PUBLIC PENSION WOES and THE IMPACT ON TAXPAYERS
WHO FINANCE THEM
As unemployment surges in the private sector among many
employees who work At-Will, the majority of public sector workers are locked
into lucrative wage
and pension contracts financed by taxpayers in their towns, state and at the
federal levels of government.
In Connecticut,
80% to 90% of local property taxes fund Town and Board of Education
expenses. In other states and towns
those cost could be more or less. The
following websites provide a glimpse of what is occurring in other parts of the
country.
If you have information you would like to share, please forward
it to fctopresident@aol.com.
http://PensionTsunami.com
http://www.hjta.org/
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Grafton
Willey IV: How to fix R.I. pension mess
May 27, 2011 Grafton Willey IV,
an accountant, is co-chairman of the Smaller Business Association of New
England-Rhode Island
Rhode Island
Treasurer Gina Raimondo has eloquently discussed the
problems of the underfunding of the Rhode Island pension system. She has
correctly identified this problem not as a problem but is THE Problem. The
Journal has written story after story documenting the problems with our system
and the fact that the current plans are unsustainable.
We are
coming to the brink of disaster. What Treasurer Raimondo
and the other leaders speaking out on this issue have hesitated to do is to lay
down the things that we need to do to fix it. Granted these are hard decisions
that are not going to be popular but they will be necessary to address if we are
going to bring the system into a sustainable range. Here are some of the things
that we need to consider in pension reform.
The first
thing that we need to do is to step back and determine what kind of a benefit
the state should be providing for its employees. What is fair to the employees
and what is fair to the taxpayers? This discussion has to focus on where we
should be in our benefits structure, not where we have been. I would offer the
following general principles and goals:
The
compensation and benefits offered to state employees should be competitive with
those benefits offered in the private sector. The argument of the past that
state employment offered lower compensation but better benefits is no longer
valid.
The offer of
a state job does not commit the state to a lifetime of employment for the
employee. Employees throughout their careers will move into multiple jobs and
will move from the public sector to the private sector and vice versa.
Therefore state benefits should have some portability similar to private-sector
benefits.
State
employees should have a personal responsibility to provide for some of their
retirement benefits similar to those in the private sector. Those that make the
decisions to personally contribute to their retirements will retire more
comfortably that those that do not.
The state
pension and benefit systems have to be fair to the taxpayers. They have to be
affordable and sustainable.
The
taxpayers and the state employees should share the investment risks of changing
markets. Under the present defined benefit plan the taxpayers are assuming all
of the investment risk.
All benefit
calculations should be based on conservative actuarially sound assumptions.
A code of
ethics should apply to the state benefits system.
With these
general principles and goals in mind, what changes should we be making to our
public-sector benefit plans? Past attempts at pension and benefit reform have
picked at the edges and attempted to tweak the system without causing major
disruption. The impact has been to kick the problem down the road for future
generations to deal with and avoid the political consequences of addressing the
problem head on. Real pension and benefit reforms should deal with the issues
in an honest and forthright manner and solve the problem.
Here are
some of the issues that we need to address in a real pension reform solution:
Change in
the Life Expectancy assumptions. The pension board has agreed recently to
change the life expectancy assumptions as recommended by the actuaries. People
are living longer and will be drawing their pensions longer. In order to have
an accurate liability number we should be dealing with a real life expectancy
number. This adjustment will increase the unfunded liability.
Change the
Investment Return Assumptions. For years the General Assembly ignored the actuaries’
recommendation on investment returns. They would set an unrealistic assumption
that we would realize an average return of 8.25 percent,which had the effect of underestimating the unfunded
liability and the impact on the current budget. Recently the Retirement Board
agreed to reduce the return assumption to 7.5 percent..
This level is still higher than the funds have realized and the assumption
should probably be reduced to maybe 6 percent to be conservative. This
adjustment will increase the unfunded liability.
Review Prior
Buy-in Arrangements. Over the years the General Assembly and the retirement
Board allowed buy-ins to increase pension benefits. Most of these adjustments
were not made on a sound actuarial basis. We should explore whether these
transactions were legal for the General Assembly to offer in the first place.
If they were illegal then the pension benefits should be recalculated. All
future buy-ins should be only allowed on a fully actuarially calculated basis
and should generally be discouraged.
