Pensions a policy disaster

JULY 2, 2010

By K. LLOYD BILLINGSLEY

In May, The Economist judged California a “lean” state, where waste is hard to find, based on the single measure of state employees per 10,000 residents. In “Sanity in the offing?” in the current June 26 issue, the prestigious publication turns its attention to California’s state employee pension crisis.

The Economist cites two studies which “estimate California’s unfunded pension liability at about half a trillion dollars, almost seven times its official debt.”

The pension crisis is “a policy disaster dating back to 1999. That was when the Democratic legislature and the then governor, Gray Davis, a Democrat elected with union support, thanked the unions by giving state workers pension increases of between 20 percent and 50 percent. Many highway-patrol officers, for example, were allowed to retire at 50 with 90 percent of their final salary. All told, California now has probably the most generous public-sector benefits in the country.”

The pension plan administrators, says The Economist, “pretended that this generosity would not cost anything.” Warned by advisor David Crane, a Democrat, “his fellow Democrats voted him off the board” of the CalSTRS, the teachers’ pension plan.

The British publication observes that the current budget crisis is “exacerbated by the additional contributions that taxpayers are obliged to make to top up the public-sector pension funds.”

The article further notes that California state treasurer Bill Lockyer, “warned the legislature that public-sector pensions will bankrupt the state” and wondered whether Democrats could fix the problem “because of who elected you.”

“Voters are getting angry,” says The Economist. “Many find it ironic that those Democrats who are wailing loudest over cuts to schools, universities and health care include people who voted for the pensions that are now crowding out those very programs.”

Elections are in the offing and the publication notes that “unions are preparing to spend oodles of money on the race.”

In its May article judging California a “lean” state, where no runaway spending had taken place, The Economist cited The California Budget Project, “a mildly left-leaning think-tank in Sacramento.”

In “Sanity in the offing?” the author invokes the Reason Foundation, an advocate of defined-contribution pension plans, common in the private sector.

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  1. Tylerle13
    Tylerle13 2 July, 2010, 09:03

    Gray Davis was also the Lap Dog of Jerry Brown, who is also the union candidate, so you know there will be plenty more of those sweetheart deals for the unions if that retread somehow gets put back in office.

    Reply this comment
  2. Fake OCO
    Fake OCO 4 July, 2010, 11:32

    More proof that this scam just won’t end until the entire state gets flushed down the toilet.

    Reply this comment
  3. Tough Love
    Tough Love 4 July, 2010, 16:51

    We will soon reach a point where the powers that be, realizing that raising taxes to further fund this insatiable beast won’t work (because those citizens and businesses with money will leave the state), will FINALLY focus on the ONLY effective solution …. a significant reduction in the pension formula (not for PAST, but) for FUTURE years of service for CURRENT (yes CURRENT) Civil Servants.

    Why keep putting off the inevitable ?

    Reply this comment
  4. SEESAW
    SEESAW 4 July, 2010, 19:15

    You’re getting mighty hard up for material. This is just a rehash of articles that have appeared in various print media throughout the past year–and all with a conservative spin, of course. As most usually do, you try to mislead people into believing that these employees who are under the 3% at 50 plan may retire with that amount regardless of years of service credit. Please remember to add, that to get the 90%, they must have 30 years of service credit–quite a rarity in public employment circles. (If one was able to get a PS career going at age 20, I would say, “Bravo” to them.)

    As far as Jerry Brown is concerned, he is the only candidate in the running who is an experienced politician. He is an honest man who cares about the State of CA and its people. Meg Whitman wants to end the defined benefit pensions as we know them–pensions that have provided a quality middle class life for millions of CA residents over the past 97 years. I will gladly cast my vote for Jerry Brown this November.

    Reply this comment
  5. Tough Love
    Tough Love 4 July, 2010, 19:33

    Dear SEESAW,

    (1) Ok, so lets says they start at 25 and get the 90% at age 55 (after the 30 years). Why is this fair to taxpayers (who fund 80-90% of the costs), when the comparably paid Private sector taxpayer would (when also retiring with payout beginning at age 55) RARELY get a pension in excess of 30% of pay ?

    (2) Meg Whitman is simply reacting to the EXTREME greed of Civil Servants at the expense (and to the detriment) of everyone else.

