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The Utah Pension Model?
The WSJ reports on the Utah Pension Model:
As
Illinois and New Jersey struggle to reform their broken public pension
plans, we thought you might like to hear a success story for change.
Witness Utah, which last March replaced defined benefit pensions with a
401(k)-style plan for new state and municipal workers.
The
sponsor of the Utah reform was Senator Dan Liljenquist, who watched in
horror during the 2008 stock market plunge as the state pension fund
lost 22% of its assets. From nearly 100% funded in 2007, it fell to 70%
funded by 2009. Utah suddenly faced a long-term $6.5 billion funding
gap, and the state would have had to nearly double its annual
contributions out of the current budget to make up the shortfall.
Mr.
Liljenquist requested an analysis to determine the real and
unvarnished financial condition of the pension fund. The state was
assuming a 7.75% annual return on investment, and actuaries found that
if that return fell to only 6% the system would be technically
insolvent. The Utah constitution limits total state debt to 1.5% of the
value of all property in the state, and the unfunded pension liability
was one and a half times over that limit.
Utah's
constitution bars pension changes for current workers—short of an
imminent financial crisis in the fund—so the legislature created a
defined contribution plan for all new hires starting this year. The
state contributes 10% of each worker's salary (12% for public safety
workers and firefighters), a generous amount by private company
standards. If they wish, new workers can choose a defined benefit plan,
but the state contribution to such a plan is no longer open-ended but
is legally capped at 10%.
The reform has benefits for taxpayers
and public employees. Workers own their retirement account and can
carry it to another job. They also benefit because politicians can no
longer steal from the pension plan to pay for other government
spending. As for taxpayers, the reform will eventually slash state
pension liabilities in half and they no longer bear the risk of having
to pay higher taxes if the stock market declines.
Union
leaders nonetheless resisted the plan, holding public rallies and
threatening to defeat any legislator who dared to vote for it. But
polls found that Utah voters supported reform, recognizing that the
changes were fair and financially imperative. Not a single Republican
who voted for the reforms lost, and the GOP picked up seats in 2010.
From
now on in Utah, tax increases or spending cuts for schools, parks or
roads won't be necessary to make legally required payments to retired
state workers. The contrast couldn't be sharper with California, New
York, New Jersey, Illinois and other states in which pension
contributions are squeezing out other priorities.
We hear Montana could
be the next state to adopt the Utah model, and something like a dozen
more are interested in what looks to be a winner for taxpayers, workers
and state budgets.
I bring this to your
attention because I think other states are going to follow Utah's lead
and start shifting new workers into defined-contribution plans or
defined-benefit plans with caps on state contributions.
This
trend of converting into defined-contribution plans is worrisome and it
has been going on for quite some time in the private sector. Paul Delean
of the Montreal Gazette reports, Times are changing for company pension funds:
Canadian
companies with large pension-fund deficits are starting to play
hardball with employees, and it may just be the tip of the iceberg.
"Used
to be that few employers were ready to fight over it, but times are
changing," Michel St. Germain, a partner at Mercer Canada and
pension-fund consultant, told the firm's annual pension-outlook
conference in Montreal on Tuesday.
In Sudbury, a
year-long strike did not deter Vale Ltd. from its plan to switch new
employees to defined-contribution plans, in which it makes an annual
pension contribution per employee but assumes no financial risk beyond
that. Vale's defined-benefit pension fund had a shortfall of $729
million.
In Hamilton, U.S. Steel Canada locked out 900
employees at the former Stelco plant last fall, in part because it wants
to introduce a defined-contribution pension plan for new employees and
end indexing for the defined-benefit plan it inherited after
purchasing Stelco in 2007. That plan had a deficit of $1.2 billion.
Defined-benefit
plans, in which companies provide employees with a set payment in
retirement based on years of service, are becoming the exception in
Canada, because of their cost and the financial responsibility placed on
the corporations.
"They're excellent for employees," St. Germain said, "and very bad for shareholders."
Most
companies with such plans are running sizeable pension deficits, and
St. Germain said two years of strong equity markets have done little to
improve the solvency level because they've also featured rock-bottom
interest rates. (Mercer has the solvency index for Canadian plans below
60 per cent, down from almost 100 per cent in 2000).
