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An Irrevocable Right to Benefits?
Lisa Fleisher of the WSJ reports, New Jersey Pension Gap Grows:
New
Jersey's pension gap grew to $53.9 billion in the last fiscal year, up
from $45.8 billion, thanks to market losses and a lack of state
funding, according to figures released Thursday by the state.
The
looming pension burden, largely ignored by the state for the past
decade, has ballooned into a nearly unmanageable problem that will push
state and local finances into a corner in coming years, dropping large
bills in the laps of already strained taxpayers.
Gov. Chris
Christie's administration said the gap, which reflected the state's
investment positions as of June 30, highlighted the need for proposed
cuts to current public workers' pensions.
The new calculations
mean the state has 62% of the money it needs to pay retirement benefits
promised to roughly 720,000 state and local workers over the next
decade, down from 66% a year earlier. But the state is using an annual
8.25% rate of return, which critics say masks the problem by being
overly optimistic
"As all states,
they're getting it wrong," said Eileen Norcross, a George Mason
University researcher who has studied New Jersey's budget and pensions.
Using a 3.5% rate of return, she had estimated the previous liability
at $173 billion.
For most of the past decade, New Jersey
politicians from both parties have skipped required payments to the
pension fund while giving increases in benefits to workers. Faced with a
tight budget, Mr. Christie skipped a $3.1 billion payment this year,
which experts said all but guaranteed a higher gap next year.
Mr.
Christie, a Republican, wants to reverse a 9% pension bump workers
received in 2001 under a Republican administration. A spokesman for
Senate President Stephen Sweeney said he would work on changes that
would "ensure workers who have been promised a pension get one," adding
the governor needed to fund the pensions.
Unions
argue their members have an irrevocable right to benefits they have
earned, and the governor has said he will meet the unions in court.
Public workers pay into their pensions at various rates—8.5% of salary
for police officers and firefighters; 5.5% for teachers, state and
municipal workers; and 3% for most judges.
"Once again, the
Christie administration wants to make middle-class retirees pay the
price for the disastrous consequences of reckless speculation and
financial malfeasance on Wall Street, and for the legislature's
continuing failure to fund the pension," said Bob Master, political
director for the New York-area Communications Workers of America.
Mr.
Christie in March signed a slew of pension and benefits changes pushed
by Democrats but said they didn't go far enough. In September, Mr.
Christie unveiled further proposals targeting current workers,
including raising the retirement age to 65, requiring all workers to
contribute 8.5% of their salaries to pensions, and eliminating
cost-of-living increases.
In a statement, state Treasurer Andrew
Sidamon-Eristoff said Thursday, "Unchecked, the cost of this
impossible burden will fall not just on the taxpayers of today, but on
future generations of New Jerseyans."
Average annual pensions
for new retirees as of July 2009 were roughly $39,500 for state
workers, $46,400 for teachers, $73,500 for police officers and
firefighters, and $105,600 for judges.
So who
is right, unions or the Christie administration? At this point, it
doesn't matter. Yes, Wall Street's elite made off like bandits,
squeezing the middle class once again. But Governor Christie, who spoke
with 60 Minutes this past Sunday,
is right when he says public sector workers and retirees will get
little sympathy from private sector workers who saw their 401K plans
implode in 2008. Moreover, with state budgets deep in the red, there is
no money left to pay for public works projects, let alone generous
public pension benefits. All stakeholders need to make concessions or
risk deeper cuts down the road.
If I were the unions, I would
use this as an opportunity to push for better governance at the large state public plans. And by better governance, I mean make sure that
alignment of interests are there. As for state governments, they have
little choice but to raise the retirement age, cut benefits, and
partially or fully remove inflation protection on public sector
pensions. They should also revise their rosy investment assumptions for
state plans.
This may seem unfair and unreasonable to public
sector workers, but to quote a strategist who I spoke with yesterday,
"deleveraging sucks". You can't have pensions apartheid between the
private and public sector. And there are no "irrevocable rights to
benefits". Just look at the mess Greece and Ireland are in right now.
When the money runs out, cuts are guaranteed.
That's one of the reasons why I was disappointed with the meetings at Kananaskis.
A lot of people are looking at politicians with gold plated pensions
asking themselves why couldn't they expand CPP and provide Canadians
with a more secure retirement? I know, the critics will holler:
"it's just another payroll tax". They're wrong and shortsighted and
I'm embarrassed to say this is the best Canada could come up with --
another giveaway to banks and insurance companies. And who's going to
end up bailing out PRPPs when they flop? Who else but Canadian
taxpayers!