    (3) Here’s a twist on assets even CalPERS hasn’t tried yet:

    http://www.plansponsor.com/Drink_Maker_Uses_Alternative_Asset_to_Plug_Pension_Deficit.aspx

    Reply this comment
  6. SEESAW
    SEESAW 4 July, 2010, 20:25

    I don’t think anyone is denying that some entities bit off more than they could chew with the 3% at 50 plans. Basically, no one needs to retire at the age of 50, and anyone who has retired on that plan at that age is a rarity. Thats why the plans are being amended for future employees, by some public entities, with second and third tiers. I also believe that 3% at 55 is pretty generous. The bottom line is that, the respective entities need to set up plans that they can be responsible for sustaining. And taxpayers, whom you consider separate from human public employees (they are really part of the same group) do not fund 80-90%. The bulk of the payments come from the Plan’s investment earnings. Spare me the same old argument that it all originated from taxpayers.

    The only thing Whitman is reacting to is which way the wind is blowing and what Pete Wilson and her other handlers are telling her to react to. If she had been told that pensions were great, she would be shouting how she would protect them. But, the stingy, rich are telling her they need to be changed and she is planning to do away with a system that is nearly a century old. It is really laughlable for you to laud her for reacting to “extreme greed of civil servant”. I think that a billionaire who wants personal power over those civil servants so bad that she is willing to throw 150 million of her own money down the toilet to get that power is pretty darn greedy.

    Reply this comment
  7. Tough Love
    Tough Love 4 July, 2010, 21:26

    Come on SEESAW you missed the fun part in my #(3) above. Here’s a quote from the link …”Global drink producer Diageo PLC said it’s transferring more than two million barrels of its maturing whisky to its pension fund as it seeks to plug its GBP862 million pension deficit.”

    What do ya think …. for CalPERS CalSTIRS, PERS ?

    Reply this comment
  8. SEESAW
    SEESAW 4 July, 2010, 22:23

    They probably don’t have any cash, and they think this has to be better than nothing. It would not draw any interest while it is stored, and they just have to hope the stuff doesn’t go bad in the meantime. No, I don’t see this as an option for CalPERS.

    Reply this comment
  9. Charles
    Charles 5 July, 2010, 09:21

    Tough Love

    You can find actual percent of payroll contributions here:

    http://www.calpersresponds.com/downloads/Chart-A.pdf

    Employer contributions were 20% of payroll in 1982, Zero (as in zip, nada) in 2000 and will be 18% this year. Where do you get 80 to 90%?

    Reply this comment
  10. Tylerle13
    Tylerle13 5 July, 2010, 12:35

    Trust me, I have no faith in Witman being able to repeal anything that has to do with the pensions, I would just be happy if she didnt sign off on another sweetheart deal for the unions. No politician has the power to do anything alone in this state and the unions have enough representatives paid off that they will be able to block anything they dont like.

    Jerry Brown is in the pocket of the unions and he will sign off on anything that will get him more campaign donations from them. Considering all of the long term damage he did to this state last time, I really cannot believe that he was nominated again. The guy cannot even get through an interview without losing his place and rambling on about God knows what. The state is screwed if he gets back in office, but atleast he will provide plenty of material for the blooper reels.

    Reply this comment
  11. SEESAW
    SEESAW 5 July, 2010, 15:17

    Jerry Brown’s socalled long-term damage did not compare with Reagan’s release of all the mentally ill from hospitals that might have helped them, instead of dooming them to their homeless lives on our streets.

    I don’t think Jerry really wanted to run. He is concerned enough about this this state and its people to take it on. There was really no one else but Newsome, and we weren’t too happy with some of the things he did in SF.

    Its too sad that so many people are willing to give the highest office in this state to a billionaire who really has no concern for any of us–her’s is just a quest for personal power, which she is already used to, in her corporate world.

    Reply this comment
  12. Tough Love
    Tough Love 5 July, 2010, 19:44

    Quoting …”Jerry Brown’s so called long-term damage did not compare with Reagan’s release of all the mentally ill from hospitals that might have helped them, instead of dooming them to their homeless lives on our streets. ”

    So instead, Brown was instrumental in creating a new class of super-citizen (the “Civil Servant”) who, funded with the very generous pay and grossly excessive Pensions & benefits have come to rule the rest of us …. who must must slave away until 65, 70, or forever, while the new ruling class retires in great (COLA-adjusted) comfort at 55 (or even 50).

