Banking on a System Sure to Fail
Justin Katz
Andrew makes a central observation in the comments to his latest post on the pension deficit:
If politicians 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.
For his part, NEA honcho Bob Walsh offers a worthy summary thereof:
... 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.
The missing piece is that — for professional and ideological reasons — he and his union-leader peers have backed the very politicians and policies that have brought Rhode Island to its current state. Giveaways, regulations, and micromanaged obfuscations of the free market — for the most part benefiting unions directly or indirectly — created the circumstances in which public-sector pensions are threatened as they are, and one suspects that those in the know, such as Mr. Walsh, have not raised the alarum because they've considered the pension benefits to be "guaranteed," if not legally, then morally. As Michael commented to a previous post in the series:
... the pension is part of a benefit package. The benefit package was offered to me when I accepted employment with the City of Providence. I didn't demand it or crunch the numbers or do an audit, I trusted the integrity of the people who hired me to have figured this thing out before offering the package. I've planned my future based on the numbers supplied to me and doing some investing and career building on my own. The only demanding I'm hearing is people who's future's are not tied to the pension systems demanding I sacrifice my future so they can save a few bucks on their tax bills.
Well, I'll agree that it was improper for politicians (and unions) to make unrealistic promises on which others would be expected to deliver, but Michael's undue dismissal of taxpayers' claims is telling. Sure, if everybody in Rhode Island threw me a dime (nevermind "a few bucks"), I could end my crushing debt, but I'd prefer policies that created an economy in which a hard-worker could thrive. I planned my educational investments based on indicators and advice, expecting those who'd constructed our social schema to have structured the market as promised. Life doesn't always work out as expected.
The thread running between Bob and Michael is the belief that the responsibility for fixing the pension system rests with those whose ostensible representatives enunciated the promises. And that points to a structure (deliberate, no doubt) in which those who bear the risks receive none of the rewards, while those who receive the rewards have no risks (in the sense of losing their pensions). From where, then, would those whose futures are actually in question — as Michael claims his is — derive incentive to keep an eye on the stewards of their retirements? To ensure that "too good" doesn't get swamped in "to be true"?
Tom W offers the important reminder that being entitled to vested benefits also means that benefits that aren't yet vested aren't an entitlement. It's the public sector workers' pension system that is at stake, and it seems to me that they ought to bear the brunt of the financial hit of having to return it to solvency. If the financial hit is too large, perhaps they'll decide to mitigate in small degree by canceling their union dues.
Keep chipping away, soon nothing will matter, promises will mean nothing, guarantees worthless, every man for himself. Not quite the future our founding fathers had in mind.
Bob Walsh lost alot of credibility when he fought the Voter Initiative Amendment proposal, and based on that, I don't trust him. That showed Walsh's true colors, that he is very much a part of the problem in the state, and that he is marching in lock-step with the General Assembly Democratic bosses. This is just my personal opinion.
Michael - you have been brainWalshed. Your leaders promised you the Big Rock Candy Mountain. The system is not sustainable. It does Mr. Walsh some good to have you active, because most sensible people would consider an exception in terms for people who run into burning buildings or towards gunfire. But a lot of government workers do work like the rest of us - manual labor, paper shuffling, office politics, etc. We don't see any reason why they get such exceptional terms.
Mr Walsh has declared victory with his Plan B numbers, but he conveniently ignores the Plan A folks who are retired and will continue to retire for the next decade and a half. These people have overly generous pension benefits and the problem is simple - ten years too few contributions and compounding, ten years too much collecting. Walsh would like the system to work itself out over the next 22 years (per a previous comment), but nobody has disclosed the bad news of the cost of doing so.
Look at what a typical person faces - assuming they work until retirement, the earliest point at which they can draw on pensions and Social Security, their combined age plus years working will vary from 100 to 106. Some teachers I know just retired with a number of 78. That difference is what makes the whole mess unsustainable.
Live longer, have more money in retirement, retire sooner. Pick any two, as long as your pick doesn't include the middle option.
>>Keep chipping away, soon nothing will matter, promises will mean nothing, guarantees worthless, every man for himself. Not quite the future our founding fathers had in mind.
Michael,
Did the union contract that was in effect when you were hired contain a provision that the pension formula / benefit could never be (prospectively) adjusted - but was locked as the date of hire for each individual through the rest of their career?
Did it state that the pension formula / benefit could be increased, but not decreased?
Did subsequent contracts state that for each individual the pension formula / benefit would be locked at whatever was in place as of each individual's date of hire?
I suspect not.
It's a pension for gods sake, not financial armageddon. If done properly it is sustainable. I have no intention of retiring from the FD until I'm sixty. I'll collect for twenty years if I'm lucky-the numbers say I won't be.
Justin, I don't have crushing debt because taxpayers "threw me a dime." I'm debt free because I work eighty hours a week and then some and have for long before I was a union member. My pension is not a "reward." It is a return on an investment.