At
a time when they should be getting more conservative, along with their
aging workforces, many plans still are carrying a high level of risk
because their managers feel it's the only way to generate the returns
needed to make up lost ground, St. Germain noted.
Public-sector
plans have the same problems but not the same pressure, since they can
pass on shortfalls to the taxpayer, as homeowners who received
increased property-tax bills recently can attest. St. Germain said.
"The challenge," he said, "will be to justify (those increases) to taxpayers."
Defined-contribution
plans put the onus on employees to manage their retirement funds,
something many are "completely incapable" of doing, St. Germain said.
It's not unusual to find young employees with less than 20 per cent of
their nestegg in equities and older ones holding 100 per cent in stock,
the exact opposite of what's advisable, he said.
Still, St. Germain isn't sold on recently-floated proposals to make retirement saving mandatory.
Paying
down debt or a mortgage or investing in your children's future might
well be a better option than an RRSP for many people, he said.
But
he urged Quebec to take action sooner than later in boosting the
contribution rates for the Quebec Pension Plan, since it's been known
for four years the provincial plan is headed for capitalization
problems. "At some point, you have to stop analyzing and take a
decision," he said.
I'm not
as concerned as Mr. St. Germain about pension funds (or individuals)
taking high risk in equities right now. The Fed's master plan remains
reflate and inflate at all cost and do everything it takes to avoid
deflation. So far, it's working, and while some fear major inflation is
on its way, I tell them to relax. What I see on its way is another major
bubble in stocks as banks and hedge funds get ready for the next big
ramp job. Everyone is so skeptical and bearish. Some are warning us that
we've seen this movie before.
Maybe, but I think stocks will keep grinding higher and all those
skeptical portfolio managers will be chasing indexes later this year.
Sure,
there will be pullbacks, but top funds will be buying them, navigating
through the volatility. And that's why I don't like this shift into
defined-contribution plans. The Utah pension model may look reasonable
but it's just based on what is going on in the private sector where the
retirement onus is increasingly being put on individuals. You can't
compare this to a defined-benefit plan where workers enjoy the peace of
mind and benefits that come with a professionally managed pension fund
that invests across public and private markets. But given the fiscal
woes that states face, I fear that the Utah pension model is going to
become the norm, and workers will lose out.
»
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From the article, "...polls found that Utah voters supported reform..."
I love how a democratic legislature (read: democracy) literally has to ask the populous how they should do their own jobs, as if there was ever any other way a democracy is supposed to work.
Put the power to vote back in the hands of the people, rather than the middle-men that make up state congresses, and we'll start seeing better reform in this nation. For reference, this was written by an Illinois resident who is now paying more in taxes due to a law that was passed by a lame duck congress that represents nothing they stood for when they were voted into office. </rant>
No.
The Utah Pension Model is not the solution to State's pension woes.
In fact it will hasten the inevitable demise as contributions to the ponzi reduce.
The problem isn't new hires - not for thirty plus years anyway - it is that an aristocracy of sixty and seventy somethings will scoop the pot.
The fair solution is to proportionally reduce benefits by the percentage shortfall of the fund. That is the only way forties and fifties can be protected (they lose everything under defined contribution for new hires.)
My dear lonewar,
I've got a cousin in the Calif. welfare dept. who tries her best to help everyone. As funds dry up she is heaped with more and more people to help with a time clock ticking for each client. She is now heart broken because she can't take enough time with a single client to make any difference in their lives. She has become upset and relatively useless in her job but she does get a pay check which is the only income keeping the family from going hungry.
I see workers and independent small business people working fewer hours if they still have work. My business is not able to give me any income except a mandated health insurance plan. Without a war chest of my own chosen investments and taking personal responsibility to handle my future I would have long ago run out of unemployment insurance, might have to sell off my inventory at a 40% less than cost and sell my home for 30% less than it was worth a few years ago.
We all have gripes but if you rely on someone else to make all your future support plans you are like a baby that needs to be spoon fed. Personally I wouldn't put myself in that position especially if I was promised to be taken care of by a corrupt, bloated and capricious govt.
