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http://pensionpulse.blogspot.com/2010/03/nj-seeks-to-skip-3-billion-pension.html
Thank you,
Leo Kolivakis
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NJ Investment Dept bought $182 million in LEH equity in June 2008....flushed it 3 months later. Great job. I remember thinking at the time....they have no idea what they are doing....
Well, here we go. They had the money they were obligated to invest on these people's behalf. They just blew it on a pony better suited to the glue factory. In what way does this excuse the obligation?
"Well, here we go. They had the money they were obligated to invest on these people's behalf. They just blew it on a pony better suited to the glue factory. In what way does this excuse the obligation?"
Whose obligation? The deal that created the obligation was between a union official and some crooked politicians. The deal goes like this. I'll hype up our members to walk precincts and I'll throw in another x hundred thousand dollars of packaged campaign contributions. Of course, I'm only interested in helping representatives who will strongly support a 25% increase in my union's pension. Wash, rinse, repeat for fifty years and we are where we are.
By all means, let the politician himself pay the increased pensions out of his pocket. Or maybe Andy Stern can pony up some cash to beef up the strength of the union pension funds. Or let the state go bankrupt, which it is anyway. But what is going to happen is that ordinary joes that don't have a powerful union buying off politicians are going to have their taxes raised a LOT so that union members can keep every penny of their retirement. The ordinary joe didn't make or benefit from that deal. The politician and the union boss and union members did. I guarantee only a few symbolic politicians and union bosses are going to pay a thing for their crimes. So they're out as sources of revenues.
So we're allocating a loss. Should it be the union members who had a crooked union boss and crooked politicians negotiating silly pension increases on their behalf? Or the productive members of the private sector sector (because they are the ones who will pay increased taxes and lose value of their 401ks) who had nothing to do with the deal at all, except (maybe) falling for the campaign ads bought by the union money and voting for the union designated toupee?
So some regular joes, unionized or otherwise, are going to take a big hit and have a crappy retirement. Should the productive portion of the private sector middle class take the entire hit?
The obligation is based on fantasy.
Yeah, gonna be one hell of a mob of angry folks who will feel they got cheated...lost house, lost job, lost pension, lost, lost, lost... anger, anger, anger. Just wonder what will be the match that lights the fuse that blows it all up....??? This will not end well.
Why should someone on a pension be any different than the individual who manages his/her own retirement account? I mean the family who had enough savings in a retirement account to produce X dollars at retirement all of the sudden can only produce Y dollars (which are lower than X) because the market crashed and their investments went down. They can't go to the Government and say, hey you need to make up the difference here.
I say that those with a pension need to just suck it up like the rest of the American retirees and move on to plan B. Nobody guaranteed my fathers retirement when MBank blew up and everything he had evaporated in thin air. He merely sucked it up and moved on and is now happily in retirement.
I question if these pension plans have been setting themselves up for this all along? A lot of these plans require a fairly aggressive and possibly unrealistic returns. Wouldn't you think that they would factor in an event like this? It seems to me like they haven't. Many of them (especially unionized plans) have set unrealistic retirement benefits to begin with. Where is Jimmy Hoffa anyway?
You talk about moral hazard, what in the world is our government doing taking over a pension when it fails? This is yet another Socialist example of how the average tax payer in this country gets screwed. It's awful, just plain awful.
Unfortunately, that's what you get with DB vs. DC plans. I believe altering the promised benefits of a DB pension after the fact would be a violation of contract law (are there any attorneys in the room who can verify this?).
We have to solve the problem on a going forward basis. Drop DB plans and adopt DCs. This is what the vast majority of the private sector has done. Shift the risk to the participants to help ensure the longevity of the organization. Do the same in the public sector, and the incentive for big government at the expense of private industry is reduced, because the results of the private sector will determine the rewards to the participants.
My $0.02.
The Dow ran up from a thousand to fourteen thousand in twenty odd years....so 8.25 % return seemed too conservative and the excess reserves were used to increase guaranteed benefits.
And the people who award the benefits themselves enjoy the rewards because they are also government employees.
Taxes in NJ are already prohibitive. Wealthy people are fleeing. The tax base will continue to erode. Who will be left to pay these present and future liabilities?
Christie should confront the situation instead of refusing to contribute the $3billion. NJ residents need to understand the crisis they're in. We will get change when people understand the dramatic magnitude of the fiscal crisis we're in.
One of my cousins living in Edison, NJ, was a surgeon there for years. Last year, he took a job offer in Vermont, paying him more money with six weeks off (paid). He told me NJ has become a shithole. I laughed and told him that it was always a shithole state...lol. Who the hell would want to live in Newark? Or for that matter Buffalo or Detroit? The only good thing is that things are so bad in these cities that they can only get better from here. At least I hope so.
