I hope I live to see it. States are already cutting pensions for existing pensions. That's right Virginia-people already "Retired". Sleep tight union whores:

Nathan W. Armes for The Wall Street Journal

By JEANNETTE NEUMANN

A showdown is looming over whether commitments made to retirees by government pension funds can be scaled back in dire economic times.

Facing shortfalls, some public pension funds are responding by paring back payouts pledged to retired workers. Earlier this year, pension funds in Colorado and Minnesota curtailed annual cost-of-living increases.

"No matter how draconian you got on the new hires, you ran out of money" if you didn't cut benefits to current retirees, said Meredith Williams, chief executive of the Colorado Public Employees' Retirement Association, with $34.2 billion in assets.

Retired special education teacher Kathy Ratz is opposed to legislation to reduce the pension benefits to current retirees that was proposed by Brandon Shaffer, the Colorado Senate president.
PENSION
PENSION

In February, Colorado lawmakers passed a bill that reduced the pension system's cost-of-living adjustment from a fixed 3.5% a year to a maximum of 2%—but possibly less for current and future retirees. The new law also increased contributions from employees and employers. For example, retirees who were expecting a 3.5% increase in cost-of-living adjustments this year will receive no increase.

In response, Colorado and Minnesota have been hit by lawsuits filed by retirees, who claim the changes violate state law. Those retirees have "lived up to their end of the bargain, and the state is not living up to theirs," says Stephen Pincus, a Pittsburgh lawyer representing plaintiffs in both states.

The legal fight could decide whether financial commitments to retired public workers are sacrosanct, as many employees have long assumed.

While many retirees from the private sector have seen retirement benefits weakened in recent years, retirees at public pension funds largely have avoided such cuts.

But investment losses, reduced contributions and benefit boosts are making it far more costly for public pensions to live up to their obligations. To replenish assets, many pensions have reduced benefits to new hires and increased contributions by employees and employers, says Ron Snell, director of the state-Services division for the National Conference of State Legislatures.

Far fewer funds have taken the more-drastic approach of curtailing benefits to retired public-sector employees. The outcome of the Colorado and Minnesota lawsuits could embolden other pension funds to make their own cuts, though the legal landscape varies from state to state.

"The lessons of Minnesota and Colorado will be interesting, but they also won't be considered absolute guidance," says Keith Brainard, research director for the National Association of State Retirement Administrators.

The move to scale back cost-of-living increases in Colorado gained momentum last year following a study that estimated the Colorado Public Employees' Retirement Association would be out of money in around 30 years, assuming its investments generated a 7% annual return.

Colorado Gov. Bill Ritter, a Democrat, signed the bill into law without fanfare, says state Senate President Brandon Shaffer, also a Democrat. "We didn't celebrate this because we know that there is real pain associated with the changes we enacted through this legislation," Mr. Shaffer says.

According to a benefits booklet provided to Colorado retirees, the pension fund said it "will increase your benefit each year by 3.5% compounded annually."

Kathy Ratz, a 63-year-old retired special-education teacher who lives in Golden, Colo., says she was "totally blindsided" by the extent of the change. She gets a $54,000 annual pension and has $89,000 in savings with her husband, she said. He receives less than $1,000 a month in Social Security.

"I started out thinking I wanted to do my share to help, but I think this is way beyond helping," she says. "What we're going to do is sit down and put more into savings than we have."

Mr. Pincus's law firm has said in court documents that the new law could mean a loss of more than $165,000 in benefits over 20 years for a retiree who received an annual pension of $33,264 in 2009.

The retirees point to a 2004 opinion written by then-Attorney General Ken Salazar, now secretary of the Interior in the Obama administration, that a retired public-sector worker's pension "becomes a vested contractual obligation of the pension program that is not subject to unilateral change of any type" by the legislature.

Seeking to dismiss the case, the defendants, which include the Colorado pension fund, contend that "to claim that a cost-of-living adjustment can never be adjusted defies law and logic."

The defendants also highlight the exigencies of financial stress: "There can be no dispute that preserving the solvency of the Public Employees' Retirement Association is a legitimate governmental interest."

The Minnesota lawsuit came after the state legislature passed a bill in May that reduced retirement benefits from a 2.5% annual increase to between 1% and 2%, depending on the pension fund.

Mary Vanek, executive director of the Public Employees Retirement Association in Minnesota, which reduced the cost of living adjustment from 2.5% to 1%, said potential lawsuits were a concern considered amid the rollback. "We weren't letting that override our fiduciary concerns," she says.

Some experts say that if judges decide in favor of the retirees, public pension funds will have to find another potentially painful way to bridge the funding gap.

"If benefit promises can't be adjusted, then contributions are going to have to go up a heck of a lot," says Olivia Mitchell, director of the Pension Research Council at the Wharton School of Business in Philadelphia. "It's not likely anybody is going to win here."