Cost of living Adjustments. COLA’s are a
luxury usually not seen in the private sector. If offered they are actuarially
calculated and offered as a reduced benefit. The state COLA’s should be
eliminated. A COLA may be offered as part of a reduced benefit option similar
to what are offered in private sector annuity options. Article continues at …. http://www.projo.com/opinion/contributors/content/CT_willey_05-27-11_K8O8NLR_v4.70bf34.html
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PROPOSED
PENSION REFORM DOESN’T GO FAR ENOUGH
From Taxpayers United of America,
Chicago, Illinois
E-mail: ntui@NTUI.org
May 27, 2011 CHICAGO – The
recent pension reform bill being pushed in Springfield requires that government
employees pay more towards their lavish, gold-plated pensions, but it isn’t
asking them to pay enough. The legislation passed by the House Personnel and
Pensions Committee only proposes teacher pension contributions be raised as
high as 14.77%, with state employee contributions going from 4 to 9.29%. Taxpayers
United of America
(TUA) recommends a 19.4% contribution for teachers, alongside a 10-point
increase in contributions for all other employees in the state pension fund.
If TUA’s proposal were to go into effect, it would save
taxpayers $150 billion over 35 years, or roughly $4.3 billion per year.
Healthcare is not a benefit that is guaranteed. Government employees and
retirees should pay for half of their tax-subsidized healthcare premiums as
well. Currently, they pay nothing towards this.
“If state
employees were asked to pay for half of their healthcare premiums, taxpayers
would save $230 billion over 35 years, or roughly $6.6 billion per year,” notes
TUA President Jim Tobin. “When you combine this with our proposed pension
reform savings, taxpayers would be saving over $10.9 billion per year.”
The
Nonpartisan Tax Foundation reports that Illinois
was the thirteenth most taxed state in the nation before Springfield democrats' temporary 67% income
tax surcharge. Since the state’s constitution doesn’t allow pensions to be
reduced, increasing contributions is the best way for Illinois to get its finances under control.
This system isn't economically sustainable;
if we don't reform it, it will collapse. http://www.taxpayersunitedofamerica.org/wp-content/uploads/052711PensionReform.pdf
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Private Sector Workers in US
Forfeited $67 Billion Worth of Unused Vacation Time Last Year (Jessica Dickler / CNN Money) NEW YORK (CNNMoney)
– May 25, 2011 All work and no play may
as well be the American way. Not only do American workers get less vacation time than workers in other
industrialized countries, but they also opt to take fewer days off. The average
employed American worker got 18 vacation days last year, but only used 14 of
those desirable days off, according to a 2010 survey by Expedia.com. http://money.cnn.com/2011/05/25/pf/unused_vacation_days/index.htm
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Update: R.I. treasurer urges radical pension-benefit changes
... May 23, 2011 By Katherine Gregg Journal
State House Bureau PROVIDENCE, R.I. -- With the state buckling under the weight
of its "crushing'' pension obligations, state Treasurer Gina M. Raimondo is recommending radical changes, and making it
clear that she believes the rescue effort has to include longtime state workers
and public school teachers and retirees. Among the possibilities: a higher
retirement age, reduced benefits, suspension of the annual
cost-of-living-adjustments paid to more than 19,000 current retirees until the
state retirement system is 80 percent funded.
She also suggests automatic adjustments to benefits and
contributions whenever funding dips below acceptable levels; "anti-spiking
provisions'' to prevent big end-of-career boosts in pensions and the creation
of a new "hybrid'' retirement system that couples a much-reduced pension
plan with, perhaps, a 401k-style plan.
She has called her report: "Truth in Numbers: The Security and
Sustainability of Rhode Island's Retirement System.'' Read the full report here.The implications
for taxpayers are enormous. .. Her warnings have been dire: "Threats to
vital public services ... Unsustainable annual costs for taxpayers ... Pension
fund could run out of money." Read complete article at ….
http://newsblog.projo.com/2011/05/raimondo-urges-leaders-unions.html
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MEREDITH WHITNEY: ‘Taxpayers will be surprised … by How
Much State
Pensions Are Underfunded (op-ed - Meredith Whitney / Wall Street
Journal) May 24, 2011
Next month will
be pivotal for most states, as it marks the fiscal year end and is when
balanced budgets are due. The states have racked up over $1.8 trillion in
taxpayer-supported obligations in large part by underfunding
their pension and other post-employment benefits. Yet over the past three
years, there still has been a cumulative excess of $400 billion in state budget
shortfalls. States have already been forced to raise taxes and cut programs to
bridge those gaps.
Next month
will also mark the end of the American Recovery and Reinvestment Act’s $480
billion in federal stimulus, which has subsidized states through the economic
downturn. States have grown more dependent on federal subsidies, relying on
them for almost 30% of their budgets.
The
condition of state finances threatens the economic recovery. States
employ over 19 million Americans, or 15% of the U.S. work force, and state
spending accounts for 12% of U.S.
gross domestic product. The process of reining in state finances will be
painful for us all.
