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Sherman Frederick
Public employee pensions
If there's one good government idea out there, it's the concept of moving public workers from anachronistic defined-benefit plans to modern 401(k)-style retirement plans.
Not exactly the sexiest topic in politics today, but for workers and taxpayers, it's a winner. And it's not particularly complicated once you tune out the mewling and puking from self-interested public-sector unions and acolyte politicians who enable defined-benefit plans to become a big honey pot from which one may dip at the expense of unborn taxpayers.
Defined-benefit plans stem from a bad moment in time in which employers -- and now unions -- cared for employees like children incapable of planning for their own retirements. Over time, these plans metastasized into grotesque shadows of their initial good intention.
In a perfect world, defined-benefit plans get the math right in terms of how much a government employee must put in and how much the taxpayer must put in. The rules for retirement are reasonably set and never abused; costs for health care remain predictable; and defined-benefit plan funds are wisely and conservatively invested to keep the plan solvent regardless of the number of employees in the plan.
Virtually every state in the nation has broken those fundamentals, producing what is called an "unfunded liability." Whatever the shortfall in a state's defined-benefit plan for the retirement and health care of public workers, the taxpayer -- both present and future -- must pay.
California is the poster child for this.
On top of an upside-down budget, California also carries an unfunded pension debt of anywhere between $500 billion and $55 billion, depending how you want to calculate it. The overseers of the plan use the lower number because it is based on their anticipated return from diversified investments -- some say "risky" diversified investments that will likely not be attained. A Stanford graduate student calculated the debt at the higher number using a risk-free bond rate of return.
And the anecdotes for how the California system has been abused are legion. For example, how many times have we heard about a highly paid state worker "retiring" on Monday only to start a new state job at a desk in the next room, thus double-dipping the system.
Or, consider Scott Plotkin, who pulled down a state salary and bonus of $562,333 in 2009 with the California School Boards Association.
Then he was caught charging thousands of dollars on his company credit card at a local casino. He quickly "retired" and, as Marcos Breton of the Sacramento Bee wryly observed, he "got what he deserved" -- a lifetime pension of $17,089 per month. He's 57. Life expectancy is 78. You do the defined-benefit ugly math.
California's next-door neighbor, Nevada, doesn't make the national news as much. But it's in trouble, too. With only a couple of million residents, the state carries at least $10 billion in unfunded pension and health care benefits. This is on top of the state's anticipated general fund revenue shortfall, which runs ten figures.
The Teachers' Retirement System for Illinois announced this month that its unfunded liability now stands at nearly $40 billion. This defined-benefit plan covers 365,000 teachers, administrators and other public school employees. Upside down doesn't begin to describe the trouble this fund is in.
And so it goes for almost every state in the nation.
Now there's a growing cry for wholesale reform. Not the kind of reform that works around the edges of the abused existing system, but transformation into a better a way -- a 401(k) plan.
In a 401(k), the employee and the employer contribute to a worker's retirement plan under guidelines set forth by the federal government. That money resides within the account of each worker. The money belongs to the worker, and that worker controls how it is invested.
Upon retirement, instead of getting a monthly check, all of the money in the 401(k) plan belongs to the worker. It can be used in any way the worker wants. It can be passed on to heirs or charity, unlike defined-benefit plans that bank on a certain number of workers dying before they collect all the money they put into the system. (In Illinois, they'll need about half their teachers to die today to get right-side up.)
The No. 1 attribute of 401(k) plans is they are perfectly in balance from day one because employers and employees pay as they go. There is no future unfunded liability.
That's a better, more responsible way to provide retirement benefits for public workers.
Unless, of course, we're happy passing huge debt on to our children and grandchildren.
Sherman Frederick (sfrederick@reviewjournal.com), former publisher of the Review-Journal, writes a weekly column for Stephens Media.
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Sherman needs a economics lesson.
P.E.R.S. public employee retirement system ACTUALLY is 41 BILLION unfunded.
Why the huge difference? SIMPLE --------------- P.E.R.S. pretends that it will make a return on investment of over 8% for decades to come. BUT when you go to the bank and deposit your savings YOU KNOW BETTER and SO THE WRITING IS ON THE WALL.
HERE IS A SOURCE TO SHOW THESE FACTS;
http://www.nevadanewsbureau.com/2011/11/03/nevada-public-pension-liabilities-vastly-understated-new-report-says/
I have a defined retirement plan; I get 2% of my final salary times the number of years I worked when I retire. Every year I worked I paid 8% of my gross into a state plan, my employer paid the same just like Social Security.
The difference is......my retirement was in a real lock box. That money wasn't spent by the politicians on something else or to balance this year’s budget. unlike Social Security.
