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Wisconsin’s Public Pension Problems?
Via Pension Pulse.Dan Bigman of Forbes wants to remind you Wisconsin’s Public Pension Problems Are Your Problem, Too. But are they really or is this more fear mongering? Zach Carter of the Huffington Post reports, Wisconsin's Pension Fund Among Nation's Healthiest:
While Wisconsin Gov. Scott Walker (R) has painted a dire picture of his state's pension obligations, Wisconsin's pension fund for public employees is among the nation's strongest, according to a report by the nonpartisan Pew Research Center*.
The Pew report, issued last year, concluded that Wisconsin is a "national leader in managing its long-term liabilities for both pension and retiree health care." Walker has cited the fund's lack of sustainability as grounds for his plan to revoke collective bargaining rights for state employees, but that proposal has sparked outrage among state employees and drawn tens of thousands of protesters to the state's capitol.
"We're going to ask our state and local workers ... to pay a little bit more, to sacrifice, to help to balance this budget," Walker said in a Sunday interview with Fox News' Chris Wallace, adding that he would be forced to lay off 5,000 to 6,000 state employees if his budget plan was not approved, as well as a comparable number of local public employees.
But the Wisconsin pension fund is simply not in fiscal trouble. Its managers weren't burned by subprime mortgage assets or mortgage-backed securities as the housing bubble collapsed. The fund also relies on an automated dividend system, which pays out benefits in years the system is making gains while restricting payouts in years when it takes losses. And while the pension fund had a rough year during 2008 due to stock market losses, it remains robust, both in terms of fundamental financial stability and in comparison to other state pension programs.
According to the Pew study, Wisconsin had about $77 billion in total pension liabilities in 2008. But according to that same Pew study, those liabilities were 99.67 percent "funded," giving Wisconsin one of the four-highest of such ratios in the nation. Other states had funding ratios as low as 54 percent. For comparison, expert analysts and the Government Accountability Office consider an 80 percent level to be a good benchmark for pension fund stability, while Fitch Ratings considers 70 percent adequate.
Pension accounting relies on a very long-term outlook. When the state calculates its pension liabilities, it adds up the total expected pension expenditures for the entire lifetimes of everybody currently receiving a pension and all employees expected to receive pensions. That outlook routinely eclipses 30 years, depending on the ages of state employees. A $77 billion liability is only a problem if the state has no realistic way of meeting those expenses over that 30-plus year timeframe. But the Wisconsin pension system actually does have the vast majority of that money -- in fact, in 2008, the pension fund had 99.67 percent percent of that $77 billion total on hand. If all of the assets in the fund had simply been sold at market values on June 30, the resulting cash would have been enough to pay 99.67 percent of the state's total pension payouts for decades to come.
According to the Wisconsin pension fund's own 2010 annual report, the system had $69.1 billion in total assets at June 30, 2010, while paying out $3.7 billion in benefits over the course of the previous year. The value of those assets has since risen. According to Dave Stella, secretary of the Wisconsin Department of Employee Trust Funds, the retirement system's assets were worth $79.8 billion at the end of last month. The most recent solvency test for the fund was conducted for the fund's operations at Dec. 31, 2009. At the time, the funding ratio was 99.8 percent. The next solvency test is scheduled for June of this year.
So while Wisconsin does face a $137 million budget shortfall this year, the source of that fiscal trouble is not the state's pension fund. Under the current plan, Walker hopes to generate $30 million this year by raising taxes on public employees -- the governor refers to this as increasing the "contribution" that state employees make to their pension funds.
But Walker could make the state's pension system bear the costs of a broader state budget shortfall -- one created almost entirely by lower tax revenues resulting from the economic downturn -- without raising taxes on public workers or eliminating public bargaining rights. All he has to do is cut a few ties with the financial-services industry.
According to the pension fund's 2010 report, the fund spends about 84 percent of its management costs on outside help -- highly-compensated fund managers who work for private-sector financial firms. While Wisconsin has made a concerted effort to bring more of its fund management in-house, it could do more.
In 2009, roughly half of the pension fund's total assets were managed by state employees, who were paid a total of $28.4 million for their work. By contrast, outside Wall Street professionals were paid $194.7 million to manage the other half of the fund's assets. Cutting Wall Street pay, or simply moving more fund management in-house, could easily generate the $30 million in new taxes Walker wants to assess on state employees.
