Scare the retirees to death.
At least that’s what it looks like when New Jersey’s Senate president Stephen Sweeney tells retirees they could see their pensions cut by two-thirds without reforms.
The bizarre part is he’s absolutely right…..though I don’t think he really believes it.
If every retiree, current and future, had their benefits reduced by two-thirds it would indeed save the plan since the contributions are averaging about one-third of what they should be. But who would sign up for this solution? Who is Sweeney’s audience for this warning:
“This is really serious — 2018 is the earliest we think the pensions will go broke, but they’re going broke before 2020,” he said. “That window is shrinking and that number is growing, and there’s got to be some drastic changes. My original bill, I don’t know if it’s enough.”
Of course it’s not enough but what else can be done? If retiree pensions are sacrosanct based on the belief that:
“It’s not fair to the workers. The promises that were made are not going to be kept. How do we look someone in the eye who’s worked 30 or 35 years and in 2018, all of a sudden people’s pensions are cut by two-thirds and they can’t live anymore?”
then who is to pay for those pensions? Is it fair to property owners to double their taxes? Is it fair to new government employees to have 50% of their salaries transferred to retirees? Is it fair to drivers to pay a $2-per-gallon gas tax to fund pensions?
There is no fair solution since for twenty years taxpayers, abetted by politicians and actuaries, shirked their obligations and there is no mechanism to recoup that money. Someone must now pay and, if it’s not going to be retirees, then who?
Posted by meep on April 15, 2011 at 4:19 am
Everyone will pay.
Including current retirees.
Posted by meep on April 15, 2011 at 5:54 am
Related, from a year ago:
http://powip.com/2010/04/promises-will-be-broken/
Posted by Mr. Bingley on April 15, 2011 at 7:27 am
Well, I don’t think it’s quite fair to say that “…for twenty years taxpayers, abetted by politicians and actuaries, shirked their obligations…” as this rather strongly implies that is was the taxpayers who created/granted those obligations, when in fact it was the politicians who imposed them upon them. Most taxpayers had no clue about any of the details of these contract agreements, or about how the politicians who ‘negotiated’ with the unions bought the unions’ political support with taxpayer’s funds.
Posted by muni-man on April 15, 2011 at 8:29 am
You’re exactly right. The outrageous self-dealing between unions and pols created this mess, not taxpayers shirking their responsibilities. This collusion has trampled the private sector taxpayer to a pulp. Now it’s payback time. Economics is now coming to the fore and will rule issues going forward, not some court. Same thing is gonna happen with the Feds. Congress will be forced, kicking and screaming all the way, to drastically cut back spending across the board or else market forces will do it for them within the next couple of years. By then the debt should go from $14T+ to near $20T. No way any of this stuff will continue for much longer.
Posted by burypensions on April 15, 2011 at 8:49 am
You’re both right but that doesn’t absolve taxpayers.
However arcane the details, taxpayers are paying the bills and it has been their ignorance of the actual numbers (regardless of whether they were lied to) that allowed excessive benefits and the underfunding of those benefits to lead us to this pass.
Being April 15 it’s a good time to point out that you are responsible for your own tax return regardless of who prepares it for you or advises you about it.
Posted by bpaterson on April 15, 2011 at 10:05 am
good, because I sure didnt make all these too lucrative deals. And its by april 18th this year not 15th.
Posted by Mr. Bingley on April 15, 2011 at 12:30 pm
Well, unless you’re in line for a Cabinet post, of course.
Posted by Larry Littlefield on April 15, 2011 at 7:29 am
“There is no fair solution since for twenty years taxpayers, abetted by politicians and actuaries, shirked their obligations and there is no mechanism to recoup that money. Someone must now pay and, if it’s not going to be retirees, then who?”
Of course, this is just one aspect of Generation Greed.
There is the federal debt, and the fact that all the additional regressive payroll taxes collected in the past under the 1983 deal to “save Social Security” were spent in the past, leaving nothing but a pile of IOUs in the “lock box.”
There is 30 years of inadequate infrastructure investment and maintenance.