Posted by: Tommy Cranston at February 25, 2011 8:22 AM

Rookie question but can they reduce the pensions of folks who are already retires? I'd love to see that too. What jerks me is I'm putting into a system that is going to collapse. I'd love to pull my money and no longer contribute.

Posted by: glockster at February 25, 2011 8:48 AM

I'm not so sure they should be able to cut the actual amount that retirees currently get. Eliminate or reduce COLAs, ok, but cut the amount they're already getting? That's a little tough. There was an agreement between the retirees and the pension system, to change them now when the retirees can do nothing about it is a little rough. It isn't their fault. Doesn't exactly sound very fair.

But glockster, you're a teacher right? You're in a union? Ask them to write that option into your next contract where you could opt out of the pension system and invest for yourself. See how well that goes over. But hey, the union knows what's best for its members, right?

Posted by: Patrick at February 25, 2011 9:15 AM

The unionistas should demand that the RI law prohibiting anyone from collecting a pension more than they made while working be inforced. Start taxing all the over-the-top disability pensions and stop the PENSION SPIKING by administrators. The 99K/year retires are going to kill the golden goose for every one of their brothers and sisters.

Posted by: dave at February 25, 2011 9:49 AM

I am told that there are some of Providence's "finest" and "bravest" who, if they live to 90 will get pensions of OVER half a million a year under the 6% compounded deal. Some are already at $200k.
Plus free health care and uniform allowance of course.

Posted by: Tommy Cranston at February 25, 2011 3:54 PM

michael,
Any thoughts on this?

Posted by: Mike Cappelli at February 25, 2011 5:46 PM

Dear teachers and other public sector union members:

Too many of you are undoubtedly looking at each other over drinks these days, and trying to make sense of what our Democratic General Treasurer is saying.

Let me help you out.

1. Your union leadership has, over the years, negotiated some of the nation's best pension and post retirement health care benefits for you.

2. Your union leadership has, over the years, agreed to have you contribute some of the nation's highest percentages of your pay (relative to public sector employees in other states) for these benefits. Given the relative generosity of these benefits, that makes sense. So far, so good.

3. At the same time, your union leadership has, over the years, progressively reduced the power of management in the organizations where you work. This has led to such well known phenomena as parental frustration when their child's good teacher is bumped out by a weaker teacher with more seniority, and the world class service that every Rhode Islander has come to expect at the Registry.

4. This has led to a growing perception over the years on the part of private sector voters and taxpayers (and not a few of your fellow union members) that they are not getting value for money in exchange for the high taxes they pay in RI.

5. These high taxes, as well as our relatively weak schools and anti-business regulatory and political climate have driven businesses from RI. In turn, this process has drastically reduced the number of private sector union employees in RI.

6. In the face of declining union numbers, for the past 20 years or so organized labor in RI has been in a pact with the devil, so to speak -- they have been forced to ally with the progressive wing of the local Democratic Party to retain their hold on the General Assembly.

7. And here is where we get to the crux of the problem. Had your union leadership been looking out for your best interests, they would have insisted that, in the years pension and post-retirement health care benefits were earned by you and accrued as liabilities, they should have been fully funded, not just through your high contributions, but through the State making adequate contributions to pension funds and funds that were not established to provide assets to offset the growing post-retirement health care liability.

8. And what prevented your union leadership from forcing the General Assembly to make these contributions? Their progressive allies had an ever expanding agenda to fund, whether that was RITE Care, expanded programs for immigrants, more special education mandates, or what have you.

9. Up to a point, their failure to look out for the rank and file's interest could be hidden through such devices as unrealistically high assumptions about future investment returns, retirement dates, mortality, and health care cost inflation. However, we have now passed that point, and everyone can now see the Emperor (your future benefits) has no clothes.

10. While we can all hope that the SEC investigation of possibly fraudulent disclosures made in conjunction with the issuance of RI public sector bonds will produce some indictments, I'm not holding my breath. So that leaves a pretty clear choice about what you can do to preserve your future pension benefits: (a) dramatically reduce spending on the progressive agenda, and spit the benefit between reduced taxes and increased pension contributions; (b) dramatically increase taxes, and hope that people don't move away resulting in less not more revenue being collected (but keep in mind there's no guarantee that the progressive agenda won't eat up most of the new tax revenue that comes in); (c) default on the state's bonds, and divert the principal and interest payments into the pension fund. That's it. Those are your choices. The Feds aren't going to bail out RI (or any other state), and there aren't enough state assets to sell to close the underfunding gap. That's why Gina is talking publicly about up to 50% hits for some of your benefits.

Oh, and one last thought: You might want to consider voting out of office the union leaders (and well paid union staffers) who got you into this mess.

Posted by: John at February 26, 2011 3:14 PM