    But not for long …. the revolt has begun !

    Reply this comment
  13. SEESAW
    SEESAW 5 July, 2010, 21:28

    The CalPERS pension plan is 78 years old–so, I guess that we can’t give all the credit for our defined benefit pensions to Jerry Brown. Please quit crying over the thought that public employees are retiring enmasse at ages of 50 and 55. I saw many people retire at my muni during my tenure there. I can think of only one who was in the age range that troubles you so. That one, started when he was 18 and retired after 35 years at the age of 53–don’t we all wish that could be us.

    TL, I was over 70 when I retired. Does that make you feel better?

    Reply this comment
  14. Tough Love
    Tough Love 5 July, 2010, 21:42

    I bitch for others MUCH less fortunate than I … not hurting at all.

    Are you OK with that ?

    Reply this comment
  15. SEESAW
    SEESAW 5 July, 2010, 22:04

    Fine. Bitch away if that’s what makes you happy.

    I support those less foruntate than I and salute those who did much better than I.

    Reply this comment
  16. Tough Love
    Tough Love 5 July, 2010, 23:02

    Good, then lets see some support for the Private Sector taxpayers by your “supporting” pension formula decreases for CURRENT Civil Servants. You know, the ones on a track to get 4-6 time that of the comparably paid private sector worker.

    Will you support this … pension formula decreases for CURRENT workers, not just for NEW workers by way of new “tiers”.?

    Reply this comment
  17. SEESAW
    SEESAW 5 July, 2010, 23:45

    I will never support decreasing contracted pension formulas of current workers, public or private. I would not have liked to have that done to me, when I was working. I formerly worked at a muni when a new CM came in and had several management classifications reclassified as non-management. I was not one of those affected, as I was already non-management, but I did not like to see what I felt was unfair treatment, of those particular workers. It was not a pension situation, but an example of what can be done by people in power to subordinates who have no iron-clad legal protection against such actions.

    I am fully aware that conditions of life are not, have never been, and will never be, fair to all. My spouse worked much harder throughout his working life, at a construction job, than I did at my job. His defined benefit pension is a pittance compared to mine, because the illegals arrived in the early 80’s and, consequently, his union was “run out of town” by 1986. He kept his benefits at that point, but they were frozen and never earned another penny of interest until he retired. One kudo that should be given to public sector entities, over private sector entities is the fact that, public entities do not hire illegals.

    There is a national organization that is working to set up defined benefit pensions for all American workers. The Director of that organization was a presenter at the CalPERS sponsored California Dialogue which occured at the LA Convention Center on Feb. 12, 2010. I attended that conference which was free to the public. One only had to register on the CalPERS website. Seems like the Agenda of that particular organization is something you would support and approve.

    Reply this comment
  18. SEESAW
    SEESAW 5 July, 2010, 23:51

    TL: I should have added that my spouse draws SS, and I do not. I drew a spousal share for several years before I retired, but then lost it to the Government pension offset.

    Reply this comment
  19. Tough Love
    Tough Love 6 July, 2010, 05:29

    Quoting …”I will never support decreasing contracted pension formulas of current workers, public or private. ”

    If you WON’T support pension formula decreases for CURRENT Civil Servants when their pension are usually 4-6 times that of the comparably paid private sector worker ….. then you’re part of the PROBLEM, not the SOLUTION.

    Keep in mind, YOU need this SOLUTION too, so that funds won’t get so low that YOUR pension isn’t in jeopardy. Never say never …. when the money is gone and ALL options are put on the table (think Prichard Alabama — flat court-approved $200/mo pensions for everybody).

    Reply this comment
  20. Tough Love
    Tough Love 6 July, 2010, 06:24

    Quoting …”There is a national organization that is working to set up defined benefit pensions for all American workers. The Director of that organization was a presenter at the CalPERS sponsored California Dialogue which occured at the LA Convention Center on Feb. 12, 2010. I attended that conference which was free to the public. One only had to register on the CalPERS website. Seems like the Agenda of that particular organization is something you would support and approve.”

    I have always advocated for EQUAL pensions…… The unions understandably resist even the smallest reductions to their (current Worker) pensions (via factor reductions or increases in the earliest age for commencement of unreduced benefits).