Tom, I'm sure there will be adjustments to the pension as our contract is renegotiated or arbitrated. That is how it works. It is not written in stone. I fully expect things to change before I retire, not because I've done anything wrong, rather because the current political climate is too corrupt to handle an honestly run pension system.
Michael - If all Plan A employees held your stated intention of working til age sixty, accident- or illness-caused early retirement excepted, then there would be no need for this and similar debates.
We certainly are in agreement about gov't being to corrupt to handle a pension plan - another reason a 403b would be a better deal for all involved - portable and transparent. Still doesn't fix the current dilemma, just prevents the next eruption of a similar problem.
I should probably exempt myself from this debate for the sole reason that I don't concern myself with what other people do. Maybe it's the Irish-Swede blood that compels me to put my two cents in.
Michael,
It is precisely the "I don't concern myself with what other people do" attitude that got us here.
Where were you and Bob Walsh when the Pension system was being raped and pillaged by the Unions via pandering Politicians giving away unsustainable Pension benefits to 40 and 50 year old retirees? That's right, your creed is "I don't concern myself with what other people do", unless of course you Sweede/Irish genes get the better of you when someone is trying to clean up the mess that you passively ignored.
Where were you and Bob Walsh when guys like Paul Doughty was not showing up for work for 3+ year, except to collect that lucritive overtime in order to boost his Pension? Your concern for the Taxpayers who pay the bills is overwhelming ...NOT.
As Tom W. appropriately noted in a previous post, you and your ilk complain about making changes to the Pension and cry "but we had a promise when we were hired". But you never complain about changing your salary every year from the salary you had on the first day you were hired.
Get this through your thick skull: Public employees contribute a relatively minor amount to the Pension System in return for a GUARANTEED benefit, regardless of whether or not the Pension fund earns or loses a single dime of earnings on those contributions (irrespective of the false promises Bob Walsh makes). You have and take NO Risk. Like everything in your entitlement Union world, it is all REWARD and NO RISK.
And when you take NO RISK, you should have NO SAY in the changes. So get ready to say good bye to the gravy train.
Justin,
Andrew’s comment
“If politicians 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.”
Was in response to comment written in the published report by PEW Chartable Trust report “Promises with a Price Public Sector Retirement Benefits”; Washington, D.C. - 12/18/2007:
“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.”
I hope everyone notices the above date of 2005 because I believe (would somebody correct me if I am wrong) involves the same administration that is currently in office,
Andrew by his above comment is saying we can’t trust the Republicans and Democrats currently in elected office. Andrew calling a spade a spade!
I am at a lost as to why none of you call the 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 “call it union propaganda and ripping it apart like you’re doing with Walsh.
To quote the State of Indiana 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).”
Not once but twice did the State of Indiana publish the same conclusion in the published report.
Now if another state indicates RI State Employee pension (at 8.75% contribution) is not as gratuitous as I’ve continuously read on Anchor Rising just imagine how the teachers feel where they have to contribute 9.5% of gross salary and what the State of Indiana would say.
According to the State of Rhode Island General Treasure, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising.
The State of RI has a budget deficit of reported $430 million and continuing to grow. If the state were to start a 401K or defined contribution plan let me use someone else’s words “If politicians 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.”
My question is where the state is going to get its matching dollar to go into the defined contribution plan bank which it will not control and have to put 100% whereas it is still contributing only 56% to the defined benefit plan. Do I hear increase taxes or increase budget deficit because of a new defined contribution plan.
We have already seen the historic commercial tax credit that for every $1 documented credit was generating documented $5.47 state wide economic activity get put to bed for two years just when the state needs economic activity because some elected officials could not see past the $1 credit and budget deficit .
How many more stupid ideas based on false, misconstrued information or tunnel vision is going to continuously drive RI deeper into the recession which will last even longer driving more people out of the state thereby causing less income tax, sales tax and property tax state and local income on top of the continuing crashing housing market. Like a nice slow self feeding death spiral.
Ken - pull your head out of your rear-end!
Let me make is simple for you:
1. No body but a Union hack gives a rat's ass what "other states" are doing. What is important is what we can, and more importantly, can NOT afford. And we clearly can NOT afford what you and Bob Walsh are selling.
You have the same entitlement approach as Providence Fire Department Union President Paul Doughty, who's tortured "logic" says "we don't give a damn what the residents of Providence can afford to pay, rather, we should be paid the equivalent of what other big cities in the North East pay".
How about you, Doughty and the rest of you chicken-crap Union babies go to take a job in Indiana or one of those other "North Eastern Cities" and we'll see how you do. We'll have 100 qualified people ready to take your jobs tomorrow, if you'll be so kind as to step out of the way. Are you willing to let the free market work?
2. "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.”
What that means, Ken, is that despite Bob Walsh's disingeneous assurances to the contrary, his assumptions never hold up!
As previously stated, the only GAURANTEE in this game is the gauranteed benefits paid to the public employee. All the Risk falls on the Taxpayer, with the Reward going to the Public Employee. Morons believe and accept without challenge nutty assumptions put forth by the likes of Bob Walsh, and then sit around wondering why we have a $5B deficit.
