Public Sector Pensions: Too Big To Fail?

[Modern School]

Public sector pensions have become a popular bogey man. It is true that most have huge unfunded liabilities and this is a problem. However, the blame is always placed on the workers themselves who have nothing at all to do with the problem. The pensions are in trouble primarily because the financial crisis caused their investments to lose up to half their value. (The same problem has occurred with the values of our homes and private retirement plans, too). They are also in trouble, in part, because of risky and stupid investments by their managers.

The bankers and speculators that caused the financial crisis have been bailed out with trillions of dollars of taxpayer dollars because they were “too big to fail.” We were told that a much worse crisis would be averted this way, the implication being that we, the bottom 90%, would somehow benefit from this bailout. Yet unemployment is still high and the bailout exacerbated an already enormous federal deficit that was largely the result of the trillions we threw away to slaughter people in Afghanistan and Iraq (and tax cuts for the rich), and is now being squeezed out of us through cuts to social services, education, health and welfare. The same is happening at state and local levels, too. So the banks are too big to fail because that would cause the rich to lose profits, and because it provides a convenient mechanism for transferring more wealth into their pockets from the rest of us.

What about the pensions? Shouldn’t they be bailed out?
There is certainly a good case for this. If they were allowed to fail, millions of retirees would be forced into poverty, while millions of dollars that they earned and to which they are entitled would evaporate. The homeless senior population would skyrocket, as would the number of seniors on food stamps and in lines at food banks. It would add phenomenal pressure to cities and states in emergency services to care for those suffering from exposure, malnourishment and accidents.

These scenarios have no effect on the rich. They will remain cloistered in their mansions and gated communities, safely insulated from the horrors suffered by the poor. What the rich want (and generally get via their political power), is protection for their investments and profits. Bailing out pensions through tax increases is something they categorically reject. Increasing the costs to school districts likewise will not fly because they have been so starved for funds they can’t even afford to maintain their teachers, nurse, librarians and counselors. This privation is due to loss of local property tax revenues combined with declining state revenues, again, both the result of the financial crisis caused by the rich.

Thus, the only solution that is left is for teachers to prop up their own pensions through higher payroll deductions, which amounts to a pay cut. Some teachers, if they are lucky, haven’t seen a raise in two to three years, while most have seen outright pay cuts or loss of income through furloughs and increased payroll deductions for healthcare. In short, teachers are already seeing their pensions decline because their pay is declining. (Pensions are based on income during the final years of service. Therefore, lower paychecks today, mean lower paychecks when approaching retirement and lower pensions). Making them pay more now for their pensions will further reduce the value of their pensions.

Considering that teacher pensions by themselves do not provide enough income to live in most American cities, making teachers pay more for this benefit should not even be considered. Yet some version of this is probably exactly what our union bosses will negotiate, arguing that it is the only way to protect the money we’ve already invested in our pensions. If we are lucky, they may find a way to squeeze it entirely out of future teachers, creating a tiered compensation formula in which new teachers pay more out of pocket for their pensions than do veteran teachers, thus exacerbating or creating tensions between teachers based on age and experience and between younger teachers and the union itself. The long term implications will be that the union alienates (perhaps irreversibly) new teachers to the point that they embrace decertification of the unions or right to work laws. It will become increasingly difficult to organize and mobilize younger teachers or to create unity on important issues and job actions.

Modern School
http://modeducation.blogspot.com/

[WHEN CRABS ROAR]

1. The problem is what the pension fund was invested in.

That why Social Security needs to be left alone, with the possible exception of raising the cap.

[OHdem10]

2. Eaxactly, when the Financial Crisis broke and the Market plummeted

the Pension Funds were invested in the market. Guess
what Wall Street drops the Investments lose. The Banksters
on WS created the problem.

[jwirr]

3. It would help if the social security cap was raised at least until the

boomers generation comes to an end. After that it could be adjusted to fit the needs again. That would tide us over the years that are going to be the hardest to get through. Either way we need to raise the cap.

[Omaha Steve]

4. I had a high school teacher explain the reasons against the cap 36 years ago

He was ahead of his time. R!

[Cogenti]

5. Pensions = SECESSION from Social Security

In 2008 we treated Wall Street as too big to fail in part because there were huge pensions out there that we stupid enough to invest there. The pensions themselves were too big to fail because it would hurt millions of workers. Bad decisions by pension fund managers created systemic risk for the nation.

If the collection of pensions is too big to fail then that collection is too big to exist, same as the giant banks and investment firms. If all the pensioners had been in the Social Security system, we might have let the banks fail, without worrying so much about the retirement impact

In addition to being too big, pensions undermine Social Security. Pensions are not an "OPT-OUT", they are SECESSION. Allowing pensions to be an alternative is no different than undermining public schools by creating a voucher system, or undermining national health care by creating an employer-based system. If a group of people want a bigger retirement, let them pay extra deductions to fund a PENSION AS A SUPPLEMENT, NOT AN ALTERNATIVE. If they screw that up, they'll still have their Social Security.