Leo, you are right about Detroit in Wayne County, MI. This note is coming from Detroit because the utilities and building infrastructure of past times is here and available at relatively low cost. The best that can be done is to return the very large vacant areas to agriculture. Ford is located in Dearborn, GM is located in various places north in Oakland County. Chrysler is in Oakland County and most of the skilled labor lives somewhere West or North of what was Detroit.
But reading the board about pension needs leads me to think about what I and others on the board really need. Since I have strong memories of that time before Harry Truman took his "Excellent Vacation". Young men were going to war, coming back from war and everyone was accepting shortages and limitations on consumption that existed during the period. There were some people around who were obese but, as a problem, it it didn't exist. You can see what the builds of the people were generally like in the movies of the day. But the people in those movies were real. Charlie Chaplin and Harold Lloyd (from earlier times) did their own stunts without a net.
There was political corruption in many locations, aided and abetted by limitations on communication. One of the great things about life today, with the boob tube and the internet, is that corruption in high office cannot escape scrutiny.
However, the boob tube can exist because commercial interests need it for advertising geared to making people feel discontent with how they are or what they have. Yes, we have a certain amount of corruption at high levels and it MUST be fixed because its destructive effects will damage the lives of all. But while we want to fix the system, what do we really want within the confines of physical reality. The has to be a consistnat understanding what is fair for the public servants. There has to be a mechanism for protecting the buying power of individual reserves( personal savings or government pension going into the future.
Yes Dodd’s bill is inadequate, Yes, Kaufman for President.
Now that we agree, how do we arrive at a lawful means for implementing the discussion.
We all have representation at the state and national level. What do we really want?
Unfortunately, everyone is looking to scam the system, including politicians who are thinking about lucrative speaking arrangements, book tours, or board of director positions with big fat stock options once they leave office. It's all a scam but some of us still fight for the little guy. :)
I beg to differ that New Jersey was "always" a sheesh hole.
It's always darkest... just before it goes pitch black. Things in those cities could get REALLY exciting if government transfer payments get delayed or cancelled.
Why can't the money to fund promised pensions come from clawbacks of stolen trillions in crime on wall street? Then such clawback would resonate with justice; Instead of hitting the old when they're defenseless!
"Why can't the money to fund promised pensions come from clawbacks of stolen trillions in crime on wall street?"
See Zero Hedge's libertarian debate opposing any transaction tax on Wall Street...
The Zero Hedge Debate Society: The Transaction Tax Is Harmful
I couldn't care less about a transaction tax.
The point is, and I do care about it, is that our esteemed various gubmints can't throw trillions of dollars into the foul bankster dens fast enough, while $3 billion for the pensions of retired civil servants in NJ is too much. Where is the logic here? What is fair? Whose is the favored class? Granted, not everybody might have earned what they get - there are slackers everywhere. But my guess is that the vast majority have done what was expected of them and a few have gone beyond what was expected and now they are the ones who get screwed. Why wasn't there an across the board NJ government employee pay cut? If Greece can do it, why not NJ?
While I've never been a fan of unions, I'm just beginning to learn why they exist. And I'm coming to the conclusion that without a power base of some sort, the middle class is always going to suffer so that the elitists can survive and thrive. Fairness? Phooey! Power to the people.
And one more thing: Let us not forget who caused this Depression that has left the state and local governments in the position of having to cut costs. Who? Those elected federal officials who have spent and continue to spend carelessly on favored constituents and giving to the banksters while taking from everyone else. It pisses me off to see people taking it out on teachers, policemen and firefighters when the real problem is elsewhere. Get a grip.
+10. Entire states are junking the social contract that has served us all quite well for decades over shortfalls that amount to less than a single Wall Street investment bank spent, of taxpayer dollars, on employee bonuses just last year alone.
Yet we're tsk-tsking firemen for earning too much, and wanting the pensions that were always part of the architecture of their employment agreements to be honored?
I notice that military budgets and bailout costs (money going from all levels upward) are always discussed in annual terms, while health care costs, infrastructure costs and social expenditure costs (money going from all levels downward) are always discussed in costs over decades. Not making a political point, necessarily; just noticing who controls the terms of discussion.
Agreed. This would be fair. Unfortunately, we do not live in a society in which fairness is embraced. Exactly the opposite is the norm. Cheats, liars, frauds, etc. are tolerated and emulated. What a shithole!