3. "According to the State of Rhode Island General Treasurer, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising."
It's going to take 22 years to dig ourselves out of a whole from a system that Bob Walsh says is self sustaining and you don't call that a crisis! What planet are your from?
How about you be a man and step out of the world of gauranteed entitlements and let the free market determine your worth, take on some risk and shed the diaper that is the Union. You will find it liberating not to be a taxpayer-tit-sucking dependent, non-self reliant dues paying sheep. If you are as good as you think, the market will gladly compensate you appropriately.
So what do you say, Ken. Want to try the real world? Or do you prefer the comfort and security of the public tit, like Michael.
>>According to the State of Rhode Island General Treasure, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising.
If you still lived here and were one of the ones that they expected to cover the $5 billion shortfall, on top of our already overburdening tax system, you'd understand the crisis.
And then there's retiree health care, for which the Democrat General Assembly has put no money aside ... too busy taking bribes from CVS, I guess.
If we froze the pension system for all participants the shortfall would dramatically fall, perhaps even disappear.
The match would come from the savings, and in any case will force the politicians to be more honest because they'd have to come up with the money each fiscal year - the employees will make sure that they get their match every year in cash, not a "Wimpy" like "we'll gladly fund on Tuesday for the benefit we promised today."
Ken, I wonder how carefully you've read the Indiana report. For one thing, you keep citing the numbers for a 65-year-old who has worked for 10 years, even though the report notes that Rhode Island moves up the ranking for longer-term employees. More important, however, is the method used for calculating the numbers:
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).
What that means is that a 65-year-old who has worked for the state for 10 years, with $30,000 as his salary for pension purposes, will have funded $16,168 as a combination of his 8.75% contributions and an assumed 7.25% return on investments. (This puts aside the possibility that his salary has been negotiated higher in Rhode Island to account for this high-percentage withholding.)
The present value of benefits of $49,071 means that, if you calculate out his annual benefit for his expected lifetime (which number the report does not appear to provide) and take away the assumed 7.25% interest, he could theoretically cash in his benefit for that amount.
But the kicker is in the "caveats":
This model does not factor in differences in state policies for cost-of-living allowances (COLAs) or tax rates and tax treatment of benefits. Accounting for these differences, while important, would add substantially to
the difficulty of the present value calculations.
It is also important to note that this state-by-state comparison only includes those factors related to a state's
pension system and the provision of cash retirement benefits. Retiree health insurance or other retiree benefits
are not considered here.
Also, differences in average state employee salary levels and the cost of living in the various states are not
considered here. While it is true that a given level of pension benefit may go further in some states than others
due to geographically related cost-of-living differences, it is also true that retirees are free to move to lower or higher-cost states, thus complicating any effective comparison.
As far as I'm concerned, unless you intend to go through every state's pension system and figure out the rules for cost of living adjustments, this report's ranking is utterly meaningless. Moreso without a comparison of other benefits.
Justin,
Finally somebody is beginning to read the reports and understand making out right statements about how generous RI pension system is needs further study of all the states in comparisons to support the statement.
George Elbow.
Do you know what the word “ASSUME” means?
1. I do not belong to a union.
2. I do not collect a state pension
3. I pay my own medical insurance
4. I collect a retirement administered out of RI which makes me liable to pay state of RI income tax via RI-1040NR which gives me a voice as a taxpayer.
5. I retired from RI to Hawaii where a great Republican Governor and Democratic General Assembly have moved the state in a positive direction creating jobs and new business, lowering taxes, budget surplus, stable housing market, no school or teacher problems (teachers here highly respected) with NEA and GDP growth with personal income rising over the next two years.
Tom W,
As I said, I still am required to pay taxes in RI even though I don’t live there anymore.
With the budget deficit, where are you going to get the extra money to start a defined contribution pension plan? Where is the extra money?
The $5 billion is spread over 22 years which makes up for the state of RI dropping its contribution rate from 75% to 56%.
You can’t freeze the pension because of legal contractual obligations. The GA would have to create a law that allows a freeze but only going forward not going backwards just like you have the As and Bs.
Ken - thank you. You helped make my point.
You, Bob Walsh, Michael and these other fools that look at the situation and believe DRASTIC change is not needed come to such a boneheaded conclusion based on rosy ASSUMPTIONS (e.g. the Walshian Assumptions).
You ignore reality and pretend the $5B deficit does not exist and you make comparisons to other irrellevent states (re-read Justin's post) to justify your insanity.
RI is going bankrupt thanks to the socialist, non-competitive, non-free market, dependant nanny state that the Bob Walsh's have created.
You lose all credibility when you say that that we don't have a crisis since it will only take 22 years to become solvent ...based, of coarse, on Walshian-like utopian ASSUMPTIONS, which don't matter to Walsh and his flock, as they get their GAURANTEED benefit with or without the assumptions.