Wisconsin accounts for its pension fund assets using "mark-to-market" accounting. That means that while the state often expects to hold its assets indefinitely, collecting interest payments until the assets expire, it can't simply add up those expected interest payments to determine the value of an asset. Instead, the fund can only say that the asset is worth what other investors are willing to pay for it at a given moment. If investors want to pay less than the future interest payments, that's too bad for Wisconsin.
While some accounting experts say this market-oriented accounting is a more honest and accurate way to represent asset values than other methods, U.S. corporations are often allowed much more lenient accounting standards. During the financial crisis, for instance, many banks balked at the suggestion that they be required to account for subprime mortgage bonds at the prices that people were actually willing to pay for them. Instead, they argued, banks should be allowed to account for these items based on secret company economic models. If Wisconsin and other pension funds were simply cut the same slack that the government cut for Wall Street, it's easy to imagine pension fund worries easing, even in states whose pension situations are more dire.
[*Correction: Sarah Jorgenson of The Pew Charitable Trusts sent me this correction: We saw your Wisconsin pensions article today and wanted to flag an inacurracy. Zach Carter of the Huffington Post misattributed Pew's report, "The Trillion Dollar Gap," to The Pew Research Center. The report was issued by The Pew Center on the States, a division of The Pew Charitable Trusts. The Pew Research Center is a separate, independent subsidiary.]
I agree with Mr. Carter, public pension funds should be cut some slack but in some cases like in Oklahoma where state Treasurer Ken Miller warned that state pensions are at a "crisis level", more drastic reforms need to be taken.
I also agree that Wisconsin's pension fund is in decent shape and they should move more assets in-house to save some fees. On that front, I noticed that Wisconsin's public pension fund recently made its first investment in a hedge fund, allocating $100 million to Capula Investment Management. This might be because they don't have internal expertise to implement such a strategy but they can cut fees elsewhere.
You'll also recall that Wisconsin leveraged up its bond portfolio, a strategy that others were tinkering with. If done properly, it can be a source of leveraged beta by ramping up fixed income to get equity-like returns, but it can also present additional risks that will come back to haunt them. Pensions should carefully think through the ramifications of implementing such a strategy.
Finally, state workers across the US are understandably worried about what's going on in Wisconsin (watch video below). As labour unrest spreads, expect some major showdowns ahead. This has the potential to get very ugly, very quickly.
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So the two choices are higher taxes to fund the unions, or the Koch brothers get the state's infrastructure at bargin prices.
I think we need a third choice here.
Perhaps you should move to Chicago, under Rahm, where there are no choices.
Do you honestly think I favor no choices?
You sir, are an idiot.
I live in a 1231 square-foot house in the Bay Area. My property taxes are more than $9000 annually. More than 60 percent of my property taxes go toward servicing the schools. My state income tax bracket is 10.55%. In California, 55% of state budget tax revenues go to education. I pay 9.250% sales tax.
I have no children.
Californians voted in the majority for Proposition 187, the 1994 Save Our State ballot initiative. It passed with 59% of the vote. The state initiative, to end California tax money being used for mandatory welfare for illegal aliens, was overturned by a single Federal judge.
The teachers are a service sector. And they vote their pocketbook in support of immigration issues to expand their school district enrollment, thereby increasing the budget available for salaries. Many K-3 classrooms are limited to 20 students by union contract. White students now comprise less than 31% of California’s school population; Mexicans more than 50%.
In California, according to The San Francisco Chronicle last July in City’s High Taxes, there are 140 city officials such as city managers who can retire at age 55 in a pension risk pool created by CalPERS who can earn $26 to $31 million dollars in retirement with the costs covered by small cities.
It’s all now just a matter of arithmetic, politicis aside, before it all comes crashing down.
Don’t know what to do when budgets need to get cut?? Close almost 50% of schools!..duh!!:
http://www.hedgefundlive.com/blog/got-budget-issues-follow-detroits-plan
who takes the hit when the plug is pulled on Apple?
Public sector workers shouldn't be allowed to vote or muscle themselves more and more stuff forever. At the end of the day they work for taxpayers and what taxpayers decide regarding terms and compensation should be the most important if not the only input. If you don't like the terms go work for someone else. That's how my job works.
Who is the "servant" here exactly?
"Leo, with respect HuffPuke has zero credibility"
You can say that again. Wisconsin may not be the worst of the worst but there are plenty of budget problems. If you want to see a great graph showing all the states problems here it is...
http://www.economicpolicyjournal.com/2011/02/projected-state-budget-shortfalls.html
I hear a lot about the need to obtain concessions from labor in this dispute, but it never seems to accompany what management will have to give up and management almost never takes the lead and gives up more than is asked of labor so as to prove the point of how dire it really is.
