The Dangers of Pension Credulity

In his post, Justin correctly points out that

First, Rhode Island’s pension reform is simply not sufficient to solve the problem

Many observers have marvelled at the scope of the reforms to the state pension system that just passed. The problem, the context that they miss is that the extent of the reforms are eclipsed by the size of the problem. Rhode Island had an unfunded pension liability that was one of, if not the, worst in the country. (By the way, does anyone know where we stand in that regard as of Year One of pension reform? At 60% funded, have we even changed our ranking?)
Yet the solution falls well short of the problem, addressing as it does only 44% of the unfunded liability and taking many years to get to 80% funded (if it ever does).
Where I might differ with Justin is on the matter of premeditation.

What we’ve seen in Rhode Island wasn’t the objective process of lawmaking as it should work; it was the variation of political theater performed when the powerful backers are ultimately getting what they want.

Was the passage of this bill pre-staged “political theater”? Or the actions of pro-labor legislators truly believing that they were doing something noble? I dunno.
Motive doesn’t matter, however, to the larger, more dangerous point that he makes.

the payoff, for entrenched powers, will ultimately be greater than the surface sacrifices.

The optimist in me wants to change that to “potential payoff” so as to not assume the worst. There is no question, however, that a raft of hideous legislation could well – in fact, could more easily be passed while the trumpets, pomp and huzzahs of pension reform are still echoing loudly. Even if it is an after-thought and not pre-meditated, even if it is viewed as paying labor back for their “sacrifice”, that will not change the damage that such legislation will do INCLUDING, genuine reformers should note, cancelling out what good was wrought by the pension reform bill.
To take two examples purely at random – I have to don a hazmat suit just to discuss them – if binding arbitration or non-expiring contracts are extended to teachers and other public workers, pension reform will be rendered meaningless. It is pointless to (partially) address one exhorbitant recurring expense only to sign up for an entirely new one that eats up the savings realized by the mitigation of the first.

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Justin Katz
10 years ago

It seems like everybody wants to differ with Justin, today! ;o) Look, there’s premeditation and then there’s premeditation. I do not believe union leaders and the Democrats are smart enough to have masterminded this like a series of chess maneuvers from the beginning. I think they’re good enough at the game to throw their chips on the board as they watch the wheel spin, and I think they knew that pension reform was coming one way or another, and they made the most of it. Younger members of the unions are actually inclined to WANT a hybrid, because like everybody my age and younger, they can’t envision themselves staying in one job forever (and they can’t envision staying in Rhode Island as it collapses). So, the unions and their Democrat friends come up with a hybrid that costs more than the defined benefit program did and puts a firewall between employee contributions and any future adjustments to the pension system. All of the other reforms are necessary to make it look like something is being done, so the unions and Democrats throw dictatorial powers to the Retirement Board to ensure that all future adjustments tilt in their favor. And so on. The real shame resulted from the center-right reformers, who ripped off their shirts and started jiggling around at the mention of anything that resembled an actual reform. Thank them more than anyone for the audacity of the privatization tax. What center-right reformer was going to turn away from pension reform when that appeared? Given their prior enthusiasm: none. It’s only a slight exaggeration to suggest that the GA could have thrown binding arbitration in at the last minute and gotten away with it. So, political theater is more of an improv gig than a pre-written script. Oh, and another… Read more »

Rich
Rich
10 years ago

Thats the problem with conservatives, you guys are never satisifed unless everyone in COMPLETELY screwed.
How about this to solve the rest of the burdern:
We purge the hundreds of social service and entitlement programs that this state spends 3.4 BILLION a year on of the thousands of people who defraud them. Clear the rolls of those defrauding SSI/SSDI, RItecare, unemployment, snap and wic, heating assistance and section 8. Even if we saved a measly 10%, thatd be 340 million a year in savings (a nearly 100 million more than was saved with the pension reform. We could use that 340 million to paydown the unfunded liabilty, and provide some tax relief to the income generators of this state.