George, your demeanor on this site gives YOU no credibility.
Sigh.
This is where I pop in to say "If you don't separate firefighters and police from the other public employee unions you're going to shoot yourselves in the face trying to force changes..." and nobody will listen and I'll go back to my corner of the world and wait for the radical right to F* it up again while my cost of living continues to skyrocket with no end in sight.
we all need to relax. The changes are going to come only when they HAVE to come and not one second before. The people have no one to blame but themselves for perputually re-electing communistic trash.
Also, the attitude that police and fire need to be put on a pedestal and worshipped is part of the problem NOT part of the solution. More truck drivers die on the job than police and fire combined and they don't get to retire at 41 with lifetime COLA's and free family healthcare.
Pedestal? No. Treated separately from the Pelosi's of the world and the other lazy sloths sitting around staring at the ceiling for 30 of their 35 hours? Yes.
Michael - you are right. My demeanor is a tad less than "civil" at times. I plead guilty, as charged.
My tone, and my perhaps inappropriate use of you as a symbol, are not meant to be personal.
I, like so many others that are stuck supporting the entitlements of Bob Walsh's, Paul Doughty's and other Union leader's flocks, all of whom bear no risk, but reap all the benefits & rewards, is tiresome and makes me cranky.
It would be nice if I could focus on providing for my own family's needs, as opposed to having to focus on supporting people that retire in their 40s and 50s.
Perhaps, at some point, you too will demonstrate some out-rage at such ludicrous and indefensible circumstances.
Regardless, I do take your point and will try to be less acerbic.
But I would also suggest you try to look past "how" I say something and focus on "what" I am saying and then educate me / debate where you disagree.
Greg,
"lazy sloths sitting around staring at the ceiling for 30 of their 35 hours?"
Don't be picking on the Firefighters, who most days (thankfully), sit around and wash and polish their cars, play cards, cook beans & franks and schedule their "side jobs".
Hey George. How many burning buildings have you run INTO? How many mangled humans have you extracted from smoldering wreckage? How many times have you had a victim puke into your mouth after you revived them with CPR?
When you get to one each, then you get to belittle their 'down time'.
Greg, thanks for the support, I understand the source and know your words are genuine. I also know and understand the anger and helplessness you feel when discussing the benefits enjoyed by public sector unions. Because they are overtaxedpayer funded emotions run high when discussing these things. There is plenty of room for debate concerning these contracts. My own union has repeatedly offered concessions to Providence City Hall including co-pays on health-care policies and reducing cost of living increases to pensions among them. It is a start, but not enough for the administration. They are looking for the headline that will catapult the mayor to the State House, taxpayer be damned.
Don's post embraces management rights. In my world, giving management rights to a polititian is a public safety risk. We are the ones doing the work, be it fire, EMS, HAZ-MAT, Mass casualty, terrorist attacks or whatever else crops up. We could have gotten huge raises with no healthcare copays had we agreed to such "management rights" provisions. Instead, we refused to give a polititian the "management right" to close fire companies, reduce manpower and put ourselves and the citizens of Providence at increased risk. My critics will claim we do it for increased union dues and membership but they are wrong. Believe it or not our motive is equally divided between what is good for us and what is good for the city. There is still such a concept as integrity, and we are holding our own. (I've explained Paul Doughty's situation on a prior labor thread if you care to look for it.)
George, I appreciate your attempt to hold down the insults but I do take it personally. I've participated here for over a year for different reasons, one of them being an attempt to put a person in place of the concept of union thugs, pigs, thieves, communists, socialists and worse. Your contempt for the fire service is a product of jealosy, ignorance and misinformation. We do well but nobody in the fire service is getting rich, or fleecing the taxpayer. Nurses, plumbers, electricians and many other privately employed people make a lot more than us with similar benefit packages.
Find 100 random people to fill our shoes and you will get maybe ten that are actually willing to do what is necessary when the need arises. That is a fact. I'm well aware that thousands of people would take the job tommorrow if offered to them, and a lot of them would do a great job. We can't have a lot of people willing to do a great job. We need every person who is a member of this department to give 100% every day, union or no union. Protecting the weak? Not here, not ever, there is too much at stake.
And by the way, franks and beans went out in the ninties. Chicken and a salad is more like it.
Michael,
Touche on the Chicken and salad comment! Well done.
The reality is that if the Unions were filled with folks like you, we wouldn't have the issues we have. But the fact is, we have way too many that have zero concept of what goes on in the real world and have engrained in them an entitlement mentality (perhaps because many are at least second generation public employees). Sorry, but there is no excuse for the likes of Paul Doughty not showing up to work for 3 years (except to collect overtime). It is indefensible and we didn't here a peep from our union firefighters.
With respect to "In my world, giving management rights to a polititian is a public safety risk." That's silly. The current Providence Fire Chief (i.e. management) is a lifelong firefighter, a former Union president, for State Firemarshal. To imply that he (mgt) does not have the qualifications and concerns of the dept's & public's safety is just silly and a carp-out.