There was a time when Canada led the way in terms
of health, education and social economic policy. Our leaders need to
rethink expanding CPP. If you do it right, you'll bolster the private
and public sector. But if you do it wrong, or introduce half-baked
measures, you're better off not doing anything at all. I'm serious, I'd
rather see no change than reforms that are doomed to fail.
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It is very close to fascism...only a few can see it.
Thanks for continuing to pound on the hopelessness of pensions, Leo. We've gotta start thinking about what we're doing. Not that it will change what's being done, but at least we will have thought about it, then gone right ahead heedlessly.
Based on how it goes down everywhere else, here's the Dr. Sandi look at the future of pensions and pensioners.
Pension fund gone.
Pensioner broke.
Medicare broke.
Medicare gone.
Pensioners get sick and die; some slow, some fast.
Pension money or medicare costs are not accrued by those whose premature death helps benefit pool for those who haven't croaked over yet. Problem solves itself.
New actuarial tables suddenly show the pensions are just barely solvent after all. Just not as many people as expected taking advantage of them long term. Pensioners will not like this answer, but they don't have to live with it for long.
This movie has been remade in so many eras and in so many countries that it's as classically tragic as Shakespeare.
Death comes to us all. And with current economic planning, it comes to the old and infirm first, exactly as planned by those financial leaders that too many of us at ZH keep saying are unbelievable idiots.
I don't think they're the fools at all. They know exactly what they're doing. The dummies in this scenario are those who believe the people in charge are on OUR side.
If you're at the pension-collecting part of your life, you've got to ask yourself, "What have I done for THEM lately?" If you can't come up with a good reason for them to keep paying to keep you alive, be afraid. Be VERY afraid.
Honor is gone. Loyalty is gone. All that's left is the bottom line. And if you're not adding to that bottom line somehow, THEY have no reason to keep you as an expense.
When the current economic train wreck finally skids to a halt, the various private and public pension funds will be found to be tragically bankrupt, thanks to all the lousy planning, underfunding and heinous number of bad financial instruments they hold. Pensioners will unwillingly fund the final unwinding of this economic system. With luck, maybe they'll get an IOU redeemable in 50 years.
Same as it ever was. (Stock up on cat food while it's still cheap!)
Hard-assed cold truths, Bitchez!
"Honor is gone. Loyalty is gone. All that's left is the bottom line. And if you're not adding to that bottom line somehow, THEY have no reason to keep you as an expense."
Well stated.
In the end, the only ones to whom you can truly place your trust are yourself and close family.
All the rest is background noise.
Amen, Brother!
Waiting on the little ones to wake up here...we're doing our close family Christmas early this year, then we do "the big one" ;-)
Merry Christmas to you and your family!
I don't think they're the fools at all. They know exactly what they're doing.
... And that's the way it is, straight up from Doc.
Mommy....
Thank you Dr. Sandi. :)
Offer a tax free buyout of ten cents on the dollar based on retirement benefits for 15 years. So for the judge in Jersey that means about 150k tax free. Get out now before the window closes. There are so many options for the over-promised pensioners:
Medicare/ Social Security/ Food Stamps/ Stay-cations/ lunch at the Senior Center/Double Wide retirement villa
You can't have pensions apartheid between the private and public sector. And there are no "irrevocable rights to benefits".
well said
12-year olds, screaming,"If you don't pay me, we'll let all the murderers and rapists out of jail!"
Let these adult children follow through with their threats....Then we will fire them!!! Then those of us in the business community will create our own private security business on terms that are just and reasonable.
That presumes that they don't get to you first. Especially in gun-shy New Jersey.
Given how things have gone, expect your private security to be incarcerated or killed as well.
What are you afraid of SS?
Here you have thieves literally looting hard working private citizens.
I believe you have been subtly programmed into believing you can't do anything. They have got you right where they want you, by the balls.
Many like yourself have turned themselves into PUSSIES through their unconscious willingness to be taken advantage of and exploited, kind of like a whore! Stupidity is passive inaction as history dictates contrary to our forefathers deep seated motives to fight for liberty and freedom from tyranny. Look at the cesspool of a country Mexico. What your are looking at is inaction and lack of moral directional unity in leadership by it's citizenry. California is on this path...
http://www.nationalreview.com/articles/255320/two-californias-victor-dav...
Like I have said before, when the American masses are in enough pain they will respond, either through non participation or a violent Coup d'etat. Our governments behavior has not changed and I believe there is really no diplomacy with these parasites.
Read the article I posted earlier on Prichard Alabama...It might give you a bit of perspective on things to come. The question is as our so called civil servants become penniless what will they do?
Interesting idea Leo.
However, I think they'll probably stick to to the old standard of stamping their feet like petulant 12-year olds, screaming, "If you don't pay me, we'll let all the murderers and rapists out of jail!"