Rich
Rich
10 years ago

So what Justin, never give anyone a raise because it would increase the unfunded liability? I think what you are forgetting is that when a worker recieves a raise, his weekly pension contribution is raised as well. Furthermore, these things are accounted for within the actuaries that determine the liability in the first place, no?

Bucket Chick
Bucket Chick
10 years ago

I know a couple of younger workers who would love to opt out of the pension system altogether, but they aren’t allowed to. It’s got to be pretty frustrating to be forced to participate in something that you have so little control over and that is constantly being tinkered with by politicians.

Justin Katz
10 years ago

Rich,
The actuaries figure an overall salary increase of 4% into the mix (higher for younger employees who haven’t hit top step). That’s all figured in.
My point, above, is that a change like binding arbitration will have the effect of increasing that amount, which will increase the pensions of retirees.

Dan
Dan
10 years ago

I like the chess analogy. Binding arbitration is the checkmate that the unions are seeking to end the game once and for all. If you don’t believe that, simply observe how they are willing to sacrifice all of their other pieces as soon as it comes on the legislative agenda.
But remember, Tom Sgouros says it will save the taxpayers money.

Patrick
Patrick
10 years ago

“It’s got to be pretty frustrating to be forced to participate in something that you have so little control over and that is constantly being tinkered with by politicians.”
Kinda like social security?

Dan
Dan
10 years ago

Opt-outs are always nice from a liberty/economics perspective. I’d be so much better off today if I had back all the money I’ve wasted on mandatory car insurance, fire/EMT protection, social security I’ll probably never see, a million man standing army, public education for everyone else’s kids, and hundreds of other services I’ll never use or could obtain privately at a much lower cost. I’m certain that it ranges in the hundreds of thousands of dollars range and I’m not even 30 yet. Millions over my lifetime. It’s painful to think about so I try not to.

Max D.
Max D.
10 years ago

That’s the problem with conservatives, you guys are never satisifed(sic) unless everyone in COMPLETELY screwed.
That’s the trouble with leftist spinmeisters, you loose all credibility when you open a comment with ignorant rhetoric.

seirra1
seirra1
10 years ago

“We purge the hundreds of social service and entitlement programs that this state spends 3.4 BILLION a year on of the thousands of people who defraud them.”
We had a young woman in the station last week. She wanted to report the theft of her 9 year old sons check. Playing along, I asked “what check?” Her answer, “his check.”
“What do you mean his check?”
“His check because he has ADHD.”
“He gets a check because he has ADHD.”
“well he has asmtha too”
“Don’t you have a RITECare card for free medical?”
“Yeah but he gets a check”
“Why, does he wear more clothes or eat more food than the average 9 year old because he has ADHD and asthma.”
“No, but he’s a handful.”
So, while you guys figure out how you can pick my retirement clean this little darling gets $500 extra a month because he has ADHD and asthma. This is on top of the free housing, heating, food stamps, school breakfast, school lunch, etc that I’m already paying for.
I think if the average RI’er knew how their “social service” dollars were being spent they’d have a stroke.
Anyways, hope you all have a nice Thanksgiving with friends and family. I have to work yet another holiday so it’ll be re-heated leftovers for me. But hey at least I still have my pension. Oh wait…

Dan
Dan
10 years ago

“I think if the average RI’er knew how their “social service” dollars were being spent they’d have a stroke.”
The woman you described IS the average Rhode Islander. That’s why it’s a dying state with no future.
Don’t misunderstand – the woman and what she represents is far more offensive than your public pension is. The difference is that your pension has a chance of being fixed this year.

seirra1
seirra1
10 years ago

“The difference is that your pension has a chance of being fixed this year.”
Dan, I think you and I would differ on the definition of the word “fixed.”

Dan
Dan
10 years ago

Brought further in line with economic realities.

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