With respect to letting the free market work in terms of finding replacements for those members that should try go find better paying jobs in those other "North Eastern Cities", you imply that there are no other qualified or dedicated people other than the ones we have. Isn't that a tad presumptous on your part? More to the point, the real issue is that the Union will never put it to the test, as they fear the free market and refuse to let the free market determine their worth.
With respect to Plumbers, Electricians, etc., I will tell you that most of the ones I know are Firefighters who are able to undercut the full time contractors because they get free health-care and work accomodating hours.
Greg - with respect to my "down" time comment, the point was, as Mike noted, don't be putting anyone on a pedestal. All our public employees have a job. They all get paid. No one has a gun to their head forcing them to work. Pension reform, healthcare reform and collective bargaining reform is needed for ALL public employees, no exceptions.
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Keep chipping away, soon nothing will matter, promises will mean nothing, guarantees worthless, every man for himself. Not quite the future our founding fathers had in mind.
Posted by: michael at May 13, 2008 9:47 AMBob Walsh lost alot of credibility when he fought the Voter Initiative Amendment proposal, and based on that, I don't trust him. That showed Walsh's true colors, that he is very much a part of the problem in the state, and that he is marching in lock-step with the General Assembly Democratic bosses. This is just my personal opinion.
Posted by: Citizen Critic at May 13, 2008 10:28 AMMichael - you have been brainWalshed. Your leaders promised you the Big Rock Candy Mountain. The system is not sustainable. It does Mr. Walsh some good to have you active, because most sensible people would consider an exception in terms for people who run into burning buildings or towards gunfire. But a lot of government workers do work like the rest of us - manual labor, paper shuffling, office politics, etc. We don't see any reason why they get such exceptional terms.
Mr Walsh has declared victory with his Plan B numbers, but he conveniently ignores the Plan A folks who are retired and will continue to retire for the next decade and a half. These people have overly generous pension benefits and the problem is simple - ten years too few contributions and compounding, ten years too much collecting. Walsh would like the system to work itself out over the next 22 years (per a previous comment), but nobody has disclosed the bad news of the cost of doing so.
Look at what a typical person faces - assuming they work until retirement, the earliest point at which they can draw on pensions and Social Security, their combined age plus years working will vary from 100 to 106. Some teachers I know just retired with a number of 78. That difference is what makes the whole mess unsustainable.
Live longer, have more money in retirement, retire sooner. Pick any two, as long as your pick doesn't include the middle option.
Posted by: chuckR at May 13, 2008 12:06 PM>>Keep chipping away, soon nothing will matter, promises will mean nothing, guarantees worthless, every man for himself. Not quite the future our founding fathers had in mind.
Michael,
Did the union contract that was in effect when you were hired contain a provision that the pension formula / benefit could never be (prospectively) adjusted - but was locked as the date of hire for each individual through the rest of their career?
Did it state that the pension formula / benefit could be increased, but not decreased?
Did subsequent contracts state that for each individual the pension formula / benefit would be locked at whatever was in place as of each individual's date of hire?
I suspect not.
Posted by: Tom W at May 13, 2008 12:08 PMIt's a pension for gods sake, not financial armageddon. If done properly it is sustainable. I have no intention of retiring from the FD until I'm sixty. I'll collect for twenty years if I'm lucky-the numbers say I won't be.
Justin, I don't have crushing debt because taxpayers "threw me a dime." I'm debt free because I work eighty hours a week and then some and have for long before I was a union member. My pension is not a "reward." It is a return on an investment.
Tom, I'm sure there will be adjustments to the pension as our contract is renegotiated or arbitrated. That is how it works. It is not written in stone. I fully expect things to change before I retire, not because I've done anything wrong, rather because the current political climate is too corrupt to handle an honestly run pension system.
Posted by: michael at May 13, 2008 12:32 PMMichael - If all Plan A employees held your stated intention of working til age sixty, accident- or illness-caused early retirement excepted, then there would be no need for this and similar debates.
We certainly are in agreement about gov't being to corrupt to handle a pension plan - another reason a 403b would be a better deal for all involved - portable and transparent. Still doesn't fix the current dilemma, just prevents the next eruption of a similar problem.
Posted by: chuckR at May 13, 2008 2:29 PMI should probably exempt myself from this debate for the sole reason that I don't concern myself with what other people do. Maybe it's the Irish-Swede blood that compels me to put my two cents in.
Posted by: michael at May 13, 2008 4:55 PMMichael,
It is precisely the "I don't concern myself with what other people do" attitude that got us here.
Where were you and Bob Walsh when the Pension system was being raped and pillaged by the Unions via pandering Politicians giving away unsustainable Pension benefits to 40 and 50 year old retirees? That's right, your creed is "I don't concern myself with what other people do", unless of course you Sweede/Irish genes get the better of you when someone is trying to clean up the mess that you passively ignored.