The rapid
deterioration of state finances must be addressed immediately. Some dismiss
these concerns, because they believe states will be able to grow their way out
of these challenges. The reality is that while state revenues have improved,
they have done so in part from tax hikes. However, state tax revenues still
remain at roughly 2006 levels.
Expenses are
near the highest they have ever been due to built-in annual cost escalators
that have no correlation to revenue growth (or decline, as has been the case
recently). Even as states have made deep cuts in some social programs, their
fixed expenses of debt service and the actuarially recommended minimum pension
and other retirement payments have skyrocketed. While over the past 10 years
state and local government spending has grown by 65%, tax receipts have grown
only by 32%.
Off balance
sheet debt is the legal obligation of the state to its current and past
employees in the form of pension and other retirement benefits. Today, off
balance sheet debt totals over $1.3 trillion, as measured by current accounting
standards, and it accounts for almost 75% of taxpayer-supported state debt
obligations. Only recently have states been under pressure to disclose more
information about these liabilities, because it is clear that their debt
burdens are grossly understated.
Since
January, some of my colleagues focused exclusively on finding the most
up-to-date information on ballooning tax-supported state obligations. This
meant going to each state and local government’s website for current data,
which we found was truly opaque and without uniform standards.
What concerned us the most was the
fact that fixed debt-service costs are increasingly crowding out state monies
for essential services. For example, New
Jersey’s ratio of total tax-supported state
obligations to gross state product is over 30%, and the fixed costs to service
those obligations eat up 16% of the total budget. Even these numbers are
skewed, because they represent only the bare minimum paid into funding pension
and retirement plans. We calculate that if New Jersey were to pay the actuarially
recommended contribution, fixed costs would absorb 37% of the budget. New Jersey is not alone.
The real issue here is the enormous over-leveraging of taxpayer-supported
obligations at a time when taxpayers are already paying more and receiving
less. In the states most affected by skyrocketing debt and fiscal imbalances,
social services continue to be cut the most. Taxpayers have the ultimate voting
right—with their feet. Corporations are relocating, or at a minimum moving
large portions of their businesses to more tax-friendly states.
Boeing is in the political cross-hairs as it is trying to set up a
facility in the more business-friendly state of South
Carolina, away from its current hub of Washington. California
legislators recently went to Texas
to learn best practices as a result of a rising tide of businesses that are
building operations outside of their state. Over time, individuals will migrate
to more tax-friendly states as well, and job seekers will follow corporations.
Fortunately, many governors are addressing their state’s structural
deficits head on. Unfortunately, there is a lack of collective appreciation for
how painful this process will be. Defaults in a variety of forms by states and
municipalities are already happening and more are inevitable. Taxpayers have
borne the initial brunt of these defaults by paying higher taxes in exchange
for lower social services. And state and local government employees are having to renegotiate labor contracts that they once
believed were sacrosanct.
Municipal bond holders will experience their own form of contract
renegotiation in the form of debt restructurings at the local level. These are
just the facts. The sooner we accept them, the sooner we can get state finances
back on track, and a real U.S.
economic recovery underway.
Ms. Whitney is CEO of Meredith Whitney Advisory Group LLC.
http://investmentwatchblog.com/meredith-whitney-taxpayers-will-be-surprised-by-how-much-pensions-are-underfunded/
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Teachers union seeks changes
to property tax cap plan Updated: May 26, 2011,
6:51 AM ALBANY— Gov. Andrew M. Cuomo
said Wednesday he believes a property tax cap plan with the Senate and Assembly
is a done deal, but the head of the state’s big teachers’ union believes there
is enough time to weaken the plan. “Until
a bill is passed, we will certainly be striving to get changes that make it
more palatable,” said Richard Iannuzzi, president of New York State United Teachers.
The union leader is sharply critical of a property tax bill released Tuesday by
Assembly Democrats, who have long been NYSUT’s
political allies at the Capitol. The
Assembly version is close to a property tax cap plan already approved by the
GOP-led Senate, though Senate Republicans said Tuesday there is still some more
work to be done on the issue before a final, same-as bill passes both houses
before the end of the session next month. Complete article at http://www.buffalonews.com/city/politics/article434427.ece
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New Jersey State Workers Demonstrate Against Gov. Christie's
Proposed Benefit, Pension Cuts to Public Employees (Ginger Gibson /
Star-Ledger) May 23, 2011 Christie
has proposed making state employees pay 30 percent of the cost of a health care
premiums, a change that would be achieved through legislation. Currently, state
workers pay 1.5 percent of their salary toward health benefits.
http://www.nj.com/news/index.ssf/2011/05/trenton_workers_wear_arm_bands.html
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San Francisco City Hall's Progress on Pension Reform
(editorial - San Francisco Chronicle)
Mayor Ed Lee has fulfilled his promise to bring labor,
business and elected leaders together to produce a significant pension-reform
plan for San Francisco
voters to consider in November.
