To Our Valued Fund Members:


Public pensions as constituted in most states are unsustainable for a variety of reasons previously laid out in this blog and a very few other places.  The combination of generous benefits, willful underfunding, and the failure of the actuarial profession to tell the truth will bring bankruptcy to these plans (though they apparently will call it ‘restructuring’) and public pension participants may one day get a letter that begins:.

To Our Valued Fund Members:

Today marks an important moment for the future of the _______________ Retirement Fund.  It’s a day that brings hope and encouragement for all those involved, as we have decided to take an important and necessary step to ensure the future of the Fund and its ability to continue to provide you and other Fund members with a sustainable level of benefits for the remainder of your lives.

Historically, the Fund has lacked the financial stability and consistent contributions necessary to continue providing sustainable benefits at the levels promised by the government.  Through the struggles, what has always been consistent and remained a priority is the Fund’s commitment to the Defined Benefit Plan members and their survivors.  these valued members are former and current employees of the _____________ government who faithfully contributed and/or continue to contribute to the Fund with the intention of receiving the benefit payments they are owed.  Rest assured our commitment has not wavered.

Today, we announced that we have entered into a federal court proceeding under Chapter 11 of the U.S. Bankruptcy Code to restructure the financial obligations of the fund.  Simply put, we filed for Chapter 11 protection to address our underfunding crisis.  It is important to know that our restructuring is not like other bankruptcies you may have heard about.  We are not “liquidating” or closing the Fund; we are just restructuring the Fund’s obligations to align them with the Fund’s current assets and revenues.    Without such steps, there is a significant risk the Fund would be unable to continue operations beyond the middle of 2014.

The blanks could easily be filled with “New Jersey”, “Philadelphia”, “Illinois” or any number of states and localities though this week another group of public pension participants got the letter  along with a handy FAQ sheet assuring retirees that they will receive “their full benefits for at least the next two months.”   But, now that we have the template, what about next week?

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24 responses to this post.

  1. Posted by Larry Littlefield on April 20, 2012 at 8:21 am

    At least in New York, I’m pretty sure the funds will not be going bankrupt without the related governments going bankrupt also. The question is, how bad will a judge decide that life has to be in a place before a state or municipality will be allowed to get out of its pension or debt obligations?

    Is New York City in the 1970s a precedent? A tax burden at least 60 percent higher than the U.S. average as a percent of income, 50 kids in a class, a 40 percent decrease in police officers who then cease to bother stopping crime, garbage in the streets, no infrastructure maintenance, and poor seniors (bag ladies) left to die on the sidewalks.

    (Only this time, with the seniors in charge in their own interest, young families will be left to die on the sidewalks).

    Reply

  2. Posted by Tough Love on April 20, 2012 at 10:28 am

    I added some honesty and reality to your template (modifications in CAPITAL letters):

    To Our Valued Fund Members:

    Today marks an important moment for the future of the _______________ Retirement Fund. It’s a day that brings hope and encouragement for all those involved, as we have decided to take an important and necessary step to ensure the future of the Fund and its ability to continue to provide you and other Fund members with a SUSTAINABLE, REASONABLE, AND FAIR level of benefits for the remainder of your lives.

    Historically, the Fund has lacked the financial stability and consistent contributions necessary to continue providing sustainable benefits at the levels promised by the government. WHILE THE ECONOMIC DOWNTURN HAS CONTRIBUTED TO FUND’S SHORTFALL, THE ABSURDLY GENEROUS LEVEL OF BENEFITS PROMISED IS THE ROOT CAUSE OF THE PROBLEM AND MUST BE ADDRESSED. CLEARLY, VERY GENEROUS PLANS ARE VERY HARD TO PROPERLY FUND. WE SHOULD HAVE KNOWN BETTER. Through the struggles, what has always been consistent and remained a priority is the Fund’s commitment to the Defined Benefit Plan members and their survivors. These valued members are former and current employees of the _____________ government who faithfully contributed and/or continue to contribute to the Fund with the intention of receiving the benefit payments they are owed. Rest assured our commitment has not wavered ALTHOUGH IT IS NOW CLEAR THAT PROMISED BENEFIT LEVELS ARE NOT SUPPORTABLE AND MUST BE REDUCED FOR NEW AND CURRENT PLAN MEMBERS. BENEFITS TO REITREES WILL LIKELY BE REDUCED AS WELL SO THAT CURRENT MEMBER CONTRIBUTIONS WILL NOT JUST GO OUT THE DOOR TO RETIREES, BUT WILL BE AVAILABLE FOR THEM WHEN THEY RETIRE.