I spend hours learning every day to do my best to stay financially safe. You get to go home at the end of the day and turn on the TV with a beer. It has been your decision to stay financially and politically ignorant. At least you have taken the step to follow Zero Hedge and learn.
It's interesting that Utah is attempting to follow the rules of their state Constitution. Here in California the state Constitution, propositions, and the public welfare is totally ignored. The California Constitution requires a balanced budget. Is that a laugh?
"Is the The Utah pension model the solution to states' pension woes?"
No Leo. Only leftie ideas and Solar stocks will save the world....We both know that
Solar stocks are on fire again.....you have been warned!!!
You might want to take a look at what a doomed solar stock did in Massachusetts. Basically it ripped the state off for $50 some million then fired everyone. Somethings on fire but it ain't solar stocks. And China is just wasting a bunch of money on solar - but hell, they have a lot of money. So, you have been warned.
"The Patrick administration yesterday dragged its feet on releasing public records of its ill-fated, $58 million taxpayer investment in Evergreen Solar even as energy experts questioned why officials ignored early warnings that the firm’s new Devens plant stood little chance against cutthroat overseas competition.
“They should (have consulted) somebody who is more up to speed on the technology, somebody who knew the industry in terms of economics,” said Adam Krop, a solar market analyst with Ardour Capital Partners, who has monitored Evergreen for years and questioned the state’s 2007 investment in the firm. “You could see the trajectory at that point.”
Patrick began touting Evergreen during his 2006 campaign, and moved quickly as governor to wager tens of millions of taxpayer dough to entice the firm to build its solar panel plant in Devens. But by then, Krop said, solar companies in Asia were rapidly expanding their solar panel plants in a bid to undercut U.S. manufacturers, meaning the Devens plant was doomed."
http://www.bostonherald.com/news/politics/view/20110119evergreen_solar_e...
Fail. Epically.
These are not problems in the classic sense, searching for and finding a solution.
These are more like 'black holes', and virgins, and Elvis. We think they're there but we really can't find any to prove it.
Someone has to take the risk of pension assets underperforming. If it isn't the person who benefits from the pension, it has to be someone else. I see no reason that it is fairer to offload the risk onto someone who won't benefit if the investment returns are better than expected. "Heads I win, tails you lose" isn't a fair or sustainable strategy.
Maybe if the FED would give savers a resonable rate, then their wouldn't have tobe much of a risk of underperformance. Pension plans are forced to chase return and speculate because of ZIRP
"This trend of converting into defined-contribution plans is worrisome..."
Why?
"But given the fiscal woes that states face, I fear that the Utah pension model is going to become the norm, and workers will lose out."
Aha!
So, the crux of every Leo screed appears yet again.
Risky 401k's are perfectly fine for the private sector but we must have tax payer subsidized pensions in perpetuity for the public sector.
Friggin socialist statist.
You constantly frame your posts in a question Leo, without bothering to answer any questions...answer mine...for the fifth time I will ask;
http://www.zerohedge.com/article/outlook-2011-climbing-wall-worry#comment-842138
"Risky 401k's are perfectly fine for the private sector but we must have tax payer subsidized pensions in perpetuity for the public sector."
Guaranteed gains in perpetuity seems insane for us, but I can't help but notice that it poses no difficulties for elite families and banksters.
Hi Bob,
"Guaranteed gains in perpetuity seems insane for us, but I can't help but notice that it poses no difficulties for elite families and banksters."
This is what I'm talking about...exactly.
In this case, the public sector are the elites. Take the time to look at the link I provided on this thread...it leads to another of Leo's screeds...there you will see...the federal worker is set up in trust funds...not a "pension plan" as everyone loosely defines it. It bears no market risk because it is not traded on the market.
The state worker is different...they are indeed at the mercy of a criminal enterprise...the fed & the banks.
It is ponzification personified.
There are three sets in the retirement ponzi.
1)The private worker who bears total risk of job loss and market loss of retirement savings.
2)The state & local worker who bears little risk of job loss and the same risk of retirement loss as number one.
3)The federal worker who bears infinitesimal risk of job loss and no risk of retirement loss by virtue of a trust fund posing as a pension fund.
Everything flows toward the top Bob.