I find it hard to believe you are serious with that comment...but what managment are you referring to? The uions are the smartest of the bunch...totally manipulate the govt, pull on the heart strings of the 'working person', guaranteed cash flow from govt supplied benefits and political clout is maintained. Pathetic. When times are good and all the charts are moving nicely upward from left to right....everyone is happy. Disrupt that cash flow and all the bad deals previously entered into come to light, and the finger pointing can begin. Look at the auto industry! A friend was running a large auto parts company paying the highest union wage. They still went on strike! Wheh the screaming started, the union reps stated that the company was Profitable and therefore had money to give to the union or they went on strike..........see ya, fire up the shop in mexico! The entire plant gets shut around xmass, does the union give a shit? Multi millions were given to them with the help of GM. Nice way to do business.
Management is the taxpayers dumbshit and we have given up freaking plenty. We are demanding our middlemen (government) step up and stop giving away the keys to the store.
No, actually, management in this case would be the legislature and the governor who aren't giving up anything.
Look, those idiots are overpaid, too, but that isn't the point. There are many definitions of management, but none that apply here have any relevance to the government. In this case, they are the mediator between the public and the public sector union. Why on earth would the mediator's salary have anything to do with a dispute between two other parties?
The legislature, the governor, the labor relations boards...they are not paying the salaries and benefits and other costs. Those costs are borne by state/local revenues...mostly....yes....taxes. So.......the government is taking money from everyone and negotiating with a super-minority that also gives them direct political contributions.
Scott Walker has plenty of time to talk to "David Koch". He's not talking to anyone else. Interesting..
http://www.huffingtonpost.com/2011/02/23/scott-walker-buffalo-beast-phon...
Priceless.
If that episode doesn't reveal what a piece of shit he is, the stooges that support him are clueless and alway will be.
Can't wait until the Daily Show or Colbert get ahold of it.
Yeah...it's pretty much a given Attorney General Holder won't find anything "interesting" about taping & releasing a phone conversation without both party's knowledge or consent ;-)
Only one party needs to be aware of the taping for it to be legal. Otherwise, wiretaps or being wired would be inadmissible.
It appears I was wrong about the federal aspect of this as one of the parties doing the taping is the one who revealed what was said. Something to do with leaving a message on a answering machine perhaps?
I dunno.
I suppose the next thing we should consider is what will be said next going forward on any phone conversation you and I might have..."Is this being recorded?'...LOL.
However, in Wisconsin;
"If the person who records the wire, electronic, or oral communication is a party to the conversation or has obtained prior consent from one party, he may lawfully record and divulge the contents of the communication, unless he does so for the purpose of committing a criminal or tortious act. Wis. Stat. § 968.31."
http://www.rcfp.org/taping/states/wisconsin.html
I think any rational, reasonable person, judge or jury would say the intent was indeed to commit a "tortious act" as outlined in the accompanying story.
I would advise Ian Murphy to not answer the subpoena in person in the state of Wisconsin should it go that far ;-)
Rocky,
Respectfully...I don't think anything has changed regarding precedent or procedure...unless there's something in that ridiculous Patriot Act that hasn't been challenged on Constitutional grounds as of yet.
Communication wiretaps & recordings have to have a judges approval based on evidence in order to legally proceed by the state...same principle as any other "reasonable expectation" of privacy when speaking on the phone with someone else.
I'll have to look into it based on just curiosity alone seeing as how it was done across state lines.
Just a legal curiosity on my part...I have no idea what state law is regarding DOT's submission.
one needs a warrant in Wisconsin.
How is it done where you live?
Radio personalities have prank called folks for decades. The difference here is subjective only. I don't recall anyone having been sued over any of the "prank" calls yet. Is the Gov of WI suing anyone for the call?
story up on drudge too... at least the divide and conquer left vs right is being reported on both sides
I find it very interesting in a sort of detached way (becasue I benefit neither from whether the unions in Wisconsin win or lose or the governor prevails).
What are we talking about here? The people who fund the pensions through contributions AND taxes have agreed to all demands from the govenor except one and that is collective bargaining. The Governor is unwilling to concede that point and the question is why?I don't have the numbers to figure out how much the of the sate employees taxes also go toward their pensions but I would be interested to find out. To say that the private citizen is supporting the public workers pension is not entirely accurate bit that is a minor point.