    Today, we announced that we have entered into a federal court proceeding under Chapter 11 of the U.S. Bankruptcy Code to restructure the financial obligations of the fund. Simply put, we filed for Chapter 11 protection to address our underfunding crisis. AT THIS POINT WE ANTICIPATE AN AVERAGE 50% REDUCTION TO WHAT YOU HAVE BEEN PROMISED. WHILE THIS MAY BE DIFFICULT FOR YOU TO ACCEPT, PLEASE KEEP IN MIND, THAT EVEN AFTER THIS REDUCTION, YOUR PENSION WILL STILL BE BETTER THAN THE VAST MAJORITY OF TAXPAYERS WHOSE CONTRIBUTIONS (TOGETHER WITH THE INVESTMENT EARNINGS THEREON) PAY FOR 80-90% OF YOUR PENSION’S TOTAL COST. It is important to know that our restructuring is not like other bankruptcies you may have heard about. We are not “liquidating” or closing the Fund; we are just restructuring the Fund’s obligations to align them with the Fund’s current assets and revenues. Without such steps, there is a significant risk the Fund would be unable to continue operations beyond the middle of 2014.

    Reply

  3. Posted by Al Moncrief on April 20, 2012 at 12:42 pm

    WHAT IS THE SCALE OF THE PUBLIC PENSION CRISIS? WHAT IS DRIVING SOME STATES TO BREACH THEIR RETIREE PENSION CONTRACTS? FOUR PERCENT.

    According to the National Association of State Budget Officers, in their recent report, A State Budgeting Perspective on Public Pensions, state and local government pension contributions “currently represent a small percentage of states’ operating budgets.”

    The report cites the Center for Retirement Research at Boston College as follows: “state and local government (pension) contributions are estimated to rise from 3.8 percent of budgets to roughly 5.0 percent by 2014.”

    Link: http://www.nasbo.org/sites/​default/files/pdf/​A%20State%20Budgeting%20Perspec​tive%20on%20Public%20Pensions.​pdf

    Friend Save Pera Cola on Facebook, Visit saveperacola.com, Support the Colorado pension theft lawsuit!

    Reply

    • Al,

      That 3.8% is one of the most dastardly pieces of misinformation put out there by the propaganda unit of the public pension ignorati squads operating through various taxpayer (through the governments) supported think tanks.

      Just think about it. New Jersey for years had pension costs at 0% of their budgets. Were the pension promises really no cost? The reason is that they were allowed to since there are no real funding rules for public plans and politicians were left to their moral compass and willful ignorance.

      Put an honest number to pension and OPEB costs and that number goes to 10%. Take into account payback of prior undefundings and it’s 20%.

      Reply

      • Joshua Rauh, Robert Novy-Marx and others conservatively estimate that retirement costs will start eating 20-30% or more of some states’ and municipalities’ own revenues. The core aspect of moral hazard is that politicians can secretly defer costs that accrue and compound for future citizens to pay. The Liars & Deniers who profit now from from these schemes will have fled the scene by the time the bills come due. Why do public employees cling to those who are robbing them and turn their hatred on citizens who are paying them>

        http://www.statebudgetsolutions.org/blog/detail/chump-state-workers-just-keep-feeding-the-pension-thieves

        Reply

        • Posted by Tough Love on April 20, 2012 at 1:53 pm

          The Unions (and their membership) know they are being lied to, but they believe that a BIG promise with (supposedly) taxpayers as the backstop, is much better than a modest funded promise.

          They’re all in cahoots together … to screw the taxpayers, and the Taxpayers should appropriately respond by reneging on any pensions greater (as a % of pay) than what THEY get …. and THAT’s after additional reductions to account for earlier retirement ages, COLAs, and pension spiking, and of course the absurdity of still providing generous Retiree Healthcare subsidies when VERY few Private Sector workers get this any longer.

