Barron's Trashing Public Employees

[my2sense]

for receiving retirement benefits. This is complete and utter nonsense.

"The $2 Trillion Hole"

Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.

Then, too, pension funds are being hit by baby-boomer retirements. A report from the National Association of State Retirement Administrators underlines this impact: It found that in 2008, for every state retiree collecting benefits, only 2.02 current workers were contributing to pension systems, compared with 2.45 in 2001.

Besides the politicians, the primary culprits are the public-employee unions, which have used their growing power to dramatically enhance pension benefits. They curry favor with sympathetic politicians, lavishing them with large donations and manning campaign phone banks. They also engage in full-court-press lobbying at all levels of state and local government.

One would think legislators or managers in state, county and local governments would protect the taxpayer by bargaining hard. But they clearly don't, because of inherent conflicts of interest.

Nearly all public employers, regardless of their position, benefit from the very same pension programs, either directly or indirectly. Legislators in the main receive the same pension benefits that they lavish on other public employees. And administrators, though subject to independently negotiated contracts, use enriched union pension plans as a valuable bargaining wedge. So there's little incentive to fight the unions with much vigor.

In fact, bad behavior abounds on both sides of the table when it comes to pensions. Plunder!, a recently published book by California journalist Steven Greenhut, details a number of ploys that both workers and management employ to goose their retirement checks. A favorite, he asserts, is income spiking. In the year before they retire, California police, firefighters and prison guards typically start notching hours and hours of overtime that has been reserved for them by less senior colleagues. Whatever they make in that final year is used in the formula that determines the monthly retirement check. Golden State, indeed.

OTHER ABUSES DETAILED in the book include widespread "double-dipping." Public employees can start collecting their full pensions while returning to their old job as consultants. Alternatively, they can take another public-sector job to earn credit toward yet another pension.

Stories are rife around the country of various pension hijinks by public employees. A Contra Costa Times article bemoaned the artistry of a retired local fire chief in San Ramon, Calif., who boosted his annual pension from $221,000 a year to $284,000 by getting credit in his final earnings for unused vacation and sick leave.

In Illinois, veteran police with more than 12 years of service receive annual longevity pay boosts of 4% to 5% in addition to other salary increases. In some local departments, these boosts are all awarded as a 20% bump-up in the first couple months of the year, rather than prorated evenly throughout the year. This, of course, helps police in those jurisdictions get a 20% jump in their presumed compensation -- and, therefore, their pensions -- if they time their retirement date properly.

VALLEJO, CALIF., HAD NO CHOICE but to file a Chapter 9 bankruptcy in 2008 after property-tax revenue collapsed in the housing bust and a major employer -- the U.S. government's Mare Island Ship- yard -- closed. With the tax base hammered, rich public-employee contracts granted in better times were devouring more than 90% of the city's budget.

Though Vallejo is still months away from getting a court decision on whether it can go ahead with its debt-adjustment plan, it has succeeded through contract renegotiations and major layoffs in cutting its employee costs by nearly a quarter.

But the fallout has been brutal. Employee health-care benefits have been decimated. Holders of the city's municipal bonds are unlikely to get all their money back. And violent crime rates have shot up dramatically as a result of reductions in its police force from 158 to 104 officers.

The only thing that will be left untouched? The very thing that tipped the California city into Chapter 9 -- its $84 billion in future pension obligations.

Read the entire article here: http://online.barrons.com/article/SB126843815871861303.html#articleTabs_panel_article%3D3%26articleTabs%3Darticle

[tularetom]

1. As a retired public employee, I can say there is a lot of truth in that article

I was a department head in a local government agency, and I retired in 2001. After 9 years of retirement, I'm making 60% of what I made in my final year of employment, because my employer stood up to the unions and refused to go along with the wild ideas that crept into the system during the dot com years. But many government agencies didn't have the guts to do this. Do I envy the folks who were able to cut a sweet deal for themselves? Of course but I'm also a taxpayer and I resent having to pay for it at the cost of good police protection and decent roads.

There are many stories of employees making more in their first year of retirement than they made in their last year of employment. And that is asinine. Nobody else in our society (except slimy corporate CEO's) gets a deal like that.

And guess what? Since the system now allows employees to retire at age 50 with 90% of their salary, we're going to be paying these inflated pensions for at least the next 30 to 40 years. It's a contract that can't be broken, and an obligation that outranks police and fire protection.

You can look for a lot more local government bankruptcies in CA over the next few years if somebody doesn't get this situation under control.

It's a scandal that transcends political affiliation.

[my2sense]

2. As a retired public employee - I call BS

It is not the fault of the public employees that funds were mismanaged. Public employees (at least not here) do not control retirement packages or have any negotiating power. Also, no retired employee I know is "living like a fat cat" like the greedy bastards of wall street. Public employees chose to work for lower wages with better benefits down the road, whereas private employees chose another path.

I think it is despicable to consider hard working men and women (firefighters, EMT's, Trashmen, Police) the reason for this economic mess.

[ProgressiveProfessor]

4. Actually its not yet a mess, but it will be in the next decade

Vallejo is just the beginning

[tularetom]

5. Except they no longer work for lower wages

A sheriff's deputy in our little two bit county can make $100k per year with overtime. The median family income here is something in the low $40,000 area. Even the entry level clerical employees make over $30,000 per year - right out of high school. Show me private sector jobs that pay like that.