It's simpler, and much more lucrative.
By the way, who would govern the ones providing the governance anyway?
Leo thanks for your work on this. I agree with knuckles here that this whole pension mess isn't even remotely on the radar for nearly 100% of the general population. This is the issue that will get people in the streets with pitchforks and torches.
agreed. I fully expect many bad things to happen to pensioners, some of these bad things will be done to themselves with their own handguns ... when the reality of what the financial collusion, and its dire consequences, between government and Wall Street has made itself perfectly clear. Pritchard, Alabama is the first in a long line of defaults.
When the private business community says it's had enough, their pension fantasy will be over....law or NO law!!! Then they may realize the error of their greedy, nasty, parasitical ways!
http://www.nytimes.com/2010/12/23/business/23prichard.html?_r=2&hpw
http://www.youtube.com/watch?v=ADRv6AsznH4
I appreciate your insights into the pensionsphere, Leo. Very few of those who term themselves "investors" have little (if any) knowledge of the retirement benefits business. Much of my career has focused upon the management of retirement assets and the coming storm particularly with respect to the public sector's nest eggs is a massively misunderstood and under-appreciated.
Once the general public becomes more aware of the levels of underfunding, promised richness of benefits and calculations as well as the grossly understated nature of the projected liabilities, all hell is going to break loose.
This is just the mild twittering of little birdies on an idyllic morn. They ain't seen nothin' yet.
Why is that guy holding the donut breaking into my house?
Yes indeed, there is little hope for most pure defined benefit public plans at state & local level in the US. Voluntary funding, 8.5% assumptions and insane commitments have doomed them. The ones that have already switched over to a 401K style (not many, but some) are in the same shape as similarly suited private plans. You're so right, when the true dimensions of all this get the light of broad comprehension, along with other programs & assumptions the mood is going to shift. Simply amazing.
Leo, you've been good read over two years now. Thanks
So, when does the next DWTS start up? ........... Pension/smention - don't mess with my important stuff here......
Pensions are gross. How did anyone ever expect the government economic promissory system to work, nevermind flawlessly?
Amazing chatting with my public employee pals out here in the Winter Home of the Great Satan.
Those who've not yet retired believe that there is NFW that their bennies can ever be cut. They actually believe it would be illegal.
To which I respond; "What about unsecured creditor do you not understand?"
Those who have retired are at this juncture, the lucky ones.
To which I respond; "What about unsecured creditor do you not understand?"
To which he responds: "As a taxpayer, which part of non-recourse lender do you not understand?
To which some may reply, "Good luck keeping your tax base".
To which the answer would become "Good luck trying to hide".
No need to hide; just join the unemployed.
To which Ben interjects "Don't bother with taxes, I'll print it."
Printing doesn't solve the problem because food, energy, and other commodity costs will increase at a faster rate than the money printing. The reason the prices will increase faster is because there will be a premium built into their prices for future currency debasement. Simplistic thinkers like yourself need to wrap your minds around this consequence of printing.
No guarantees at this point for even the retired ones, unless the FED is going to bail out the states.
The Fed will bail out the states as needed. The Fed will bail out any politically valuable entity that needs it. QE is the new normal and will not be ended.
Do you think that the Fed's dual mandate of 1. Bail out the Banks, and 2. Bail out the Banks, will go head-to-head with this relatively new economic dilemma? When it comes to a show-down, the Fed will have to make some decisions about priorities. Is there any doubt about where money will flow? Is there any doubt but that adding the 3rd mandate of preventing rioting in the streets that the show is over?
And the pear tree I planted in my backyard last year will grow to the sky.
Oh, agreed all are in some way at risk. I simply assume that the active beneficiaries are the last on the totem pole to be impaired. And not at all unreasonable to assume that they'll even get hit with increased levels of co-pay/monthlies for health, decreased COLAs (or elimination thereof) for pension and possibly even outright benefit cuts or in many eggregious cases, plan terminations.
Will also be interesting to see what the legal machinations become in states like CA where local plans have contracted with say, CalPers for example, wherein contractual participation seemingly places contributions at preferred standings within municipal budgets. Again, what is it about "unsecured" do these folk not discern?
In particular, I'm thinking of local comminities where pension contributions to the state sponsored schemes represent well over 2/3 of cash flows. Simply, unsustainable. Once residents figure out that they wish to retain the tip of the social service spear; police, EMS, fire and so on, some historical arrangements are going to fall by the roadside.
Austerity. Hah!
The term "New Normal" does not lend the aspect of harsh reality necessary to foreshadow coming times.