There is 30 years of unbalanced trade and current account deficits, and the resulting private sector debts.
There is the related unwillingness to suffer short term inconvenience to cut our energy dependence in the 38 years (and counting) since the Arab Oil boycott.
And there is 38 years (and counting) of falling average private sector wages, except for those at the very top, with the consumer-based economy kept alive first by additional family workers working then by the loss of future pay (pensions and retiree health care in the private sector) that will hit consumer spending when those hired after 1982 reach retirement, then by rising consumer debt, and for now by soaring federal debt.
The future has been sacrificed, across the whole society. This isn’t a technical issue. It’s an issue of (bi-partisan) values.
Posted by skip3house on April 15, 2011 at 8:21 am
Pay off the federal debt now, and the budget is reduced by the many billions paid on its interest and principal. Use the 1999 thought of Donald Trump to one time tax accumulated great wealth at 20%, using the revenue to wipe out this debt. An always balanced budget makes it a complete solution.
Un-American to ‘seize’ such excess wealth? The vaunted Founders risked all their fortunes and lives for this liberty. Least we can do is accept new math that $20,000,000….equals….$16,000,000…. for this purpose. There is the distinct scenario more, now law-abiding middle class citizens, might just stop supplying the security necessary for such great wealth. Why protect what is not being used for our general welfare?
Posted by javagold on April 15, 2011 at 10:46 am
the retirees are going have to take the BIG hit….as i dont think they figured out a way to keep the rest of us suckers here to pay for the public pigs in the pension ponzi scam….soon 100% of the houses in NJ will go underwater , then it will be easy to pack up the family and leave this corrupt dump of a state and let the banks and the township fight over the property tax bill
Posted by skip3house on April 15, 2011 at 10:58 am
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” B. Fuller
Near the end of this posting comes a question worth considering. Why was the property tax not eliminated when the income tax was added? There would then have been no abuse of increasing this property tax.
‘Voluntary’ volume taxes, such as sales, sin,….. even gasoline…..can be added in place of property tax and its bureaucratic systems relying on blackmail to live in your home.
And, the drop of $600. per month in your average mortgage payment would more than offset any new taxes you choose to pay.
The cool thing would be our control of NJ State spending by just not buying stuff that feeds the monster.
As I understand conservatism, it wants more self-responsibility with responsive small government. Can’t get there with the blackmail of confiscating our property.
NJ could just eliminate the cruel, regressive, confiscatory property tax altogether.
Want mental exercising, just imagine the improvements.
No more Assessment bureaucracy. No loss of property for non payment of taxes. On & on….
Sure, the NJ Sales tax may have to increase to 10%, and added to existing income tax dedicated for schools, but this Sales Tax is sort of voluntary. Schools would be funded completely by NJ, no local formula aid, just all students equal. Maybe, by vote, some towns may raise their share by local income tax, but not to exceed 10% beyond the NJ standard.
Many towns will consolidate, as school taxes will not exist, neither will Rebates. Local services will be billed (just as water,…), plus NJ aid for security. County governments will be dissolved as towns consolidate.
Whatever is left, after schools get theirs, will still go to the NJ Treasury – but spending cuts, for whatever the sales tax is now used for, will be the new limit for NJ government spending.
Non residential property may compensate for lower property taxes by lowering prices. Businesses will have less costs. Jobs will materialize.
What’s not to like? Add your thoughts. NJGOP has no Principles so maybe this can be a start? Or, will NJ Democrats see the light first?
Posted by Tough Love on April 15, 2011 at 10:48 am
Quoting …”Is it fair to property owners to double their taxes? Is it fair to new government employees to have 50% of their salaries transferred to retirees? Is it fair to drivers to pay a $2-per-gallon gas tax to fund pensions?”
A suggestion on what’s “fair” …
The pensions benefits should be calculated such that together with cash pay, their “total compensation” is equal (or as close as possible) to that of comparable Private Sector taxpayers. Any shortfall in Plan assets to get to the level necessary to support such benefits should be paid by taxpayers. Any shortfall balance (i.e. the amount that if paid yields greater total compensation for Public Sector workers) should be paid for by the Plan recipients (or equivalently forfeited). For those who find the last sentence particularly harsh, lets keep in mind that the “negotiations” which let to the rich current Plan benefit levels were done at a “bargaining table” where nobody represented taxpayer interests.