Why won't the Governor concede that one point about collective bargaining? Obviously in this current climate it means nothing as the unions rolled over pretty damn quickly.
It seems to me it's political grandstanding. He wants to known as the tough guy, the guy who balanced the budget. However, as some have pointed out the budget was actually OK until he handed out some favors to his buddies. Again, a minor point in the great scheme of things. He is going to make this situation as bad as it can get to make his name synonymous with fiscal conservative and strong leader. He is looking to run for bigger office.
.
The only thing that will change that scenario is if the unions stand together and shut Wisconsin down.
If they want the script tell them to look at what Maggie Thatcher did to the coal miners in the UK.
If he actually gave a damn for the people of Wisconsin this would be over and done with already and the collective bargaining thing could be whittled away over the next couple of years
It's not political grandstanding on Walker's side. It is a called looking at the big picture, or the long-term. It is SO rare in American politics that people don't recognize it.
That doesn't explain the inconsistencies in his approach to the different unions.
If he were sincere there would be no picking and choosing of unions to get the ax.
This is a valid point. A downside aspect of "compromise" (if you believe Walker) or politics (if you don't). All the PUBLIC unions should be treated the same.
Indeed. Please note that the LE community fairly represents the coercive power of the State?
How many posters here today have been supporting the continued power of State Bureacracy. True Believers, Statists, and Union Brothers.
Beastie,
They don't need a script. It is already part of our history. Dr. King died for this cause. Why was Dr. King in Memphis in the first place?....to support the sanitation workers and the fight against then mayor Henry Loeb.
Google the phrase I AM A MAN.
King fought for Social Justice so did Chavez. Unions were the means to an end. CB was a tool. This is not about Human Dignity.
I agree with you about taking collective bargaining in time but look how quickly the union offered to pay..........they have plenty of cash but respect how they cannot lose CB or they may risk their own cash stream from members. How stupid is that, the union knows that money from the govt will Never stop, its from a large pretend account that never runs out or is ever questioned, balanced or reduced in any way...a union cash cow. Govt employees and teachers are the growth areas in the union.
That is guaranteed to make somebody's day.
No ones Pension problems led by any union is MY problem.
The Unions are what screwed this country up to begin with in the business sector.Public workers under a Pension plan except for Military, should not even exist.
Whiners, try looking at it from the side that had to make their OWN.
What's with the military exemption to your rule? A job is a job, no? Cops do a job like that to an extent. Is it the "nature" of the job that exempts the military? Where is the hard, fast line on that? Isn't military service voluntary? Just wondering...
All employment is voluntary and includes RISK.
RR, I asked earlier if you could be bought.
Somehow I doubt it very much.
It just looked like an obvious inconsistency. Asking for an explanation was natural.
so let me get this straight....a guys works and saves money on his own to retire, lets say 500k. For examples sake, lets say he finds a nice WI 5% tx free muni to invest in. He gets 25k interest, owes cap gains tax and goes on his way. The people protesting get nearly that in benefits for free. The saver is a capitalist bastard that needs to be punished............and the teachers need more cash because its just not enough in todays world. Am I missing something or is it just not explained that effectively the govt puts 500k in everyones account. WTF. Insult to injury, when the savers kid goes to college and applies for a low int loan...he must list his Assets, again he's a bourgois basterd that needs to be punished. The non-saver does not count his 500k in benefits as an asset, that guy is broke and needs more help, loan approved!!!!!!!!!!!!!
You seem to have missed the fact that benefits have been legally negotiated in lieu of wage increases, so they do not increase cost to the tax payer (the Govt saves an equal amount through wage reduction).
You may have missed the fact that the unions (btw it's not a teacher issue, they just seem to be an easy target for RW haters) have agreed to all of the claw backs the Governor (and Mr Koch... lol) are asking for.
Exactly. This is the transfer of wealth to the welfare state. But now the friction is developing. And the friction is, will the producing middle class and those who have managed to save a little be dissolved to pay for the non-producing?
Today’s CD rates in the SF Bay Area range from .65% to 1.45% for 24 months, up to 2.50% at Union Bank for five years (Citi 2.0 and BofA 2.25% and Provident Credit Union 2.1).
God help us!
Incidentally, as an electrical engineer with no company pension but an unmatched 401(k) and Social Security, I expect to be working for the rest of my life.