Where were you and Bob Walsh when guys like Paul Doughty was not showing up for work for 3+ year, except to collect that lucritive overtime in order to boost his Pension? Your concern for the Taxpayers who pay the bills is overwhelming ...NOT.
As Tom W. appropriately noted in a previous post, you and your ilk complain about making changes to the Pension and cry "but we had a promise when we were hired". But you never complain about changing your salary every year from the salary you had on the first day you were hired.
Get this through your thick skull: Public employees contribute a relatively minor amount to the Pension System in return for a GUARANTEED benefit, regardless of whether or not the Pension fund earns or loses a single dime of earnings on those contributions (irrespective of the false promises Bob Walsh makes). You have and take NO Risk. Like everything in your entitlement Union world, it is all REWARD and NO RISK.
And when you take NO RISK, you should have NO SAY in the changes. So get ready to say good bye to the gravy train.
Posted by: George Elbow at May 13, 2008 7:22 PMJustin,
Andrew’s comment
“If politicians 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.”
Was in response to comment written in the published report by PEW Chartable Trust report “Promises with a Price Public Sector Retirement Benefits”; Washington, D.C. - 12/18/2007:
“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.”
I hope everyone notices the above date of 2005 because I believe (would somebody correct me if I am wrong) involves the same administration that is currently in office,
Andrew by his above comment is saying we can’t trust the Republicans and Democrats currently in elected office. Andrew calling a spade a spade!
I am at a lost as to why none of you call the 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 “call it union propaganda and ripping it apart like you’re doing with Walsh.
To quote the State of Indiana 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).”
Not once but twice did the State of Indiana publish the same conclusion in the published report.
Now if another state indicates RI State Employee pension (at 8.75% contribution) is not as gratuitous as I’ve continuously read on Anchor Rising just imagine how the teachers feel where they have to contribute 9.5% of gross salary and what the State of Indiana would say.
According to the State of Rhode Island General Treasure, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising.
The State of RI has a budget deficit of reported $430 million and continuing to grow. If the state were to start a 401K or defined contribution plan let me use someone else’s words “If politicians 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.”
My question is where the state is going to get its matching dollar to go into the defined contribution plan bank which it will not control and have to put 100% whereas it is still contributing only 56% to the defined benefit plan. Do I hear increase taxes or increase budget deficit because of a new defined contribution plan.
We have already seen the historic commercial tax credit that for every $1 documented credit was generating documented $5.47 state wide economic activity get put to bed for two years just when the state needs economic activity because some elected officials could not see past the $1 credit and budget deficit .
How many more stupid ideas based on false, misconstrued information or tunnel vision is going to continuously drive RI deeper into the recession which will last even longer driving more people out of the state thereby causing less income tax, sales tax and property tax state and local income on top of the continuing crashing housing market. Like a nice slow self feeding death spiral.
Posted by: Ken at May 13, 2008 9:22 PMKen - pull your head out of your rear-end!
Let me make is simple for you:
1. No body but a Union hack gives a rat's ass what "other states" are doing. What is important is what we can, and more importantly, can NOT afford. And we clearly can NOT afford what you and Bob Walsh are selling.
You have the same entitlement approach as Providence Fire Department Union President Paul Doughty, who's tortured "logic" says "we don't give a damn what the residents of Providence can afford to pay, rather, we should be paid the equivalent of what other big cities in the North East pay".
How about you, Doughty and the rest of you chicken-crap Union babies go to take a job in Indiana or one of those other "North Eastern Cities" and we'll see how you do. We'll have 100 qualified people ready to take your jobs tomorrow, if you'll be so kind as to step out of the way. Are you willing to let the free market work?
2. "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.”
What that means, Ken, is that despite Bob Walsh's disingeneous assurances to the contrary, his assumptions never hold up!
As previously stated, the only GAURANTEE in this game is the gauranteed benefits paid to the public employee. All the Risk falls on the Taxpayer, with the Reward going to the Public Employee. Morons believe and accept without challenge nutty assumptions put forth by the likes of Bob Walsh, and then sit around wondering why we have a $5B deficit.
3. "According to the State of Rhode Island General Treasurer, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising."
It's going to take 22 years to dig ourselves out of a whole from a system that Bob Walsh says is self sustaining and you don't call that a crisis! What planet are your from?
How about you be a man and step out of the world of gauranteed entitlements and let the free market determine your worth, take on some risk and shed the diaper that is the Union. You will find it liberating not to be a taxpayer-tit-sucking dependent, non-self reliant dues paying sheep. If you are as good as you think, the market will gladly compensate you appropriately.
So what do you say, Ken. Want to try the real world? Or do you prefer the comfort and security of the public tit, like Michael.
Posted by: George Elbow at May 13, 2008 10:23 PM>>According to the State of Rhode Island General Treasure, RI is on target and on track to paying the unfunded pension liability down over the next 22 years. I don’t see where there is a pension crisis except talk here on Anchor Rising.
If you still lived here and were one of the ones that they expected to cover the $5 billion shortfall, on top of our already overburdening tax system, you'd understand the crisis.
