Showing posts with label public sector benefits. Show all posts
Showing posts with label public sector benefits. Show all posts

Wednesday, January 12, 2011

Public Sector Pensions: True/False Quiz

Questions for anyone who supports public sector pensions.

1. True or false? It is ideal to make all California taxpayers personally liable for financial obligations of potentially trillions of dollars to 12% of state workers.

2. True or false? If a financial manager fails to produce 8% returns over the course of 15, 20, or 30 years, he is either incompetent or has mismanaged funds.

3. True or false? Despite the fact that CalPERs bought actual land and commodities like timber in addition to stocks, it still failed to diversify its holdings over the past ten years.

4. True or false? As fund assets increase, it is easier to produce 8% gains.

5. True or false? As fund assets reach the hundreds of billions, it becomes harder to produce consistent gains because it becomes harder to effectively invest in all types of investments.

6. True or false? Warren Buffett, Stanford University, and Chuck Reed are lying to us or are uninformed when they warn us that government pensions in their current form are unsustainable and we should switch to a two-tier pension system.

7. In your opinion, what percentage of mutual funds run by professional managers have weathered the 2008-2009 recession? What makes you believe CalPERs will be in the top group of professional money managers in the future, given their performance in 2008-2009? If Bernanke and Greenspan couldn't see the housing crisis coming, why do you think a CalPERs money manager will?

8. True or false? It is ideal to rely on professional managers--most of whom have proven themselves incompetent over the past ten years--to prevent California taxpayers from being personally liable for potentially trillions of dollars of benefits to just 12% of state workers.

9. Almost all of California's public pensions assume an 8% average annual growth rate. Somewhere, there is a mutual fund manager who can manage the state's pension money and promise 8% annual gains. Do you have your money with him or her? If so, can I have the person's contact information?

10. Have you invested at least 25K in non-401k assets over the past seven years? (The reason I ask is because you would have a better idea of how difficult it is to get 8% a year, even over the long run.)

Even the big funds chase performance and have to mix up asset allocations. That involves the potential for human error no matter what. At some point, public pension supporters are just arguing that 12% of state workers should be immune from investment mistakes while the other 88% cover their arse.

Also, note that I did not mention private unions in this thread. It is a separate discussion, b/c private corporations, unlike states, can more easily declare bankruptcy to shed themselves of any long term obligations. The issue in the corporate union realm is how to ensure proper funding of the PGGC while minimizing the cost to taxpayers and consumers.

Furthermore, the best argument against private sector unions is that they harm younger and newer workers by enacting artificial barriers to getting a job; therefore, one can argue that unions limit worker mobility and freedom, especially for younger workers and immigrants.

In addition, being pro-union (or socialist) usually means you favor restricting work for immigrants in favor of native-born citizens. This is because most union jobs go to citizens, not new immigrants. It's not inherently wrong to believe that citizens should get preference over immigrants for jobs, but it depends on what kind of society you want, i.e., a faster-growing, dynamic society--or a society that votes themselves benefits to a specific class of people at the expense of future growth. But again, that's a separate discussion, and this "quiz" was designed to apply only to public sector unions and benefits.

Tuesday, June 8, 2010

Mish on California's Government Unions

But Mish, tell us how you really feel:

Outrageously overpaid California public union parasites have every intention of sucking the last drop of blood out every taxpayer. Regardless of the cost to taxpayers, and even though their bloated benefit programs vastly exceed what the private sector gets, nothing will get in the union's way of protecting the overgenerous benefits they have, while still demanding more money from taxpayers, no matter what fiscal shape any of the cities are in because of those contracts.

More HERE. Mish is referring to police officers, firefighters, teachers, government lawyers, and anyone else who is part of a California government union that is refusing to accept wage cuts. The unions' refusal to be reasonable has caused layoffs of newer government workers, including teachers. It's sad, but tenured and retired teachers don't seem to care much about the next generation of educators, as long as their own gold-plated benefits are covered.

Here are three ideas: 1) every California government employee, including politicians, with more than seven years' tenure and making more than $65,000/yr should accept at least a 10% pay cut; 2) all new government employees should be eligible for 403b plans, not undefined pensions; and 3) all existing government employees eligible for pensions should increase their pension contributions by 5%.

Also, eliminate "3 Strikes and You're Out" for non-violent crimes and get rid of the death penalty, which costs over 200 million dollars a year to implement. (Do you want to spend 200 million dollars killing a murderer, or do you want to spend 200 million dollars on UCs, roads, community centers, etc.?)

Tuesday, February 23, 2010

To all the American Newborns: You Owe a Trillion Dollars, Thanks to Mommy and Daddy

Mish has done an excellent analysis on the trillion dollar public sector benefit problem. See HERE for more. It's horrifying and edifying at the same time. Sigh.

Wednesday, February 17, 2010

Amity Shlaes on Government Employment

From Bloomberg's Amity Shlaes (2/17/10):

From January 2000 to January 2010 -- first under President George W. Bush after Sept. 11, then under Barack Obama -- the number of non-postal employees in the federal government grew 15 percent, to 2.18 million from 1.89 million...[but] over the same period, private-sector employment decreased by 3 percent.

[When including local and state government employees] Federal data show that [over the last decade] the number of total government employees in the U.S. rose to 22.5 million from 20.6 million.

Jobs with Uncle Sam aren’t just more numerous than they used to be. They’re better. Wages and benefits for federal civilian workers were more than double the average total compensation in the private sector: $119,982 versus $59,909. In the treacherous period between December 2007 and mid-2009, the number of federal employees earning more than $100,000 doubled, rising to 66,500 or so.