And I don't think I blamed public employees for "this economic mess". Of course their unions are gonna ask for everything they can get. That's their job. I blame the politicians who didn't have the spine to stand up to them.

I started in public service for the same reason you did - sacrificing the higher pay for the benefits and job stability. However, when I retired at age 58 I was a political appointee and I had to negotiate my own salary every year with my bosses. I felt I was entitled to more because at my level there was no civil service protection, but I was aware of budget limitations so I didn't play it as hard nosed as I would have otherwise. Also I had income from several other ventures.

Our elected officials have given away the store and the taxpayers are pissed. When the cold hard truth hits, they're gonna be boiling.

Again, I'm not blaming any public employees (well, except maybe the administrators who cut a fat hog for themselves) for this sorry state of affairs. But the fact is it's a mess and somebody is going to have to clean it up.

[my2sense]

9. Why the Populist Anger Towards Public Employees (by Barrons- Wall Street)?

These are the same ungrateful asswipes that relied on brave firefighters that willfully risked their lives for on 9/11/. It's mind boggling to me that after Enron, AIG, etc........those in the financial world would demonize public servants for receiving a pension after working for decades for lower salaries.

While I realize we may not be able to continue down this path, let's not get confused as to who the real villain is.

[tularetom]

11. I'm not a populist and I'm not angry at anybody

but I'm a realist and I can do math, and it doesn't take Einstein to see that, when a county has to sell bonds (borrow money) to meet its pension obligations (an operating expense), all is not right with the world.

And blaming Wall Street for the mess does nothing to solve the problem. Public employees are people like anyone else. I've known thousands of them over the years and there are good ones and bad ones. In general, cops firemen and teachers did not create the problem, but a lot of higher ups have figured out ways to game the system and take out a lot more money than they were entitled to.

Hey, I can't do anything about fraud waste and corruption at Goldman Sachs, AIG or Lehman Bros., and I can't do very much about it at the Federal Government level either, but when my county starts adopting policies that are going to lead to bankruptcy, you can bet your ass I'm gonna scream.

[ProgressiveProfessor]

3. Look at the airline pilots...they had good retirements too

Defined benefit pensions are clearly the problem here. They are an under funded open ended future liability A defined contribution approach is clearly less risk. Feds bailed on defined benefit when they went from CSRS to FERS (yes there is a little defined benefit in FERS, but not much). Many corporations followed. The Feds have survived a two tier approach, have to wonder why state and local governments employees can not.

Given today's job environment, I consider defined contribution better for workers since fewer and fewer workers are staying anywhere long enough to get a decent pension under defined benefit. The price for that will be paid by workers who work for a single employer for the long term. I say that as some one who currently receives two defined benefit pensions payments...

[tularetom]

7. Many local governments have adopted a two tier system

Because they are finally able to see the writing on the wall. A defined benefit plan is somewhat like a pyramid scheme in that it is dependent on an ever increasing base of donors (active employees) to pay the retirement costs of an ever increasing population of retirees. Current employees foot the bill for the retirement benefits of past employees. If an employer is forced to cut back on staffing because of a bad economy, fewer bucks are going into the pot to pay for current retirees.

Several governments in our area are now talking about a three tier system because, given todays demographics (people are retiring earlier and living longer) they can see that even the second tier will be unsustainable. The third tier, as I understand it, is simply a defined contribution plan that allows employees to buy into a program with pre tax dollars (like a 401k).

There is an excellent book on this subject, "While America Aged" by Roger Loewenstein. In it he devotes a third of the book to the City of San Diego retirement clusterfuck which very nearly bankrupted the nations 9th or 10th largest city. I'm familiar with this because I had a relative working for the city at the time the crap was hitting the fan.

Unfunded pension liabilities are like a guillotine over the head of every government agency. It's pretty scary whe you sit down and think about it.

[my2sense]

10. Yes, this is frightening on so many levels

Thanks for the recommendation! We are truly in a very bad place.

[SharonAnn]

15. Ask the question, "Why were they underfunded?" Because new legislation allowed that.

Over the years, legislation has permitted lower and lower funding of futre pension obligations. That way, the organization could keep more of its money and do other things with it rather than pay for its obligations to the workers.

It's true both in government and in public as well as private corporations and organizations.

[rpannier]

13. Maybe California should consider repealing Prop 13

It's scandalous that it covers businesses and it robs the state of billions of dollars in taxes

How about raising the taxes on people making 350,000 a year or more

Once you've done those things along those lines then Barrons and the rest of their hating ilk can come back and whine at me about Public Pensions

[ProgressiveProfessor]

16. The real issue is Prop 4, not Prop 13, which limits total CA gov expenditures at all levels

[woodguy]

6. None of this should be a problem

But years of importing and displacing the private sector jobs, their unions, and high pay combined with weak taxation on the same people who engineered the job flight and profited insanely from it has caused receipts to dwindle. It's outrageous these commitments are even talked about default when the money is out there. It lies with the top .01% and everyone is too scared to talk about getting it.

[LiberalFighter]

8. Not the public employees fault!

It is local and state governments fault as well as the greedy son of a bitches in the financial industry.

[my2sense]

12. Pubic workers had nothing to do with this.

They were simply playing by the rules. While I realize the current pension plans may need to be modified, the entire slant of this article is misleading.

[LiberalFighter]

14. My statement didn't imply that government employees were at fault.