The proposal rolled out Tuesday will not cure the city's
daunting long-term obligations for pensions and retiree health care. But the
plan, if advanced by the Board of Supervisors and approved by voters, would
represent a decent down payment against retirement benefits that have become a
serious strain on the city's general fund.
The plan is expected to save the general fund up to $1
billion over the next decade by requiring employees to contribute up to 6
percent of their salaries to the pension fund in years in which the city's
contribution increases.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/05/25/EDLU1JKDJV.DTL
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Auditor Questions Compton, California's Solvency (Abby Sewell
/ Los Angeles Times)
By Abby Sewell, Los
Angeles Times
May 26, 2011 http://www.latimes.com/news/local/la-me-0526-compton-layoffs-20110526,0,5552191.story?track=rss
An independent auditing firm has concluded that Compton's budget crisis
is so dire that it's an open question whether the city can remain solvent.
The auditor's report was made public as the Compton City
Council struggles to deal with a fiscal crisis, voting this week to lay off
employees. Though city officials did not say how many layoffs would occur,
union representatives said they had heard estimates of between 97 and 120. The
city budgeted for 575 employees in the current year.
In a strongly worded report accompanying the city's newly
released financial statements from last year, the auditing firm said there was
"substantial doubt about the city's ability to continue as a going concern"
because of the swelling deficit.
The city's surplus, which three years ago totaled $11.8 million, has been
drained. And the city faces a total general fund deficit of $25 million — $9
million of that accrued in the current fiscal year — with no reserves.
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Kansas Governor Signs Bill Addressing State's $7.7 Billion
Pension Fund Shortfall (John Hanna / Forbes) By JOHN HANNA , 05.25.11, 06:54 PM
EDT TOPEKA, Kan. -- Gov. Sam Brownback signed legislation Wednesday to bolster
the long-term health of Kansas' public pension system, but he also said he's
hoping a study commission set up by the new law hashes out the details of
moving the state toward a 401(k)-style plan for new teachers and government
workers.
The new law will inject more taxpayer dollars into the Kansas Public Employees
Retirement System to help close a projected $7.7 billion shortfall between its
anticipated revenues and the benefits promised to public employees through
2033. Workers also will be forced to make concessions. A new, 13-member
commission will study other issues, including whether the state should start a
401(k)-style plan for new public employees. Such a plan would tie a worker's
benefits to investment earnings; the state's traditional plans guarantee
benefits up front, based on an employee's salary and service time. http://www.forbes.com/feeds/ap/2011/05/25/general-ks-pension-woes_8485332.html
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Atlanta, Georgia Mayor
Modifies Pension Plan, Calls for Council to Step Up to the Plate (Ernie Suggs / Atlanta Journal-Constitution) Atlanta News 6:21 p.m. Wednesday, May 25, 2011 By
Ernie Suggs The Atlanta Journal-Constitution In his
most direct and blistering appeal yet, Atlanta Mayor Kasim
Reed warned the City Council that if it did not agree on changes to the city's
pension system immediately, it would have to answer to angry voters when
services are cut and city workers are laid off. A clearly agitated Reed said he
has grown tired of waiting on the council to make a decision on the measures he
has proposed to reduce the city's $1.5 billion unfunded pension liability. He
is also frustrated that the council is considering pushing a decision on
changes back to Sept. 30. He prefers a June 30 deadline, which would
coincide with passing the city budgetSince his
election, Reed has worked on overhauling the pension system, which consumes
about 20 percent of the city's budget. On Wednesday, Reed offered a plan that
was a bit different than the options he had been promoting.
The modified plan would freeze the city’s current defined
benefit plans and offer a 6 percent benefit defined contribution plan to
employees moving forward. All employees currently in a defined benefit plan
would receive a 125 percent match, as would all future sworn Atlanta Police
Department and Atlanta Fire Rescue Department employees. http://www.ajc.com/news/atlanta/reed-modifies-pension-plan-957494.html
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Long Island School Official Gets $225,000 Salary While on
$316,245 ... Pension Bloomberg, May
18, 2011 James Hunderfund, who earns at least
$225,000 a year as a school superintendent on Long
Island, is also entitled to a $316,245 annual pension from a
previous administrative post, according to a compilation of pension data by the Empire Center for New York State Policy.
http://www.bloomberg.com/news/2011-05-18/long-island-school-official-gets-225-000-salary-while-on-316-245-pension.html
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NY comptroller seeks crackdown on pension abusers May 18, 2011 · ...