See here for more. Personally, I'd love to be a federal government attorney. Right now, I regularly receive phone calls where the person calling has a good case based on the facts and the law, but his or her wage losses or damages are too low to file suit.

Many people don't realize that lawsuits are expensive. By the time you file a lawsuit, get the complaint served, file a few motions, and take a deposition, you're looking at about $2,000 in costs--none of which goes to the lawyer. Fast forward six months, and costs can increase to $6,000 easily. In one case I took to trial, the other side's costs exceeded $18,000.

If damages are low, I cannot ordinarily justify spending $5,000 of my own money for a potential $10,000 settlement--and so many hourly or part-time workers have cases where six months of severance would equal about $10,000. Sadly, it's not unreasonable to argue that poor people get run over twice--first, in their job environments, because poor people tend to take tougher or boring jobs, and second, in finding an attorney to negotiate a severance or to file suit.

In any case, if I worked for the federal government, I could, assuming the approval of my boss, assist anyone who had a good case. Why? The taxpayer would be footing the bill for my time, not the poor or middle class worker. Of course, I would hope the agency would keep costs as low as possible. One way to do that would be to reduce retiree benefits, such as pensions. If taxpayers are paying $80,000/yr to a retired cop or lawyer, that's $80,000 that's not being used to hire a new cop or lawyer. Plus, it's always been unclear to me why taxpayers should be paying money to someone who is not longer helping taxpayers.

These kinds of "golden parachutes" exist in the private sector, too. In fact, taxpayers could be liable for private pension obligations as well as government employees' pensions. As of 2008, the Pension Benefit Guaranty Corporation (PBGC) had a $10.8 billion deficit, estimated to rise to $26.3 billion in 2018; however, total underfunding of all private sector pension plans, on a termination basis, amounts to an astounding $225 billion. Clearly, we have a problem.

America's pension plans need reform. One simple reform would be to require that all new government workers have 401(k)s, not pensions. Such a move would immediately reform public sector pension plans and assist already stretched taxpayers, but it is highly unlikely. Public sector unions have so much clout, it seems they can force politicians to put government employees' interests ahead of taxpayers' interests. That's a shame, because Congress had no qualms about reforming private sector pension plans. According to CNN's Colin Barr, Congress has already enacted a law--the 2006 Pension Protection Act--to force corporations to fully fund their pensions by 2015. See here for more.

Despite the new law, cash-rich companies like Exxon Mobil Corporation (XOM) continue to have underfunded pensions. In Exxon's case, its pension is underfunded by about $6 billion. Shareholders should take notice--over the next five years, some companies may have to reduce their growth or take on more debt to fully fund their pensions.

More here, from Mark Scolforo. He points out that taxpayers are in the hole $1 trillion because of public sector retirement benefits, including pensions: "As of 2008, states had $2.4 trillion to meet $3.4 trillion in promised pension, health care and other post-retirement benefits."

Saturday, October 31, 2009

Government Waste

See here for stunning facts about public sector unions:

For every $1-an-hour pay increase, noted Dennis Cauchon in USA Today, public employees have gotten $1.17 in new benefits. Private workers have gotten just .58 cents in benefits for every $1 raise. This gap worries left-liberal labor economist Barry Bluestone. The price of state and local public services increased by 41 percent nationally between 2000 and 2008. Private services only increased by 27 percent. The benefit growth has continued unabated into the Great Recession, and Bluestone says the gap will inevitably produce a backlash.

Like banks, but with even less self-control, state governments make long-term promises in boom times while depending on the short-term flow of revenues. But when the boom ends, the benefits that have been ratcheted up have to be paid for out of a declining private sector economy. Barring a sharp recovery, state and local government tax-funded pension contributions in New York are likely to triple over the next five years in order to pay out the pension benefits guaranteed by the state constitution. (This is equally true in Illinois.) California’s public pension fund liability has already topped $200 billion, and in cities such as Oakland, Vallejo, and Rio Vista bankruptcy looms.

If you want to really scare people on Halloween, dress up as a retired teacher, police officer, county lawyer, or any other public employee eligible for a pension and lifetime medical benefits. (Actually, that's the problem--we're not yet scared of these people, even as California issues IOUs. Maybe we'll pay attention when the sales tax is 20% and the DMV charges $400 to register an old car.)

Monday, October 12, 2009

Government Workers Double-Dipping

The LA Times' Patrick McGreevy exposes public sector double-dipping here.

David Turner retired as a state fire chief in 2004, went back to work for the state firefighting agency two days later and is still employed there. He collected $65,229 in salary in the last fiscal year in addition to a state pension of $105,000.

Paul W. Anderson is a psychiatrist at Napa State Hospital who retired two years ago from the state Department of Mental Health. His pension is $117,840. He also received $104,200 in state wages in the last fiscal year.

"Public service" work now allows some people to earn almost a quarter of a million dollars a year. Astounding, isn't it?

Saturday, August 1, 2009

California's Pension Problem

The next time a California government worker starts talking about furlough days and pay cuts, remind them about their pensions and lifetime medical benefits. Or, just give them a link to this Judy Lin 7/31/09 article:

http://news.yahoo.com/s/ap/us_california_budget_pensions

California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...

Government workers and their union representatives often say the more generous pensions offset lower pay.

But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.

"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.

I predicted California's pension problem back in December 2007:

Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.

As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.

Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)

It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.

Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:

The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...

City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.

Monday, July 6, 2009

Taxpayers on the Hook for Public Pensions

From WSJ (July 6, 2009, Andrew Biggs):

http://online.wsj.com/article/SB124683573382697889.html

[E]conomists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.

Lord, what fools these mortals be.