Posted by SkippingDog on April 15, 2011 at 2:48 pm
The taxpayers of the state will pay the outstanding pension obligations that a series of Governors, including the incumbent, have either directly ignored or, worse, have pilfered for their own political purposes.
It should not be any concern of vested workers and/or retirees who have already performed their portion of the agreements. It is the responsibility of the current office holders and taxpayers, just as any other legal obligation would be for them to pay for the leases on government used equipment, property, or anything else that might be necessary to provide the services demanded by members of the public.
If that’s inconvenient or uncomfortable, so be it. It’s also uncomfortable to pay down outstanding personal debt when it comes due, but it’s the right thing and the legal thing to do.
Posted by Tough Love on April 15, 2011 at 3:37 pm
SkippingDog, To think the the combination of a 50% unfunded pension, unfairly “negotiated” benefits, NJ with the highest taxes in the nation, should result in ….. in your words “should not be any concern of vested workers and/or retirees …” is preposterous.
As a California Law Enforcement Officer with a vested interest in getting all you’ve been promised, this sounds more like you are trying to convince yourself the somehow, somewhere, someone ELSE (perhaps the Federal Gov’t) will pay and you’ll be free from ANY givebacks. That’s not a likely outcome.
California is in roughly the same sinking boat as NJ.
And speaking of the “right thing and legal thing to do”, is it “right” (or fair or reasonable) for police officer’s pensions to be 6 times greater in value at retirement than that of a comparably paid Private Sector worker retiring at the SAME age with the SAME years of service ?
Posted by Wedge on April 17, 2011 at 11:59 am
I always love when people say NJ pays the highest taxes in the nation. First of all it’s PROPERTY TAXES, it certainly isn’t gas tax, state tax or corporate dividend tax (0%). As a percent of average NJ income, they are not the highest. So take average income and I’ll buy the average tax argument.
Second, most police officers do not pay or receive social security income. They usually pay a higher rate towards their pensions.
If a government is allowed not to pay it’s debt, as in the case of pensions, why on earth would any government pay any debt. Do you think for a minute that pension bonds will be defaulted up or general obligation bonds? A public pension has NEVER been reduced, let alone when the state hasn’t paid in 15 years. State will not be insolvent and can’t declare bankruptcy. Remember the state won a case last year about the TIMING of what they need to pay the system, but there was no doubt that is is owed.
Bond the debt now while interest rates are low, increase members contribution rates, and ensure future payments are made by state/municipality by tougher legislation.
Posted by Tough Love on April 18, 2011 at 9:59 am
Re your second issue, the TOTAL COST (expressed as a level ANNUAL percentage of cash pay) for a one of California’s 3%@50 (with annual 3% COLA increases) formula pensions for an officer retiring at age 55 with 30 years of service is 58%. Yes, out of that 58% the officer pays about 8.5% or less than 15% of Plan costs with Taxpayers paying the balance.
For the officer with very typical pay, this yields a pension with a value at retirement of $2-$3 Million ….. way beyond what is reasonable, supportable, or fair the the taxpayers paying for (1-8.5/58)=85% of it.
I do not believe it is wrong to those not properly represented in the “negotiations” that led to such excess (yet being called upon to pay for it) to challenge being forced to pay for it.
Posted by skip3house on April 16, 2011 at 5:02 am
When a long term offer too good to resist is made by a representative, the first thing requested is an official Board Approval allowing the rep to make the offer, exhibiting a good idea of future obligations.
Substitute here politicians, NJ workers (adding later leeches), and taxpayers. Sure do not recall taxpayers agreeing to this in perpetuity, or bankruptcy.
Posted by meep on April 18, 2011 at 7:26 am
SkippingDog — that’s a nice fantasy there.