Very good question, JR. I think we have our answer about paying "the non-producing", i.e., the banksters, and it has been a resounding "Hell yeah."
So let's fight the little guys for the chump change.
Fifty times X is not "chump change"...I think I made a funny while making a point...LOL
Exacta-fucking-mundo.
Collective Bargaining at Its Finest: the saga of the two retirements -- SS on the decline because of the inflation lie; public service retirement on the rise because of collective bargaining and its continued incest with state and local politicians…
“In California each teacher contributes 8% of salary to CalSTRS (California State Teachers Retirement System), the school district adds 8.25% and the state puts in about 4%.
“Compare that to the private sector where employers and workers each contribute 6.2% to Social Security, and may contribute and match more through 401(k) savings…
“The fund’s (CalSTRS') shortage is exacerbated by cutbacks to teaching ranks, so fewer teachers are paying into the system. But the core of the problem has roots in the 1990s, when California took a contribution ‘holiday’ paring back payments to the two big state retirement systems (the sibling pension system CalPERS is for non-teaching state employees) and bumping up benefits even retroactively fattening retirees’ checks.
“When the economy tanked, CalSTRS’ portfolio dropped 25%. Combined with enhanced benefits, the system now has a ballooning gap between its promises and income, or $40.5 billion in unfunded liabilities.
“CalSTRS’ formula based largely on employee salary, age and longevity – tends to reward retirement at age 61½ . For example, a teacher who has worked for 35 years making $90,000 in her final year, could retire at age 62 and reap a $75,600 annual pension – 80% of salary. – LA Times 02.23.11
(In addition, California teachers can contribute into 403(b) accounts that usually can be rolled into Roth IRAs if they are leaving their jobs.)
Idiot, plenty of states have workers paying into their pensions ON TOP OF SOCIAL SECURITY.
Yes, and many teachers organizations have websites explaining how their members can collect on all three: Teachers Pension, 403(b)s and Social Security.
"It's nice if you can get it, and you can get it if you try (if you're a triple dipper...)"
Leo,
Can one assume you support the bill now in Congress to force greater disclosure in state pension funds? Really, this is needed so that we can have any faith whatsoever in that Pew report you linked to. As far as I could tell, the Pew report was based on what the state pension plans themselves reported. For example, on what rate of return is Wisconsin basing their 99% funded claim? I don't know. Indeed, I don't even know what the plan holds in it's portfolio, what is basing the mark to market valuations, etc. These are the sorts of things that need to be completely transparent if taxpayer are going to ultimately be on the hook for future claims.
I support any bill that promotes more transparency at PUBLIC and PRIVATE pension funds. That includes where they invest (hedge funds, PE managers, other asset managers), what they do internally with derivatives strategies, and what fees they pay out to external managers compared to what they pay out in total comp. to their internal managers. Bottom line: transparency and risk management are a MUST if you want to bolster pension governance.
What I find most interesting about what is happening in Wisconsin is that when democracy works against the Democrats, in this case, the Democrats in legislature run away so that the bill cannot be voted on.
I'm not here to get into a debate about Dems vs. Repubs because I'm not a big fan of either party but it seems like the idea of democracy is working against the minority (public sector employees), they simply do not participate. Of course, when it does work for them (pension/benefit increases) during good economic times and the majority (taxpayers) are, for lack of a better description, asleep at the wheel, it's OK, they'll gladly participate.
By the way, this is why the founding fathers created a republican federal govt. and all the state govts. were required to be republics before joining the union. There is a monumental difference between a republic and a democracy...this whole thing wouldn't be a problem if they knew the difference between those 2 forms of government. Democracies don't work.
exactly right bigdawg, They are acting like the typical spoil brat baby who doesn't get their way and they run and hide in the closet! My three yr old behaves like this!
Agreed.
And regardless whether the pension fund is well funded or not, public employees should not be getting better benefits than the private sector. They should be contributing much more for their pension and health benefits. Forget all of the politics -- why is this a bad idea? And if the plan should be over-funded after all the meager employee contributions, then just reduce state contributions and taxes.
The only real change in the proposed collective bargaining changes will not allow them to strike over changes in future benefits (can still strike over pay). This is some overwhelming change they can not live with?? Wow - they need to get in the real world.
Because you can say with absolute certainty that negotiation rights for wages won't be on the chopping block next year or the year after that using this obnoxious grab as precedent? Looks like you don't think any further out into the future than the stupid kleptocratic government you keep electing.