of.

Andrew,

There are myriad reasons for the underfunding, and we have had this discussion multiple times here and elsewhere. (And, by the way, I am again reminded of the reason I generally avoid posting here - it is due to the George Elbow's of the world - those that assume I am not truthful because this either disagree with my politics generally or dislike unions specifically, and hide behind anonymous names in a remarkable lack of courage and fortitude. And, since they are often not knowledgeable about the facts and are often uninterested in them, it becomes a bit wearing after a while. )

But, since you asked, here is a brief recap. While pensions systems started in the public sector to match the private sector models, they generally had a few major differences - public sector plans usually required employee contributions as well as employer contributions, and, while private sector plans eventually fell under ERISA regulations, such rules were lacking for public plans. Eventually, though, most public plans tried to follow private guidelines, but since governments were (correctly) considered on-going entities, getting to full funding was never a high priority and the typical 30-year amortization schedules were constantly being redrawn (there are still folks who argue they should be reamortized every year to keep management contribution levels down). RI last reset the counter 8 years ago, so we will be fully funded in 22 years IF we stick to the plan.

RI, of course, added to the problem in its own unique way - they were later to the game in requiring real actuarial studies to set the management contributions, and imagine their surprise when the funding levels were discovered to be so low. During the DiPrete years, the two early retirements saved the state money from the personnel budget by essentially giving away time in the pension system, which not only essentially transfered those costs to the pension system, it was the equivalent of borrowing the money at 8.25% (more, really, since the real returns have always been higher). DiPrete also gave us the banking crisis, which caused the state to decide not to make required contributions during that time. In the late 1990's, when funds all over the country were catching up due to stellar market returns, we decided to ignore the 5-year smoothing used to average out market returns and "mark to market" our portfolio, which lowered management contributions at the time and , all too predictably, caused them to increase years later.

Demographics have also played a part - while I disagreed with some of the Plan B changes, the concept of retirement at any age without any age-based actuarial reduction was not sustainable (as I testified at the time.) Of course, folks are living longer, etc., which also caused the need for those adjustments.

If we switched every new employee to a 401-k type system, the state would lose funds in the short and long term, and the actuarial data has already proven that. We would still be obligated to fund the legal obligations of the pensions system, and no new employee contributions would go to that system.

These facts are all on the public record, and can be found in numerous places.

Mr. Walsh -

It is truly amazing that whenever a Politician (e.g. the current Gov.) attemps to make changes to the broken Pension system, you and the rest of the Unions scream bloody murder, demonstrate, threaten strikes, etc.

But, where was your voice when there were problems? You say RI was "later to the game in requiring real actuarial studies to set the management contributions, and imagine their surprise when the funding levels were discovered to be so low".

Where was the Union's voice and outrage back then when this was happening. You were silent because regardless of the funding shortfalls, you were still GAURANTEED your benefit!

Making noise like you do now would have only alerted the public sooner to the unsustainability of the giveaway Pension system that was created.

And where was your's and the Union's voice when they were happily taking those "early retirements" that were doled out by Diprete? Again, silence, as the problem wouldn't be the Union's (they get their GUARANTEED pmt).

Also, you like to imply that the state didn't contribute enough. How much did they contribute? Do think, maybe, the problem wasn't a lack of funding, but a problem with out of control benefits? Retirees in their 40s & 50s, with as little as 10 years of service, receiving 60%, 75% and 80% of their Salary?

Why don't you tell people what the Average Age at which people in the system began collecting a Pension is, what their Average service was. Both numbers will be very low. And that is the biggest problem, not a lack of funding by the state.

Which brings us to today. Please explain why, using your "Walshian Assumptions", we need to have any employer contributions, since your assumptions keep the fund positive for 30 years at an earnings rate of 8.5%, which you say has always been exceeded? We're still waiting for that explanation.

The bottom line is that you want taxpayers to pony up significant dollars to support a bunch of entitlement minded folks that contribute(d) minimal amounts for GAURANTEED payments starting at a very early age.

The best thing that can happen is that your "don't worry about today, RI is a going concern" attitude, which led us into this mess, will be blown out of the water via bankruptcy.

By the way, were you describing your Union members when you wrote: "And, since they are often not knowledgeable about the facts and are often uninterested in them, it becomes a bit wearing after a while."