    So to get EQUAL PUBLIC & PRIVATE sector pensions, the private sector would have to pay similar (very generous) pensions …….

    This will happen when pigs fly !

    It’s all just UNION & CalPERS BS to delay delay delay the very needed reductions in Public Sector plans…..for CURRENT workers.

    Reply this comment
  21. StevefromSacto
    StevefromSacto 6 July, 2010, 09:37

    Gee, fellas, even the Economist recognizes that California has the second lowest number of state workers per 10,000 population in the nation.

    But that wouldn’t validate your bloated bureaucracy mantra, so you choose to ignore it.

    No surprise there.

    Reply this comment
  22. Tough Love
    Tough Love 6 July, 2010, 09:49

    I read that also … just means that they bankrupted the State with even fewer employees (per pop.). Quite an accomplishment.

    Think about it ..

    It just means each employee is EVEN MORE overly paid, pensioned, & benefited.

    This is nothing but additional support for compensation reductions.

    Reply this comment
  23. SEESAW
    SEESAW 6 July, 2010, 12:54

    TL: When my spouse’s DB pension and SS benefits are combined and compared to my DB pension, my spouse gets 60% of what I receive. That is not quite four to six times difference. Some members of the 100,000+ pension club get two to ten times more than I do, because of that one guy from Vernon. When all is said and done, my pension is above the average for CalPERS. I take my blessings where I can get them, and don’t fuss about the others who get more. My cohorts who are still employed will always have my moral support.

    Reply this comment
  24. SEESAW
    SEESAW 6 July, 2010, 13:01

    TL, that is sad about those people in Alabama. I am sorry for them and hope things will get better for them in the future. I have been reading up a little on what is going on in Oregon. Their public pension system is sure nothing to brag about, with pensioners actually getting invoices for over-payments that the system officials say they calculated wrong. Nothing like that has ever happened with the CalPERS system. I’m glad my working career was in CA.

    Reply this comment
  25. SEESAW
    SEESAW 6 July, 2010, 13:09

    TL: The State of CA was bankrupted by the sub-prime mortgage mess, as was the rest of the country. The state employees did not do it, and they are falsely blamed. GAS had to point the finger somewhere, and he chose to put his own subordinates under the bus and run it over them, rather than pointing it at his own, elite cohorts. If the economy had not gone down the tubes, GAS would be leaving a legacy of popularity–the dumb-dumbs who voted for him in 2003, would rather not have to face the truth.

    Reply this comment
  26. Tough Love
    Tough Love 6 July, 2010, 13:36

    Quoting …”When my spouse’s DB pension and SS benefits are combined and compared to my DB pension, my spouse gets 60% of what I receive. That is not quite four to six times difference. ”

    The 4-6 time is the real cost differential for the typical Public VS Private sector worker making the SAME pay, retiring at the SAME age, and having the SAME # of years of service.

    This results from several expensive differences: (1) higher formula per year of service, (2) basing pensionable compensation on the final 1 year instead of 3 or 5 years of service, (3) including post retirement COLAs, (4) arbitrary end-of-career promotions or excessive raises to “spike” the pensionable compensation, (5) allowing the soon-to-be retired to load up on overtime includable in pensionable compensation, (6) including payouts of unused vacation, unused sick days, uniform, parking, and other miscellaneous “allowances” in pensionable compensation, etc.

    Here’s a tidbit…

    You casually say that your spouse’s pension is 60% of yours, meaning (equivalently) that yours is 167% of your spouses. But I’ll guarantee that as a PRIVATE Sector retiree, he does NOT get annual COLAs on his pension, while you do. Sure, his SS is COLA-adjusted, but his SS does not even belong in this comparison, since he paid up front for this benefit (and quite a poor deal it generally is).

    Guess what, inclusion of this ONE provision increases a pensions’ “cost” by 50-100% depending on the level of inflation. Call it 75%, so adjusting for this ONE item, your pension is now 167% x 1.75 = 292% of his.

    Now adjust for a few of the others mentioned above and its easy to see why Civil Servant pensions typically “cost” 4-6 times that of a comparably paid Private Sector worker..

    Reply this comment
  27. Tough Love
    Tough Love 6 July, 2010, 13:39

    Quoting …”The State of CA was bankrupted by the sub-prime mortgage mess, as was the rest of the country. The state employees did not do it, and they are falsely blamed. ”

    Nonsense. The all too common 3% @ 50 is not affordable ANYWHERE !