          Reply

          • Agree, but no sense arguing about what’s generous or lavish or not when the numbers prove the utter impossibility of paying for it. Something’s got to give, and as the Fed reports state: “It now seems inevitable that sacrifices will be required from current employees, employers, and in some cases, retirees. …” All NJ public employees and retirees, please read these reports:

            http://www.statebudgetsolutions.org/blog/detail/commentary-fed-screams-softly-in-warning-about-public-pension-crisis

          • Posted by Tough Love on April 20, 2012 at 2:38 pm

            Know the math supporting pension funding, for years I have been saying FUTURE service accruals for CURRENT workers must be significantly reduced … all to the dismay and rebuttal by those who don’t want their gravy train derailed.

            Support of this need from the Fed (as well as California’s Little Hoover Commission before them) is indeed welcome.

          • Posted by muni-man on April 20, 2012 at 2:48 pm

            NJ is in much better shape to weather the public union battles than other states since it has the backing of its’ own constitution. If it didn’t, you can bet retired judges would have been at the forefront of any attempt to get COLA’s reinstated ASAP when they passed the changes almost a year. Retiree healthcare is totally unprotected too, so NJ can make big reductions here as well. Other states will have a lot harder time of it, but as you say somthing’s got to give and will in the years ahead.

      • Posted by muni-man on April 20, 2012 at 4:13 pm

        A good example is NYC where pensions ALONE now consume over 12% of the entire city budget. Per their FY11 CAFR (pg. 117), in order to keep their 5 plans fully-funded, city pension costs have risen there from $693M in FY00 to a fraction over $8.0B in FY11, an compound increase of a modest 24.9%/yr. over 11 years. Factor in OPEB’s and you’re definitely looking at something approaching 20% of budget to KEEP pensions and benefits fully funded. If they were underfunded, the figure could approach 30% of budget I’d guess, possibly more. Doesn’t take a Phd. to figure out the total insanity going on here and why it won’t continue, despite all NY’s constitutional pension/benefit guarantees, which thankfully, NJ doesn’t have. They’re in for a hard, real hard, fall over there.

        Reply

        • Posted by Tough Love on April 20, 2012 at 5:23 pm

          NJ may not have NY’s constitutional pension/benefit guarantees, but NY doesn’t have NJ’s BIG underfunded Plans. I hope if push comes to shove, Law Prof. Skeel is correct, and only already FUNDED promises must be kept.

          And for those who think accrued benefits s/b sacrosanct, I say NOT when their excessively rich provisions were fraudulently negotiated.

          Reply

          • Posted by muni-man on April 20, 2012 at 6:01 pm

            Conceptually, I agree with you because of the blatant self-dealing that resulted in these ridiculous benefits in the first place. But I rest easy knowing that somewhere between 80%-85% of the US population (the active/retired private sector) isn’t gonna tolerate any real attempt at confiscation of their financial assets via tax gouges, property seizures, etc. by the other 15%-20% of the population (the active/retired public sector). It’s just not gonna happen.

          • Posted by Tough Love on April 20, 2012 at 7:04 pm

            Muni-man, Here’s were you are making a counting error. Only about 50% of family’s pay taxes., and if we assume
            (a) almost all Civil Servants vote
            (b) few of those who pay no taxes vote, and
            (c) all Civil Servants (retirees, and immediate family members) vote against pension reform,

            then we have (almost all of) 20% of eligible voters (the Civil Servants and their families) voting AGAINST reform, and (most) of the 30% balance (of the 50% of all eligible votes who vote because they pay taxes) voting FOR pension reform.

            So, it’s really only 20% vs 30%, not 20% vs 80%.

            That’s why we must continue to educate the misinformed citizenry about how the Unions and politicians have colluded in structuring pensions and benefits FAR FAR in excess of what they could EVER hope to get …. and that this structure needs to be reformed for (future service years for) CURRENT, not just new workers.