So, when I said (in the provided link) where are all my progressive friends screaming about "trust fund babies"...I was serious.
The top is set up the same way...except they never produced anything to actually earn it.
It was derived from taxation and devaluing the dollar by printing to maintain nominal value...which is not real value (as the dollar declines) it is an illusion.
You are a shortsighted idiot. Let me explain something to all of you idiots who think the same way. Defined-contribution plans are a JOKE! Their performance lags that of professionally managed defined-benefit plans who are able to invest across public and private markets. The shift into defined-contribution plans will ACCELERATE pension poverty, increasing social welfare costs and medical expenses down the road. You save pennies now but will end up paying a lot more as we head down the road of pension poverty.
Ummm Leo...your arms seem to be full holding up this strawman you & others like you have created.
You don't intend to respond to my pointing out the ponzi within a ponzi do you? Why?
Anyone who followed my link to your 1/1/2011 musings knows full well the federal retirement program is set up as a trust...not a "pension plan". There is no risk at all in that trust is there Leo?
And what of Black Rock the (ahem) administrator of the plan...do you think it fair for them to skim off the top of all contributions into it for basically being a glorified accountant?
Again, it is a trust (the feds retirement)...they are not mutual funds, they are not traded in the free market, there is zero risk...or is there? ;-)
They can print at will or impose whatever tax on the public they desire to save themselves...can't they?
The states will have to turn to the fed to fund theirs because we are, frankly, tapped out.
Your little rants designed to elicit compassion for those riding in the cart fall on deaf ears to those who are pulling the cart. But rest assured we will not allow them to starve...they can be paid off in food stamps & rent subsidies...you will have everything (mostly) that you ever wanted.
To be taken care of & bear no risk or responsibility for yourself, this should be pleasing to you, it's what you advocate.
I find this fair.
"I'm not as concerned as Mr. St. Germain about pension funds (or individuals) taking high risk in equities right now."
What? If high risk means being wiped out, that could zero out everything! Anyone who quickly dismisses such a possibility isn't anyone that I'd take financial advice from!
401 K's are the biggest rip off ever invented, and a cruel joke on the workers -savers who think they stand a chance when they get ready to retire to have money to live on.
The 401 K is only good if Wall Street doesn't rape it at will, which they surely do. Defined plans are a better deal.
Everyone pulls the bullshit smoke and glass easy fix, this Utah plan sucks.
Camden County NJ has a plan to cut pension woes!
lets be honest...
if someone is the beneficiary of a pension... 95% of those persons can not comprehend investment, to any level of complexity... so whether the pension funds rob them blind, thru kick backs... for purchasing shady asset classes... or whether wall street gets direct with the stupid money... either way, they get robbed and they are ignorant and entitled... fuckem all! let them burn.
and people thought Reagan was dead... union busting, all nations at one time!
Correct. funny how Wall St. seems to have been conveniently neglected in this conversation ! DELIBERATE looting of pension fund money by GOLDMAN S. They wanted it all .
Like taking candy from a baby.
Or food stamps from a homeless man with the DT's.
I am sorry, but without my Defined Benefit plan, I would leave my public sector job in a heart beat and go make twice the money else where.
The only way you can fill half the LOW level public sector jobs is because of the benefits. And these are the jobs that the public demands, eligibility workers, librarians, clerks, and paper-pushers all, to record your benefits, get your kid a book, or determine eligibility for the public trough.
We get shit on (Literally), cussed at, threatened, spit on, assaulted, and we are literally buried in people begging for help.
If it wasnt for the almost immunity from firing and the benefits, NO one would work here. It is one of the worst, most degrading, and demanding jobs you can find.
But I sleep easy at night knowing that after 34 years of work I wont give a shit if Wall Street has fucked the markets. I dont care if real-estate is up or down. Or if the market has tanked, or is being fed newborns to keep it floating higher. I get my money.
All you stupid assed private sector employees who fell for the biggest scam of the 80s (401k) can have your ulcers and heartburn and early heart attacks when the market drops 50% because Wall Street wanted a bigger bonus and so shorted the shit out of it.
Now granted, I would LOVE to see some accountability to the people that run these funds. I would LOVE some claw backs when the professionals lose 20+% in a year. I would cheer in the streets if the head of CalPERS and CalSTRs were arrested and charged with fraud, and lost everything back to the funds so the tax payer wasnt raped.