It earns interest compounded annually like an IRA or a 401k.
It was local government who put off paying their share in, causing a deficit projected for the future.
I couldn't not pay my share but local government took a holiday on paying their share, like buying something on credit, and now they owe the principle and the interest.
If you buy a house for $100,000 and pay cash it costs $100,000. If you buy the same house with a 30 year fixed it costs $368,000.
Local government is saying I promised to pay the money I didn't pay when it was due. Now I want you (me) to take a short sale on your (my) retirement because I don't have the money right now
I work with a guy who got a home equity loan and lost 150k of it in the stock market. Switch him to a 401k style plan and guess what no more 401k. We just watched the stock market meltdown, what happened to all those people screaming or a chance to invest their Social Security in the market.
Quote it honestly, or don't quote it all.
Your quote: "Defined-benefit plans stem from a bad moment in time in which employers -- and now unions -- cared for employees."
Actual quote: "Defined-benefit plans stem from a bad moment in time in which employers -- and now unions -- cared for employees like children incapable of planning for their own retirements."
"from anachronistic defined-benefit plans to modern 401(k)-style retirement plans" Why is SB inferior to DC? Just because you say so? Ask all the people with 401k's who cannot retire.
"for workers and taxpayers, it's a winner"
Who says so besides you?
"Defined-benefit plans stem from a bad moment in time in which employers -- and now unions -- cared for employees"
Well I agree with that. Wall St. quit caring about the middle class and Main St. some time ago.
"Virtually every state in the nation has broken those fundamentals, producing what is called an "unfunded liability."
True again. States made a contract with their employees and then didn't fund it and are liars.
Sherm, why don't you contact the president and ask him to give you the figures on the package all those 30 something czars he appointed on an end run around congress so we can see how they compare to the taxpayers who voted the latest congressmen and women in....i believe the present congrespersons make a month what voters who elected them make in a year........compare their salaries and perks, health care, and retirement to PERS employees and have the readers vote on who gives them the most bang for the buck
How deluded do you want to be? Virgil, it may be your OPINION that the RJ wants a return to slave labor, but I can see no evidence to support your views. AND the RJ does not have the power to FORCE you to buy their paper (which is far different than our government; agreed?) Jerry T., if pigs had wings they'd fly BUT pigs don't have wings, do they? SS was raided, and used, and trillion$ siphoned off, because that's the nature of sinful man. We're too easily corrupted. We punt the problem down the road, to be taken care of by someone else, long after we're gone. Bernie Madoff! Get it? We've all been sold a bill of goods that was a lie. And it's our misfortune that the 'chickens are coming home to roost' on our watch. We can deal with it, like adults. Or throw a tantrum, like little kids. What's it gonna be, folks?
Social Security would be a solvent trust if the 2.5 trillion that was borrowed or stolen from it would be replaced. Maybe, if Social Security was privatized that money could not have been touched by Washington. That money was blown on wars and government programs.Why aren't our lawmakers in on these government programs. No Social Security or healthcare for them.
Sherm FRedricks says 'we cant afford them' (i.e. public employee retirement). Well, we the public just might not be able to afford your either. Suppose all of your subscribers and other purchases of the RJ on a daily basis stopped buying your paper? Who would afford your retirement? Your paper's owner certainly aren't going to pay you for retirement for doing nothing are they? Think about it! You want public employees to work for minimum wages,no insurance and without any retirement benefits. What if that were your plight by a dying newspaper? Now, how does the Libertarian philosophy fit in your shoes, BUB?
How are you going to eat when you have no retirement check coming in? Of course you newpaper guys have always been ingenius in sapping the public for money with all the hard work you do behind a typewriter or word processor for one or two hours a day....it's a real tough job, tougher thant trying to teach 40-45 unruly, disruptive and disinterested brats all day! I am sure it is tough disciplining your typewriter or computer processor these days!
What needs to be done is for the legislature to revise and change PERS by eliminating such factors as overtime pay,vacation pay, & longevity pay. All employees need to serve their position for at least a minimum of 10 years before earning vested retirment rights.
The RJ needs to publish tahe salaries and retirement benefits of its employees for all to see how the Libertarian philosophy is actually practiced. I bet it is nothing like the PERS system and that is why the editors and publisher of this paper are so adamant about destroying what public employees pay into, earn and rightfully receive when they retire. PERS retirement is not a freebee for public employees; it is earned by working for the public, it is not charity or welfare. Most public employees work for less than what private industry pays its employees, hence PERS makes that tolerable and assures one of at least survivable and liveable income upon retirement.
Granted some aspects of PERS need revision and maybe change, not total elimination. The RJ does not want change to benefit all, taxpayers and PERS members alike, it wants total elimination. That is the Libertarian dream!