Current retirees need to think what their leverage is. They are no longer providing services and cannot strike. Many have moved out of the state to lower tax areas…maybe some are illegally voting in NJ elections still, but I assume they’re mainly voting elsewhere. So all they’ve got, leverage-wise, is campaign contributions. And that’s not going to do much against people who are actually living in the state. Union campaign contributions didn’t really help against Christie, now did they?
You can talk about promises (which weren’t seriously prepared for), you can talk about fairness, you can talk about blame. But when the money runs out, let’s talk about likelihoods. The likelihood is that no matter how “fair” it is, current taxpayers aren’t going to feel terribly beholden to make up the difference.
Posted by SeeSaw on April 16, 2011 at 2:27 am
TL, who are you comparing to a publicly employed Police Officer–a private security guard?
I don’t think there is any comparison between CA and NJ. If the CA employer-entities had failed to make any pension payments for 20 years, I think we would have heard about it.
Posted by Tough Love on April 16, 2011 at 11:37 am
SeeSaw, I know you are another California retiree …. Think about what I said above. With a retiring policeman’s cash pay usually about $125K these days, his/her retirement package is often 6 times greater at retirement than that of a Private Sector worker making the SAME pay, retiring at the SAME age, and with the SAME years of service… and taxpayers pay for 80-90% of it.
Posted by NFS on April 16, 2011 at 10:21 am
Sweeney said: “We have a $100 billion deficit between pension and health care — it’s not acceptable” “It’s not fair to the workers.”
Earlier this week was a story about a Linden Fire Chief arrested for alleged possession illegal substances. The article went on further to note the 55-year old Chief filed for retirement this year after 30 years of service, which to me, is the real story. It is not far fetched to imagine the Chief may well live to 80 years old. Using average rounded numbers based on similar retiree benefits, that would amount to $1.5 million in pension payouts. That Chief paid 8.5% towards his retirement, which could not have amounted to more that $250,000 (generous est.). That leaves taxpayers on the hook for the $1.475 million.
Who is shirking who?
“Is it fair to property owners to double their taxes?”
How long before banks and mortgage companies withdraw from the NJ mortgage market?
The State ought to get someone who knows WTF their talking about to address this issue and come up with practical plans and then let the voters decide. The Unions and the politicians made the mess. They cannot be trusted to cure it.
Posted by Tough Love on April 16, 2011 at 1:23 pm
John has it correct when he says there is no easy solution …. remembering that this unfunded liability is for ALREADY ACCRUED pensions and benefits (the hardest category to take away).
The VERY necessary and significant pension reductions for FUTURE service will not address the current unfunded liability.
As john said, either taxpayers must pay BIG TIME, current and new employees will overpay so those near and already retired can continue to get the excessive pensions promised, or employees and/or retirees must take a big haircut. In the beginning it will likely be more of a hit to taxpayers and new and shorter service employees, but as the pain becomes unacceptable to taxpayers, it’s likely the retired and near-retired will also have to pitch in.
And for those (employees) who continue to say “a deals a deal” (meaning that the taxpayers should carry the full freight), please remember that your “deals” were made with conflicted parties who certainly did not appropriately represent (as they should have) YAXPAYER interests.
Posted by SkippingDog on April 17, 2011 at 3:02 am
Sorry, TL, but there are quite a lot of things my taxes pay for that I either disagree with or had no input into their creation. Just as I must pay for those existing obligations, so must the people of NJ and other states pay for the various benefits they have contracted for with their public employees in return for decades of service.
None of us get to pick and choose directly what we will pay our taxes for, which is one of the basic hallmarks of a republican form of government guaranteed by the US Constitution. Direct democracy never works for long, and all of the hyperbole about public employee pensions serves to demonstrate again why the founders established our form of government with clear knowledge or how destructive direct democracy could be.
Posted by Tough Love on April 17, 2011 at 3:46 am
Too bad the founders of our Democracy didn’t foresee the destructive power of Public Sector Unions.
Posted by skip3house on April 17, 2011 at 7:48 am
Founders likely had no thought plain out and out bribery would go unpunished?