George Elbow,

Since you seem to have all the answers, why don't you save everyone some time, and share with all of us your proposed solution to the pension issue, and include both your legal and financial analysis of why your solution is viable. You seem quite worked up about an issue you have not spent much time researching.

I intercede mainly out of beneficence inspired by Bob Walsh's proper usage of the word "myriad":

George,

Bob's argument is that past financial misdeeds and too-generous pension deals are currently dragging down the system. Leave it alone, the argument goes, and fully fund it, and it will be solvent within a couple of decades. To address your objection vis the self-funding, one has to remember that the pension system is currently dealing with the problems of the past. Get over the hump, in other words, and it may prove that we can decrease or eliminate the employer contribution down the road.

You raise some worthy points, though, and there are several directions in which one can proceed from here. I intend to pick one for a post later today.

>>Since you seem to have all the answers, why don't you save everyone some time, and share with all of us your proposed solution to the pension issue, and include both your legal and financial analysis of why your solution is viable.

I'll chime in for Mr. Elbow, though he's certainly free to speak for himself:

1) Let's take the ACTUAL ESRI investment returns for the past 10 or 20 years and use those for calculations of future returns;

2) Let's include ALL participants in the calculations - "Schedule A" and "Schedule B" - no subset of employees should be excluded, as they were in 2005. It's one system, with one systemic problem - we have to take it as including all participants;

3) As an initial matter, let's also align first date of eligibility to collect a RI pension with Social Security retirement ages (again for ALL current participants). There's no reason why someone shouldn't start collecting a pension earlier (there's disability for people who are disabled, and there's no reason why in today's world someone shouldn't work at least into their mid-sixties);

Then have non-partisan actuaries run the numbers, and under various scenarios, including an immediate pension freeze for ALL participants (my guess is that a freeze, coupled with Social Security retirement ages would eliminate some or all of the unfunded liability in one fell swoop).

With the long time frame of pension estimates, a little jiggering of assumptions can have a huge impact, and can lead to pretty much any result someone wants.

It appears that Mr. Walsh is pretending that the post-1995 pension criteria now apply to the whole plan (ignoring the pre-1995 hires and their much greater impact); this is like measuring school performance by omitting the bottom-half of the student body in the performance calculations. (Are we talking "no pension benefit left behind" here?)

Oh, lest I forget:

4) Also calculate various scenarios of calculating the benefit to bring them more in line with reality / private sector formulas, such as 50% of career long average earnings instead of 75% of highest consecutive three years.

After all, Social Security benefits are calculated based on a formula of lifetime earnings, not highest consecutive three years (and we in the private sector are forced to contribute 6-12% into that, so our "contribution" is comparable to that made by public sector employees into the pension system).

I also believe that most if not all private sector pension plans have calculated based on career long earnings, not highest consecutive three years (but am not sure and am open to correction by citations from credible sources).

And then we should also start discussing "OPEB" - other post-employment benefits.

After all, shouldn't we have "comprehensive reform" of the public sector pay and benefit scheme?

As you'd expect, the largest item in that category is taxpayer subsidized retiree health care, for which the General Assembly has established no investment fund at all.

(I believe that in the last year or two Governor Carcieri proposed doing so, and the Democrat General Assembly shot it down - presumably after deciding, in consultation with the union bosses, that they'd rather spend every dime currently than start acting responsibly and putting money aside to fund the giveaways they'd promised in the past.)

Mr. Walsh - your response is typical of someone without an answer ...you question the questioner. My creditials are simple: Common Sense.

The issue and question that you fail to answer is simple: Based on your own "Walshian Assumptions", the fund effectively is self funding with just the 9.5% employee contribution. If you throw in the extra 4% of state match, the fund becomes massively over funded. So, the question is, how & why is the fund $5B short if your Assumptions demonstrate that the fund should be fine even with just Employee contributions?

Would you at least acknowledge that the public employees (not politicians) were pillaging the Pension fund with easy benefits, while you and other Union leaders sat silent on the sidelines and that you now expect the taxpayers to clean up the mess of your excesses?

In terms of solutions, I will be happy to share them with you once you acknowledge the problem and acknowledge that your assumptions, based on a long track record of failure, are faulty.

Also, while you are at it, please explain one more thing: You like to take credit for Earnings on employee contributions. Yet, who has the risk associated with those "assumed" earnings? The employee or the employer? Answer: the employer. Your empoloyees have NO risk, but love to make rosy assumptions and take credit for earnings of which they have ZERO risk. Again, another example of the fairytail entitlement minded world you live in. Your all "reward" and no "risk".