Fireman are grossly overpaid. They work 3 shifts a week for 20 years and they get a full pension. Most take a second job while they work for the city because they have so much free time. Their skills are not rare. It is a simple job. They don't deserve the pay they receive.
"Fireman are grossly overpaid."
Herein Lies the Problem
The elite 1% that own you and I and particularly our markets, courts and government want us arguing over the scraps of this $14 trillion economy NOT being looted by the 1%.
They want you and I to argue over what Joe Fireman makes, it's the damn unions, etc. Admittedly I have complained about others pensions on this very post.
What we should focus on is why 1% is entitled to close to 70% or the wealth and resources of this society and the rest of us, 99% fight over scraps.
It is a rigged oligarchy game. House always wins at the casino. They do not deserve more because they are smarter. They simply stole more for longer periods and bought the rules in their favor.
Nothing ever rises to the level of criminality for the oligarchy... just a little accounting "gimmick."
Chop at the top, not at the bottom.
I don't mean to bicker, but every fireman I know (about 6, in a couple different city departments) is about my age (mid-40's) and seriously, permanently, injured. When these guys reach retirement eligibility they will all be almost completely disabled and unable to do almost any job. Back, neck, shoulder,hip, knee injuries; every last one of them. It's like pro football players. I wouldn't do the job even if I could (I managed to injure my spine in a different way); it's just not worth the lifetime of pain and disability that is so likely.
I'm glad Christie came into office and decided to make this grand decision.
Is it possible he ate his way into that deficit?
Leo: your statements about the generally good intentions of teachers, safety officers etc. are true. However, it is easy to see that the promises made, the revenue and return assumptions, and the amount of money available do not much up, just as they do not match up with Medicare and Social Security. For the rest of us, who have no pension at all, the only savings left, that in 401ks, has been severely hammered. I know many people who moved their money out of equities at the bottom for fear of losing it all, and did not return, and have no enjoyed the run-up since. For that reason, Christie's action is the face of the future on this topic. Taxpayers will not bear the actual cost of these promises without a revolt.
"Taxpayers will not bear the actual cost of these promises without a revolt."
Agreed, there will be a revolt. I was speaking to a colleague of mine at lunch yesterday and he is sick of paying taxes through his nose in Quebec and wants to leave this province. And he is a French Quebecer! We are seeing our infrastructure crumble, health services deteriorating, and our unions are corrupt, engaging in intimidation and firing back amid scandal. Finally, Quebec Labour Minister Sam Hamad is promising to get to the bottom of allegations of intimidation and discrimination on construction sites in the province’s North Shore region. With thugs who only know intimidation, you call in the army, round them up and throw their asses in jail. People are sick and tired of paying taxes and watching corrupt unions getting away with murder. The construction industry is so corrupt, I wouldn't know where to begin to clean up house!
For those of you who speak French, watch this CBC investigative report on how one union leader lived the life of a millionaire:
Corporations are corrupt, unions are corrupt, government is corrupt.
You see the common denominator here, people. People are corrupt.
If its possible for one to cheat and steal and not get caught or pressure their way into it, they will. People that claim unions are to blame and dont talk about the company that took away their benefits at one point that made them want to unionize in the first place, or, don't talk about the corporations that are able to commit crime and get away with it since it was the 'company' that did it and not the officers (Lehman), are being disingenuous.
Talk about reforming corporate law and allow officers to have higher liability and responsibility to their shareholders and employees, and there would be no need for a union. If non-exempt salaried workers are forced to work 80 hrs a week because the company wants to hire 1/2 the people to accomplish the same work, can you blame them for wanting to unionize?
"Corporations are corrupt, unions are corrupt, government is corrupt."
Yes. But governments have guns and a monopoly on force. Corporate and union corruption is only horribly bad when aided and abetted by the guys with guns.
"If non-exempt salaried workers are forced to work 80 hrs a week because the company wants to hire 1/2 the people to accomplish the same work, can you blame them for wanting to unionize?"
No. But that's not the core of the union problem. The big union problem is public employees. Their leaders use dues to buy politicians who vote unrealistic pensions and to increase the size of the government agencies who hire. That swells union coffers who buy more politicians and on and on. Most of the fiscal crisis in CA is attributable to this one factor.
You forgot religious leaders too. Anyway, hasn't this been all predicted? The apocalyptic visions? And apocalypse has its root in greek... the unveiling.
Unions... religion.... it is all akin to organized crime and only the truly foolish would believe in the ability or these things to NOT be corrupt to the core. It never ceases to amaze me what people will do under the regime of a so-called religion that has no real proof of a G-d (leader), heaven (reward) or hell (fear-based motivation). Ah, it saddens me that humans are so easy to manipulate.
too true. what's even worse is that a few of the founders of the US saw this and knew this to be the case. They tried to clearly identify the problem and put in clear safeguards...
as our current administration proves yet-again, i guess we can only hope for change... not expect it.