Hell, I would love it if these pension plans got togeather and started voting as a block to clean some of these Wall Street and other corporations the fuck up and made them concentrate on LONG TERM growth instead of next quarter's targets. If they started stuffing the compensation committees with Pension Plan picks who then gutted CEO and Admin Salaries from Wall Street, I would be exstatic.
But until then, public pension funds are just the easiest of public money to screw over and the Tax Payer is on the hook for it.
Are there even jobs available within your field of work in the private sector?!
You have no ability to take risk - that makes you a scardie cat - afraid then and afraid now. You can't eat what you kill because you hang nic naks and chachkis in your office, lol!
Running around your office pretending you are overworked, underpaid, stressed out over the phone ringing too much when you are a total phony, unable to make it in the real world. So you sold out, too easy street, much less main st. That is sad.
I hear that stupid "I could get a better paying job in the private sector" bullshit all the time. I have yet to see ONE SINGLE PERSON in a public sector job make good on that threat. The ones who do leave the public sector ALWAYS get lower paying jobs with less benefits. Quit trying to stoke your own ego; you are full of shit and we know it. If you weren't shuffling papers in a government building what REAL JOB SKILLS would you use to support yourself? What REAL JOB SKILLS would you use to make 200% more in the private sector, especially in this economy?
I'm claiming self absorbed BULLSHIT!
"I sleep easy at night knowing that after 34 years of work I wont give a shit if Wall Street has fucked the markets. I dont care if real-estate is up or down. Or if the market has tanked, or is being fed newborns to keep it floating higher. I get my money."
Lonewar,
When Cities, Counties, and States run out of money your pension check will be history. I suggest you start training for a private sector job to compensate. Of course you could be one of the many public employees who could not make it in the "private sector" in which case your fucked.
http://www.nytimes.com/2010/12/23/business/23prichard.html
The only thing more dangerous than ignorance is arrogance.
-Albert Einstein
"But until then, public pension funds are just the easiest of public money to screw over and the Tax Payer is on the hook for it."
Big fat JUNK on that BS.
I'm glad you posted your real attitude. I'm confident other public employees have the same attitude.
Your don't-give-a-crap-about-taxpayers attitude is WHY your state government is approaching bankruptcy. When (not if) bankruptcy comes, your taxpayer-funded pensions will vanish. Those pension funds are state assets and they'll go to help pay off creditors, as in any bankruptcy.
On the one hand I know the Fed is slowly destroying America. On the other hand I'm very glad the Fed has said they're not going to bail out state, county, and city governments. Let them go bankrupt and all those cushy pensions disappear. Taxpayers will rejoice.
I wonder how many public employees said TBTF banks shouldn't be bailed out, they should pay for their own irresponsible ways, eat their losses, and go bankrupt?
Taxpayers feel the same way about irresponsible state, county, and city governments. Let them eat their losses and go bankrupt.
P.S. Good luck finding a job in the private sector. You know, those private sector employers, those taxpayers you look down your nose at. Yes, good fucking luck asshole.
if we have a true currency crisis your benefits won't be guarenteed. If they change the whole monetary system I wouldn't sleep well at night if i were you. There are no public jobs if the private sector is completely collapsed. We are only in inning one.
Private or public sector, we are all on the same side against the connected bankers and their cronies in government who won't arrest or even regulate them.
+1
Enjoy your sleeps now because you may very well be shit on when you retire too. Just consider the possibility that you are being played as a fool, promising you benefits after years of drudgery, instead of paying you up front. It doesn't concern you at all that the money won't be there when you retire? Wake up.
Dave Johnson, Campaign for America's Future: "Since the 80s many employers have stopped offering health care, pensions and other benefits to their employees. Many are also cutting pay and hours, while increasing the workload. So more and more people are hurting. As more and more of us fall further and further behind, corporate/conservative propagandists use resentment to drive anti-union feelings. They tell people to oppose unions, saying, 'Why should they have it so good?' The real question you should ask is, 'Why should we have it so bad?'"
http://www.truth-out.org/pension-envy66760
You must work for the unions and be on one of their fat salary/pension/benefits packages. I deal directly with unionized employees and their Business Agents. The average union worker makes around $45,000 a year in our business. The average Business Agent makes $125,000 a year plus company vehicle plus ~$15,000 expense account plus medical their entire life plus double retirement benefits. The unions are no better than the corporate "fat cats" you are trying to undermine.