    Reply this comment
  28. StevefromSacto
    StevefromSacto 6 July, 2010, 14:47

    Friends:

    Save your breath. Do not bother trying to get Tough Love to stop blaming public employees and their benefits for all that is wrong in our state.

    Anyone whose math skills allow him to even think that “3% @ 50” has cost California one tenth as much as the sub-prime meltdown is not worth trying to convince otherwise.

    Don’t confuse hime with the facts.

    Reply this comment
  29. Tough Love
    Tough Love 6 July, 2010, 16:03

    So StevefromSacto, just because there are other big problems in the past that contributed to the current predicament, you would like us to ignore the singular biggest issue which HAS, IS, AND will continueS to kill California’s chances of survival

    No, you’re wrong …. THE PENSION & BENEFITS need to be reduced, and for CURRENT, not just NEW employees.

    Reply this comment
  30. StevefromSacto
    StevefromSacto 6 July, 2010, 17:46

    It is NOT the biggest issue. Because you say it is doesn’t make it true. Allowing corporations to take advantage of Proposition 13 by paying the same tax rate as residential property costs the state more money than state employee pensions ever will. I’ll make a deal. I’ll support reducing pensions if you’ll support splitting the Prop 13 rolls so that corporations pay their fair share.

    Reply this comment
  31. Tough Love
    Tough Love 6 July, 2010, 19:06

    Its a deal …. Corporations Should pay their fair share. They’ve gotten away (figuratively) “with murder” for way too long …. just as Civil Servants have (figuratively) raped the taxpayers with their overstuffed pensions & benefits.

    Reply this comment
  32. SEESAW
    SEESAW 6 July, 2010, 19:07

    TL, you’re right. My spouse’s DB pension has no COLAS, and I wish it did. The thing is: It is fuitless to try and make public sector work and private sector work the same. Each has pros and cons, and one or the other might be better in certain areas. In the final segment of that big picture of our society, the private sector will always be far and away in front of the public sector, as far as making money is concerned. I don’t think we will ever have any Meg Whitmans or Carly Fiorinas in public sector work–even though one of them might land there, they didn’t make their respective fortunes there.

    Anyone starting out to work in this day and age will probably be making a choice to set their sites on the sector they want to be in. Such decisions did not come to my mind when I first went to work for a muni. I was just trying to help my family–I made $1.85/hr, and CalPERS did not even exist at my muni then. Fate has a lot to do with the path that many people end up walking down and, its all part of life.

    Reply this comment
  33. SEESAW
    SEESAW 6 July, 2010, 21:39

    TL: CalPERS does not allow all that pension spiking you refer to. I think you have to go to Contra Costa County for that.

    Reply this comment
  34. StevefromSacto
    StevefromSacto 7 July, 2010, 10:35

    OMG, tough love and I agree on going after corporations. I just looked out the window and it’s snowing!!!

    Reply this comment
  35. Tough Love
    Tough Love 7 July, 2010, 11:18

    StevefromSacto …. see that wasn’t too hard.

    Now, if only I could get you to admit that the pension formula and benefits for CURRENT Civil Servants is too generous and needs to be reduced …..

    Reply this comment
  36. Tylerle13
    Tylerle13 7 July, 2010, 12:45

    I think Steve is warming up to everyone! Yay!

    Reply this comment
  37. StevefromSacto
    StevefromSacto 7 July, 2010, 14:58

    Split the Prop. 13 tax roll, institute an oil extraction tax, and postpone or suspend corporate tax breaks until the budget crisis ends. Then we can talk about CURRENT civil servants.

    I’m not big on tearing up the contract the state has with its workers to provide a certain level of benefits. But I’d put it on the table if and when the private sector begins to do its share to get us out of this mess.

    Reply this comment
  38. StevefromSacto
    StevefromSacto 7 July, 2010, 15:00

    Gee, maybe I am warming up to everyone.

    CONSERVATIVES ARE WONDERFUL! GOVERNMENT SUCKS! GREED IS GOOD!

    Reply this comment
  39. Tylerle13
    Tylerle13 7 July, 2010, 17:18

    Your going a little overboard, tone it back a little or your going to take all the fun out of it.

    Reply this comment

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