Wall St Journal New York state Comptroller Thomas DiNapoli (duh-NAP'-oh-lee) is proposing a law that would
use computer databases to crack down on abusers of public pensions. DiNapoli wants the legal power to use tax records to
compare to pension records that would show when a pensioner is collecting
full-time pay while he or she is collecting full-time pension benefits. Most
retirees under 65 years old can legally collect $30,000 in wages without
triggering a reduction in their pension benefit. The measure introduced to the
Legislature would allow the state to find so-called double dippers and save
money for state and local governments and school districts. http://online.wsj.com/article/APaf012b9c16d64f9080acf0cc409e4267.html
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Pennsylvania State Auditor
Says Pittsburgh's Public Pension Woes Are 'Severe' (Bill Vidonic / Pittsburgh Tribune-Review) By Bill Vidonic
PITTSBURGH TRIBUNE-REVIEW Wednesday, May 25, 2011 The state auditor general called Pittsburgh's
pension plans "severely underfunded" on
Tuesday, although he left open the possibility the city has committed enough
money in parking taxes to stave off a state takeover. "At 34 percent
funded, it is one of the worst, if not the worst, large municipal pension plans
in the state," said Jack Wagner, urging the city to boost contributions to
the system to protect beneficiaries, taxpayers and the city's bond rating. "Something
needs to happen, and it needs to happen soon." The most recent numbers
released by the city last week showed the pension plans, which cover 7,000
current and retired employees, had $334 million in assets and $1 billion in
liabilities. "He's not telling us something we don't already know,"
City Controller Michael Lamb said. In an audit Wagner released yesterday, he
said the pension system from 2007-09 showed only minor problems, including the
fact that city ordinances governing benefits for many city workers didn't match
collective bargaining agreements. The city must reach 50 percent of $1 billion
in obligations to avoid a state takeover. Whether it does
will be decided by the state's Public Employee Retirement Commission in the
fall. Continued at… http://www.pittsburghlive.com/x/pittsburghtrib/news/s_738660.html
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Salinas, California Public Hospital
Official Got Nearly $1 Million Severance on Top of $4 Million Retirement Payout
(Sam Allen / Los Angeles
Times)
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California Brea quietly cuts pensions - Home - The Orange County Register
May 18, 2011|By FRANK MICKADEIT Tuesday night, I wanted to
go to ground zero of the public pension-reform movement. The Costa Mesa City Council was meeting. Sure to
be bombast and rancor there. But I drove right past the Costa Mesa City Hall
exit on the 55 and pointed my car toward a destination 20 miles north. At Brea City Hall,
with no fracas, fanfare or public comment of any kind – maybe 15 people in
attendance – the Brea City Council voted 5-0 to enact the lowest police and
fire pensions in Orange
County. While Costa Mesa City Council has been acting like a fullback
running into a seven-man defensive line, the Brea City
Council was doing the old hidden-ball trick and skipping unnoticed and
untouched into the end zone. Brea will go from offering new fire and police
hires a pension of 3 percent of their annual high salary multiplied by the
number of years worked at a minimum age of 50 (a so-called "3 at 50"
plan) to giving them 2 percent at age 50. Simply: current public-safety
employees who make $100,000 a year can retire after 30 years with a
$90,000-a-year pension. Under the new plan, such a retiree would get $60,000 a
year. Read complete article at ….
http://articles.ocregister.com/2011-05-18/news/29562135_1_pension-levels-pension-costs-marty-simonoff
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Wagner:
Pittsburgh
pension system woes 'severe'
By Bill Vidonic
PITTSBURGH TRIBUNE-REVIEW
Wednesday,
May 25, 2011
The state auditor general called Pittsburgh's pension plans
"severely underfunded" on Tuesday, although he left open the possibility the city has
committed enough money in parking taxes to stave off a state takeover.
"At 34 percent funded, it is one of the
worst, if not the worst, large municipal pension plans in the state," said
Jack Wagner, urging the city to boost contributions to the system to protect
beneficiaries, taxpayers and the city's bond rating.
"Something needs to happen, and it needs
to happen soon."
The most recent numbers released by the city
last week showed the pension plans, which cover 7,000 current and retired
employees, had $334 million in assets and $1 billion in liabilities.
"He's not telling us something we don't
already know," City Controller Michael Lamb said. http://www.pittsburghlive.com/x/pittsburghtrib/news/s_738660.html
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