Get ready for more and more taxes as they do whatever it takes to keep the ship from sinking -- middle america is toast
"They are owed their pensions but the government is going to claw them back"
Leo
The problem, at least in Illinois, is that the goverment unions have so much political clout that they have blocked pension reforms for new hires. Government wages are no longer low either when compared to the private sector. This is especially true for Fed jobs.
Keep what the current pensions and convert all pensions going forward next year to 401k/401b type accounts. Private employers have done it, time for the government workers to join the rest of us.
Latest news out of Indiana, more government worker apx. 440k now exceeds the number of workers in factory jobs. There will be no one left to pay goverment workers Leo.
http://article.wn.com/view/2010/03/14/Indiana_government_positions_surpass_factory_jobs/
Do New Jersey teachers, firemen, police officers and public sector workers know where their pension contributions are going? Do ZHers understand that these workers rely on their public sector pensions to retire in dignity and security?
All due respect, do these public employees realize they are bankruptcing New Jersey by taking pensions secured in a corrupt political process? Do these public workers realize most private employers provide defined contribution plans, rather than gold plated defined benefit plans?
Good point. Private individuals in self employment like me don't have huge union representation buying politicians who promise the moon at the expense of the private sector.
I have seen an overwhelming percentage of public employees scam the system working as much overtime as they can in their last year, double and triple dipping on already overinflated salaries. Just take the sheriff of San Luis Obispo county who draws $640,000 per year. Defend that.
Sure, some innocent and good people will suffer in the New Jersey pension problem, as they will elsewhere, but many private people have suffered for years paying taxes to these bloated unnecessary arrogant scamming bureaucrats and their politicians who have made laws and regulations punishing the self employed for decades now.
Why should the public sector get to retire in dignity and security, when the private sector rarely can?
The only way out of our mess it to get the private and public sectors on the same page... when government policy hurts the private side, the public side must suffer too. That hasn't been the case for decades, and look what its gotten us... a high-handed class of government overlords and busybodies, indifferent to all but their own power and perks.
If we suffer, they suffer... not in the name of vengence, but as a wake-up call. The bureaucratic indifference and/or outright hostility toward private enterprise must end. Now.
A society dominated by government is a stunted society, and the stunters need to live what they bring.
"Why should the public sector get to retire in dignity and security, when the private sector rarely can?"
"If we suffer, they suffer..."
That is what I think about Cali. Public pensions should be capped at median household income, currently $62k in Cali. If citizens wages go nowhere, public pay and pensions go nowhere...
Who needs more than $62k in retirement from a public job?
Well in Cali, evidently 6,133 collect more than $100k from CalPERS and 3,090 overpaid Peter Principled Administrators retired on more than $100k from CalSTRS.
I have found California Pension Reform, quite the informative website...
Obama stepped in and tore up GM contracts. Why not step into CA and tear those contracts too? W/O Obama and Stern.
Quid pro quo.
I couldn't agree more. Big government (at all levels) has become a huge drag on this great country, and unfortunately the pension/OPEB issue in the public sector is just the tip of the iceberg. We are becoming an ever growing welfare state at the expense of the private sector, which is an unsustainable model.
I saw an example of a Ill. congressman who retired in the fifties with a pension in the low $40s who survives into her 90s and she has to get by on alittle over $1oo grand every year.Im sure for the leadership she provided to ILL. this is a bargain. Im thinking FAIL.
While i have sympathy for those who depend on their retirement, hopefully ZH'ers now realize only a fool would rely on the government for anything related to checks reaching your doorstep or medical aid when it comes time for you to retire.
So are teachers, police officers, firemen, nurses and other public sector workers fools for relying on the government to manage their pensions in a prudent manner? C'mon, it's easy for us who live, breathe and talk finance 24/7 to say to others to manage their own money but most people couldn't care less about managing money. They're busy working at their jobs, which takes up all their energy. They are owed their pensions but the government is going to claw them back.
Who pays the price for their ignorance or indifference? Or greed? How else do you get a political revolution w/o the general population getting so screwed that they freakin WAKE UP?
If we had proper regulation then they wouldn't be in this mess. We wouldn't be in the mess. Political revolution won't come UNTIL "teachers, police officers, firemen, nurses and other public sector workers fools" take it on the chin.
No one EVER said life is fair.
We were all fools Leo for letting our government try to manage so much with such poor results.
We have been talking about SS problems, energy problems and deficit spending for 30+ years now without doing a dam thing.