And then there's retiree health care, for which the Democrat General Assembly has put no money aside ... too busy taking bribes from CVS, I guess.
If we froze the pension system for all participants the shortfall would dramatically fall, perhaps even disappear.
The match would come from the savings, and in any case will force the politicians to be more honest because they'd have to come up with the money each fiscal year - the employees will make sure that they get their match every year in cash, not a "Wimpy" like "we'll gladly fund on Tuesday for the benefit we promised today."
Posted by: Tom W at May 13, 2008 10:23 PMKen, I wonder how carefully you've read the Indiana report. For one thing, you keep citing the numbers for a 65-year-old who has worked for 10 years, even though the report notes that Rhode Island moves up the ranking for longer-term employees. More important, however, is the method used for calculating the numbers:
What that means is that a 65-year-old who has worked for the state for 10 years, with $30,000 as his salary for pension purposes, will have funded $16,168 as a combination of his 8.75% contributions and an assumed 7.25% return on investments. (This puts aside the possibility that his salary has been negotiated higher in Rhode Island to account for this high-percentage withholding.)
The present value of benefits of $49,071 means that, if you calculate out his annual benefit for his expected lifetime (which number the report does not appear to provide) and take away the assumed 7.25% interest, he could theoretically cash in his benefit for that amount.
But the kicker is in the "caveats":
As far as I'm concerned, unless you intend to go through every state's pension system and figure out the rules for cost of living adjustments, this report's ranking is utterly meaningless. Moreso without a comparison of other benefits.
Posted by: Justin Katz at May 13, 2008 11:02 PMJustin,
Finally somebody is beginning to read the reports and understand making out right statements about how generous RI pension system is needs further study of all the states in comparisons to support the statement.
George Elbow.
Do you know what the word “ASSUME” means?
1. I do not belong to a union.
2. I do not collect a state pension
3. I pay my own medical insurance
4. I collect a retirement administered out of RI which makes me liable to pay state of RI income tax via RI-1040NR which gives me a voice as a taxpayer.
5. I retired from RI to Hawaii where a great Republican Governor and Democratic General Assembly have moved the state in a positive direction creating jobs and new business, lowering taxes, budget surplus, stable housing market, no school or teacher problems (teachers here highly respected) with NEA and GDP growth with personal income rising over the next two years.
Tom W,
As I said, I still am required to pay taxes in RI even though I don’t live there anymore.
With the budget deficit, where are you going to get the extra money to start a defined contribution pension plan? Where is the extra money?
The $5 billion is spread over 22 years which makes up for the state of RI dropping its contribution rate from 75% to 56%.
You can’t freeze the pension because of legal contractual obligations. The GA would have to create a law that allows a freeze but only going forward not going backwards just like you have the As and Bs.
Posted by: Ken at May 13, 2008 11:56 PMKen - thank you. You helped make my point.
You, Bob Walsh, Michael and these other fools that look at the situation and believe DRASTIC change is not needed come to such a boneheaded conclusion based on rosy ASSUMPTIONS (e.g. the Walshian Assumptions).
You ignore reality and pretend the $5B deficit does not exist and you make comparisons to other irrellevent states (re-read Justin's post) to justify your insanity.
RI is going bankrupt thanks to the socialist, non-competitive, non-free market, dependant nanny state that the Bob Walsh's have created.
You lose all credibility when you say that that we don't have a crisis since it will only take 22 years to become solvent ...based, of coarse, on Walshian-like utopian ASSUMPTIONS, which don't matter to Walsh and his flock, as they get their GAURANTEED benefit with or without the assumptions.
Posted by: George Elbow at May 14, 2008 7:27 AMGeorge, your demeanor on this site gives YOU no credibility.
Posted by: michael at May 14, 2008 8:16 AMSigh.
This is where I pop in to say "If you don't separate firefighters and police from the other public employee unions you're going to shoot yourselves in the face trying to force changes..." and nobody will listen and I'll go back to my corner of the world and wait for the radical right to F* it up again while my cost of living continues to skyrocket with no end in sight.
Posted by: Greg at May 14, 2008 9:05 AMwe all need to relax. The changes are going to come only when they HAVE to come and not one second before. The people have no one to blame but themselves for perputually re-electing communistic trash.
Posted by: Mike at May 14, 2008 10:07 AMAlso, the attitude that police and fire need to be put on a pedestal and worshipped is part of the problem NOT part of the solution. More truck drivers die on the job than police and fire combined and they don't get to retire at 41 with lifetime COLA's and free family healthcare.
Pedestal? No. Treated separately from the Pelosi's of the world and the other lazy sloths sitting around staring at the ceiling for 30 of their 35 hours? Yes.
Posted by: Greg at May 14, 2008 10:20 AMMichael - you are right. My demeanor is a tad less than "civil" at times. I plead guilty, as charged.
My tone, and my perhaps inappropriate use of you as a symbol, are not meant to be personal.