Which explains why, even though your own assumptions imply that the fund would be fully funded under employee only contributions, you won't dare move to a defined contribution plan. On the one hand you say the numbers work, but on the other hand, you REFUSE to take any free market risk, as that is counter to an "entitlement". Similar to having your teachers all get paid the same, regardless of performance. God forbid you let the free market determine a Union member's worth.

>>There's no reason why someone shouldn't start collecting a pension earlier (there's disability for people who are disabled, and there's no reason why in today's world someone shouldn't work at least into their mid-sixties

Just caught a typo in the above; it should say:

"There's no reason why someone should start collecting a pension earlier (there's disability for people who are disabled, and there's no reason why in today's world someone shouldn't work at least into their mid-sixties"

Sorry for the error.

Happy Mother's Day to all. Clearly, your mom's deserve a lot of credit for patience, if nothing else.

George. You clearly did not read my response to Andrew, above, or understand how the unfunded liability came to be. Since you seem to ignore my answers, why not do your own research and report back for the good of all. You should also reread Andrew's admonishment to you - your arguments imply there should be no retirement security whatsoever and everything should be at the individual's risk.

TomW - as a lawyer, you understand the rights of vested members and current retirees, so it is disingenuous to imply that things can be taken away from those folks by creating one common system.

I'll be away for a few days (ironically, attending meetings for a pension board on which I serve) - I look forward to reading some ideas based on sound research when I return in time for the next Pension Study Commission meeting.

>>TomW - as a lawyer, you understand the rights of vested members and current retirees, so it is disingenuous to imply that things can be taken away from those folks by creating one common system.

Mr. Walsh:

I never said or implied that vested benefits can be taken away.

For example, a pension freeze is just that - whatever benefit an individual is vested in as of the date of the freeze they have a legal (and enforceable) property interest in. (As a side note here, there is no vesting in Social Security benefits.)

Vesting doesn't prevent prospective changes to any non-vested benefit (or prospective expectation).

Vesting has nothing to do with maintaining a system unchanged (or as you would have it, only subject to additions but not reductions) as of the date of hire.

Vesting has to do with what an individual accrues under a formula system through a certain date for past service. It doesn't mean the formula can't be changed prospectively.

By analogy, if someone quites or dies at 15 years of service they aren't "vested" in a 30 year pension and don't get the pension benefit of someone who had stayed on the job for the entire 30 years. Rather, they or their survivors (if the plan so provides) get the benefit per the schedule at 15 years.

Pension freezes happen all the time in the private sector, for all participants, including those that are "vested" in some portion under the prior formula.

But then, you know all this, even if you wish to pretend otherwise in public ... however disingenuous that may be.

Mr. Walsh - as usual, your entitlement mentality blinds your ability to see the points being made.

In terms of Risk, your union members have ZERO risk, as they receive a GUARANTEED payment regardless of how the Pension fund performs. Would you at least acknowledge that Bob, and then while you're at it, you could acknowledge that is why you are scared to death of a 401k Style plan (i.e. your members would actually have to have some risk).

In terms of retirement security, I'm all for it. What I am not for is carrying so many folks like your members on my back. It would be nice if I could worry about the retirement security for me an my family, but I also have to worry about carrying folks like Michael who have no clue what it takes to provide him with a Guaranteed benefit.

In terms of the Pension short fall, you continue to blame Politicians and taxpayers for not funding it. You refuse to acknowledge that the short fall is due to excessive benefits paid (while you and other Union "leaders" sat on the sidelines knowing it would be the taxpayers who would have to clean up after your pillaging), as Andrew's simulation shows that the fund should be massively overfunded using your assumptions.

Face it Bob, you're about as interested in an honest discussion as you are in solutions.

Bob Walsh was one of the dark forces who opposed the voter initiative amendment back in 2006.

Bob Walsh is not a part of the solution in RI.

Bob Walsh a big part of the problem.

Ken,

I am glad you are enjoying Hawaii.

I am loving Idaho.

Life outside of RI is great!!

Maybe we should start a group for RI expatriates. What do you think?

We can give Rhode Islanders a resource center for getting out: let them know what's available, how much they can save, what they can expect, where to go, etc..

RI politics from 3,000 miles away is alot of fun!! The intervening continent takes the edge off quite a bit.