I can remember hearing in the 70's about SS going broke.
(and once again, its not that we didn't have talented people and working models to follow in order to solve these problems,its that these folks were not allowed anywhere near the problems)
Now all these problems we have failed to deal with, strike us at essentially the same time.Which is exactly what problems do when one is stupid enough to not take them on as they present themselves..they fester and burst at the same, thus multiplying their damaging effects.
Its energy though that is going to deliver the fatal blow,
no amount of wind, solar or biofuels going to get us out of this one.
Should have never stopped building nuclear, it was just plain old fashioned stupidity that forced us off nuclear....
Anyway, the present crisis is still in its infancy, wait until gas
goes to 4+ bucks a gallon and diesel at $5, thats when the real pain begins...
which doesn't bode well for pension plans....
The question as I see it, Leo, is whether you break a promise, or you steal from innocent people in order to keep a promise that never should have been made.
I don't argue that failing to pay the pensions would be a severe hardship for many of those people. But paying them in full may bankrupt the state and likely force many of its people out, wiping out the tax base and resulting in a default anyway, but with a destroyed state as well. Is that a better approach?
I would picture something like the PBGC, where everyone owed a pension would get something, but it might not be the gold-plated six figure pension they were nominally owed.
i think this touches on the question i've been throwing at my peers:
"how do we deal with the un-keepable promises made to good working folks?"
the elements that float in my feeble mind:
- these aren't just union thugs, but more often our dedicated third-grade teachers
- it's not their fault that they were promised too much for their efforts
- many sufferred working for years in the public sector, a friggin'
cesspool of creativity, because of the promises of a secure future.
- the money isn't there.
- like iceland, the people who made the promises are not the ones who pay, it seems to fall back on the little folks.
- why should any working group get state-taxpayer-insured benefits when those in the 'real world' don't. i don't want to bail them out, i'm trying like hell just to hold onto my own/family's future...
- why don't state pensioners participate in the free-market investment systems like everyone else? TIAA-CREF is just fine for the teachers... the model can work...
anyway, in the wanna-be black and white world of many, these questions aren't even considered. I'm curious what your take is, Leo - both in a perfect world, and in ours...
cheers
This is a thoughtful comment that identifies the heart of the problem. It's not just NJ pensions. Our governments have been running a ponzi scheme for fifty plus years promising to pay money that no reasonable person thought the economy could support. In some areas (social security) they used temporary surpluses to cover up budget deficits since the 1960's. It's the same problem everywhere now that the promises are beginning to come due.
It worked fine for the politicians--they got elected by demagoguing Social Security and preventing a solution while there was still time for one. With state employees, they got elected by promising fantasy-land pensions the taxpayers would not be able to support. Congressmen and presidents got elected by pretending to reduce or eliminate the federal deficit using the surplus from the social security trust fund.
What's worse, these promises are coming due just when the government-created wealth creating infrastructure of debt and asset bubbles that was expected to support payment of the obligations in part is unraveling (not unrelated events).
But ordinary folks believed the politicians and made plans for retirement based on those unsustainable promises. Similarly, people in the private sector did not plan on their taxes doubling when they planned for retirement either. And I had not planned on my 10 year old son facing the bill for all this excess nor on my savings being depleted by whatever combination of taxes and inflation our government has coming.
The fact is, the world does not produce wealth enough for everyone to have the upper middle-class retirement they have been promised. There will be winners and losers. TARP, the Stimulus and the Fed have created one big class of winners already--a lot of borrowed money has gone to those winners that other people will have to pay off.
What's happening now is the political battle over details of how folks who didn't cash out on TARP etc are going to split up what is left over as the fantasy retirements are made realistic. It's gonna be vicious and everyone not-connected to a strong political power base is going to take a big hit. Effectively, the "made-men" will do better than the rest (a lot of the made-men have already done very well with TARP, the Stimulus, and Fed polices). But even a lot of them are going to take a hit.
Democratic countries with a market-based economy have worked very well for quite a while. But this is their achilles heel. And we get to live thru it.
What's happening now is the political battle over details of how folks who didn't cash out on TARP etc are going to split up what is left over as the fantasy retirements are made realistic.
Unless a way is found to confiscate what the fed has already accomplished...
Excellent comment Breaker.
Bingo! We have a winner! We are in the early stages of the vicious infighting to divy up what remains. This civil war of sorts (not yet a war, but it certainly won't be civil) will likely go on for years until the country is dead, broken up, or ruled by fascists. And I foresee much the same in the couple dozen other countries facing the same problem.
Charles Hugh Smith has a variety of commentary on this topic.