Mish has an article this morning where Prichard Alabama has defaulted on its pension obligations, a nice look into our future...
http://globaleconomicanalysis.blogspot.com/2010/12/alabama-town-defaults-on-pensions.html
Actually, COLA should be paid out by the Fed since, inflation is caused by their actions.
A homeowner family of 4 in suburban NJ needs to net at least $5k per month to pay for basic necessities like food, insurance, auto/commuting, property and sales taxes, clothing, utilities even when ASSUMING THAT THE HOME MORTGAGE (P&I) IS NO GREATER than $2000/month, and nothing factored for the kids' education.
I hope those of you who don't live in or near a high cost urban area reflect on what this means to the non-union schlep living in the Northeast Corridor. Now add to this the fact that most of the equity in the home has disappeared and won't return prior to retirement age.
Any union worker who can retire prior to age 55 with a pension and HC bennies greater than $40K per year has got it fukkin made.
This debate. While valid, will be the flashpan for the breakup of the united states as inflation takes hold. The tax code does not currently distinguish where you live. Attempts will be made to do so as part of this crisis. When that happens states like Texas will ceede from the union.
I have lived in very poor rural areas. I have also lived in some of the richest metros in the USA. You make more money in the metros. But as you said, everything is more expensive. Out in the hinterlands, you make less money, and things seem cheaper, but in reality there is significant cost and labor needed to maintain a homestead.
In the metros, there are jobs and mobility. If your boss/team at one company treats you like shit, it is likely you can find another job in the same industry where they might treat you like spit. Out in the hinterlands, the best you can do is go from a 50 mile commute in one direction, to 80 mile commute in another.
Federal employees salaries are heavily prorated for where they live. its the only way they can keep a distributed workforce, which is critical for earmarks/politicians of those jobs.
When this pension/entitlement crisis hit the fan, and solutions on benefits are prorated. When tax incentives or rate changes are introduced based on what locality you live in, it is game over for the republic. People in the cities will say "We have to pay $40 loaf for bread out of our fixed pension" People in the countryside will say "We have to pay $15/gal for gasoline to drive to the county store to pay $5/loaf for bread, oh and by the way the nearest hospital is 100 miles away for us to collect our obamacare"
The inflation and conflict is already starting. TARP and QE_X bailed out florida condo owners' upside down mortgages, and then politicians threaten to remove farm subsidies for a farmer who has to pay $350,000 for a combine. Or the ethanol plant in the middle of nowhere that will create jobs. Innocents on both sides are going to suffer terribly.
I am not a publican,democrat, liberal or conservative. and I do not want to see the USA in trouble. But I am understanding why we were set up to have state and local control of 95% of government function.
Wise and not at all foolish. Subsidiarity is necessary.
More like Confiscation Bitchez!
Your private wealth and property are more revocable than the pensions, salaries and benefits of public sector workers. Just wait until TSHTF in muni-land and the Feds get involved. You won't be able to simply move to a more solvent state. You think Obama or Eric Holder is going to stand between you and government employees trying to cash in their chits? I wouldn't hold my breath on the Supreme Court either.
Yeah, that will go over well in two years.
It's already going over. A few more "reforms" like Obamacare (where you have to pay more and the public sector doesn't have to do anything) and we'll be halfway there.
Speaking of 'confiscation bitchez' I'm eagerly anticipating Tyler and/or Marla's
expose on the whole 55 water street DTC 'street name (CEDE & CO)' situation vis-a-vis stock
ownership in the USA.
Does CEDE & CO exist as a real company filing lawsuits against various defendants's?
Does CEDE & CO have peculiar links to the IMF?
Does CEDE & CO mean you have CON-ceded your property in some way?
Stay tuned for another episode of 'things that make you go hmmmm'
Oh, great, thanks. Now there's something else to sweat.
http://ming.tv/flemming2.php/__show_article/_a000010-000923.htm
Certificates bitchez!
Unpayable debts, do not get paid. And that is just the way it is.
Want to blame someone? Blame the fiat money system that works until it doesn't.
Math and the exponential function, bitchaz!
Infinite growth doesn't work on a finite planet. Party's over, time to pay the bill.
Definitely. Check out the the top three images here:
http://www.market-innovations.com/GT2021/GT2021.html
Great link.
I was pointing out this flaw in the math of a perpetual growth economy
in 1999 to my co-workers. Conceivably, it wasn't wrong for the government
to assume sustainable perpetual growth when you factor in all the
reasonably forecast off planet outsourcing they had projected to
be an active element in the future economy of today.
Hahaha! It's so insane, it must be true.
"Our projections are safe when one assumes Star Trek level technology will be the norm in just under ten years time."
Time to pay the bill, for the last one to leave the party ..... and that's not me