I, like so many others that are stuck supporting the entitlements of Bob Walsh's, Paul Doughty's and other Union leader's flocks, all of whom bear no risk, but reap all the benefits & rewards, is tiresome and makes me cranky.
It would be nice if I could focus on providing for my own family's needs, as opposed to having to focus on supporting people that retire in their 40s and 50s.
Perhaps, at some point, you too will demonstrate some out-rage at such ludicrous and indefensible circumstances.
Regardless, I do take your point and will try to be less acerbic.
But I would also suggest you try to look past "how" I say something and focus on "what" I am saying and then educate me / debate where you disagree.
Posted by: George Elbow at May 14, 2008 5:39 PMGreg,
"lazy sloths sitting around staring at the ceiling for 30 of their 35 hours?"
Don't be picking on the Firefighters, who most days (thankfully), sit around and wash and polish their cars, play cards, cook beans & franks and schedule their "side jobs".
Posted by: George Elbow at May 14, 2008 5:45 PMHey George. How many burning buildings have you run INTO? How many mangled humans have you extracted from smoldering wreckage? How many times have you had a victim puke into your mouth after you revived them with CPR?
When you get to one each, then you get to belittle their 'down time'.
Posted by: Greg at May 14, 2008 7:37 PMGreg, thanks for the support, I understand the source and know your words are genuine. I also know and understand the anger and helplessness you feel when discussing the benefits enjoyed by public sector unions. Because they are overtaxedpayer funded emotions run high when discussing these things. There is plenty of room for debate concerning these contracts. My own union has repeatedly offered concessions to Providence City Hall including co-pays on health-care policies and reducing cost of living increases to pensions among them. It is a start, but not enough for the administration. They are looking for the headline that will catapult the mayor to the State House, taxpayer be damned.
Don's post embraces management rights. In my world, giving management rights to a polititian is a public safety risk. We are the ones doing the work, be it fire, EMS, HAZ-MAT, Mass casualty, terrorist attacks or whatever else crops up. We could have gotten huge raises with no healthcare copays had we agreed to such "management rights" provisions. Instead, we refused to give a polititian the "management right" to close fire companies, reduce manpower and put ourselves and the citizens of Providence at increased risk. My critics will claim we do it for increased union dues and membership but they are wrong. Believe it or not our motive is equally divided between what is good for us and what is good for the city. There is still such a concept as integrity, and we are holding our own. (I've explained Paul Doughty's situation on a prior labor thread if you care to look for it.)
George, I appreciate your attempt to hold down the insults but I do take it personally. I've participated here for over a year for different reasons, one of them being an attempt to put a person in place of the concept of union thugs, pigs, thieves, communists, socialists and worse. Your contempt for the fire service is a product of jealosy, ignorance and misinformation. We do well but nobody in the fire service is getting rich, or fleecing the taxpayer. Nurses, plumbers, electricians and many other privately employed people make a lot more than us with similar benefit packages.
Find 100 random people to fill our shoes and you will get maybe ten that are actually willing to do what is necessary when the need arises. That is a fact. I'm well aware that thousands of people would take the job tommorrow if offered to them, and a lot of them would do a great job. We can't have a lot of people willing to do a great job. We need every person who is a member of this department to give 100% every day, union or no union. Protecting the weak? Not here, not ever, there is too much at stake.
And by the way, franks and beans went out in the ninties. Chicken and a salad is more like it.
Posted by: michael at May 15, 2008 12:07 AMMichael,
Touche on the Chicken and salad comment! Well done.
The reality is that if the Unions were filled with folks like you, we wouldn't have the issues we have. But the fact is, we have way too many that have zero concept of what goes on in the real world and have engrained in them an entitlement mentality (perhaps because many are at least second generation public employees). Sorry, but there is no excuse for the likes of Paul Doughty not showing up to work for 3 years (except to collect overtime). It is indefensible and we didn't here a peep from our union firefighters.
With respect to "In my world, giving management rights to a polititian is a public safety risk." That's silly. The current Providence Fire Chief (i.e. management) is a lifelong firefighter, a former Union president, for State Firemarshal. To imply that he (mgt) does not have the qualifications and concerns of the dept's & public's safety is just silly and a carp-out.
With respect to letting the free market work in terms of finding replacements for those members that should try go find better paying jobs in those other "North Eastern Cities", you imply that there are no other qualified or dedicated people other than the ones we have. Isn't that a tad presumptous on your part? More to the point, the real issue is that the Union will never put it to the test, as they fear the free market and refuse to let the free market determine their worth.
With respect to Plumbers, Electricians, etc., I will tell you that most of the ones I know are Firefighters who are able to undercut the full time contractors because they get free health-care and work accomodating hours.
Greg - with respect to my "down" time comment, the point was, as Mike noted, don't be putting anyone on a pedestal. All our public employees have a job. They all get paid. No one has a gun to their head forcing them to work. Pension reform, healthcare reform and collective bargaining reform is needed for ALL public employees, no exceptions.
Posted by: George Elbow at May 15, 2008 8:24 PM