I have worked for unions, but not in the past 10 years. I realize as well as anyone that there are problems with them, but the conflict between the parties is necessary from a simple "checks and balances" standpoint. Look what you get without that conflict: A relentlessly developing third world economy. That's a problem--for labor, at least.
But there's $144B for bonuses to banksters.
But the bankers deserve it for doing umm, ummm, ummmm.... need a little help here. I got it! For stealing money from the middle class in order to make a country which no longer has a middle class thereby pitting two classes against each other (rich and poor) instead of the relatively calm middle class. It is easier for the politicians to control the poor than it is the middle class. Give the poor free cable and food stamps that work at McD's and they are appeased.
Enough fun. I agree the bankers don't deserve $10+ million dollar bonuses. But what the hell are we going to do about it when the bankers use that $$$ to support their favorite politician who then use their power while in office to support the bankers.
Remember who you work for - the private sector people who pay your wages through their taxes. Or do you really think that us stupid assed private sector people give a shit about your pension. I live in IL where coming soon the public sector people are about to feel a pinch in their retirement benefits. Lesson: Don't go spouting off about how great your pension is today when tomorrow your bosses can easily cut it in half.
You seem to overlook the fact that most of us "stupid assed private sector employees" are quite content to default on your pension obligations and simply roll your ass into social security.
Many more are also quite content to blow your head off.
Drone. Bzzzzzz....
you said
I am sorry, but without my Defined Benefit plan, I would leave my public sector job in a heart beat and go make twice the money else where.
what a joke
doubt you could even get a job in the private sector
at your present wage, let alone at 2x ...
because if you could
you would have done so , many years ago
people like you are the problem ...
My wife is a public sector employee and I hear this all the time from her colleagues: how much they would be making if they didn't sacrifice so much by working in the public sector. It's almost comical. I wouldn't go so far as saying the commenter would not be able to get a job in the private sector but I would question the intelligence of someone who continued to work for half his/her 'true salary' for a future reward based on 1) the promises of politicians and 2) guaranteed 8% gains per annum [edit: gains in the pension fund].
Spot on.
+1000.
i dont understand why they keep wanting to grandfathering the pigs who made up these fraudulent promises of the pension ponzi scam in the first place, making the new hires who have nothing to do with the ponzi isnt going to help or save any collapses !
Why aren't the jackasses who ran the Pension Funds on the hook for the losses?
None of them have ever heard of hedging their bets?
I don't see where it is the Taxpayer's responsibility to replenish a Pension Fund that has lost a big chunk of cash in the Markets.
There are no guarantees that every Investor will make Money.
-& further, it is an issue for the Investors to take up with the People running the Funds when they lose Money, and with the Atty. Generals where there has been Fraud in the Funds; -as in selling AAA Rated MBS into the Pensions that it turns out do not contain AAA Loans, or in some case -nothing at all...
I still don't understand why public sector employees can't retire on a 401k and ss like evertyone else.
Political pressure, thats why. The currnent situation has been slowly constructed from constant pressure to expand/bend/shape the laws under the guise of some 'economic necessity' for workers. Its nothing to do with economics, pure politics.......and here we are, wondering what to do about this 'situation' like its some big surprise.
Yes, they can retire on a 401k like everyone else.
Exactly. Or why don't the public sector pensions just purchase the municipal bonds in the municipality or state where they operate and be content with that yield? Answer: the benefits defined in those plans were unrealistic promises based on 8% annual growth expectations.
There was some bozo here on the boards last month claiming that the "promise" to the public sector employees were somehow sacred and those employees gave up "big gains" in the private sector for the "security" of the pension. Forget about a delusional mind imagining amazing gains that teachers would be making with their English degrees in the private sector, he just couldn't understand that promises from politicians (even when made to unions) are about as solid as mercury.
You folks were junked by public sector drones no doubt.