        • Posted by muni-man on April 20, 2012 at 7:41 pm

          I’ll counter your argument by saying that older (especially retired) Americans are by far the largest % segment of the voting bloc, and the overwhelming majority of them are from the private sector and are conservative. Voting demographics are solidly in favor of the private sector, but regardless of that fact, I’d definitely reject your assumption (a), I’d agree with (b), and to a lesser extent with (c) for those who, in fact, do vote. And there will be a massive outcry (maybe not at the voting booth, but plenty loud enough for the pols to hear) from the non-voting, lower economic strata if their goodies start getting slashed to pay for pensions for the publics. Publics will be getting hit big-time in the years ahead and their clout is going to diminish markedly.

          Reply

          • Posted by Al Moncrief on April 20, 2012 at 11:37 pm

            Hey muni, the “self-dealing” you refer to did not happen in Colorado. TL, can explain it to you, since I’ve told him about it a number of times. Our state Legislature has been controlled by Republicans for the last 40 years (nearly). The public unions are weak in Colorado. The Colorado public unions have never been in a position to “self-deal” and yet the state is still attempting COLA theft.

          • Posted by Tough Love on April 21, 2012 at 2:40 am

            Al, If the elected representatives who approved the pensions accepted Public Sector Union contributions (from Unions on whose pension Plan they were voting on), that’s self-dealing in my book.

      • Posted by Al Moncrief on April 20, 2012 at 11:31 pm

        OK, I’ll toss it out of my anti-COLA theft quiver. I have plenty of other legal and moral arguments to use. Al

        Reply

        • Posted by muni-man on April 20, 2012 at 11:56 pm

          Such as? And if not COLA’s, then pertaining to what? Illuminate us please. Inquiring minds in NJ would like to know. Stick with the legal, not the abstruse moral stuff. I’m on tenterhooks waiting for your in-depth reply. You’ve gotta do
          a lot better than ‘Save Pera COLA on Facebook’ droppings all over the web.

          Reply

  4. That letter will be going out to a lot of public employees sooner or later. As the Fed reports that came out this week show, it is inevitable. Please read the reports carefully:

    http://www.statebudgetsolutions.org/blog/detail/commentary-fed-screams-softly-in-warning-about-public-pension-crisis

    For those who conspired to put politicians into office who would over-promise, under-fund and loot public pensions to then turn around and cite that criminally low annual funding cost percentage in support of continuing the deception is like kids who murder their parents begging for mercy because they are orphans. Public employees, when you seize homes, businesses and bank accounts to pay your retirement costs, start by seizing the assets of the politicians, union leaders and fund managers who got rich betraying you.

    Reply

  5. Posted by Javagold on April 20, 2012 at 6:06 pm

    this has all the making of a good old fashion civil war …..i plan on staying on the side with 7 million people compared to the side with 800,000…..i believe in numbers

    Reply

  6. Posted by MJ on April 20, 2012 at 6:41 pm

    The letters should have went out 15 years ago and maybe we wouldn’t be in this mess. Let the publics pay into their lavish healthplans just like all the rest of us. Sooner or later the smart ones will figure out that their bubble is about to burst!

    Reply

    • Posted by Tough Love on April 20, 2012 at 7:15 pm

      Now your talking. I’m hoping that the straw that breaks the camel’s back (to induce real reform) could actually come for the younger public sector “actives”. Those with a reasonable amount of grey matter between their ears should realize that there is NO WAY these rich-formula Plans will be in place when they retire, and that THEIR contributions (rather than being saved and invested to fund THEIR retirement) will simply be going out the door to pay the continued higher benefits (than what THEY will get) to those already retired and those soon to retire.

      Reply

  7. Posted by MJ on April 20, 2012 at 8:18 pm

    Honestly TL. I don’t think that they get it. Most publics young and and old think that they will receive these benefits for the rest of their lives at no additional cost to themselves. The pensions are one thing but the outrageous health benefits are an even bigger concern. There are many school districts and other union publics who are still not paying into anything b/c their contracts have not yet been ratified. I don’t think that the publics see themselves as part of the “problem” but rather the scapegoats of a horrendously broken system. Let’s not forget he sunset clause that is fast approaching where publics paying into anything can revert back to the taxpayers paying for all of it just like before. Our only hope is that as one city after another falls, the domino effect will take place. I am still putting my trust in the tried and true laws of economics and free market principals which hopefully will tighten the noose enough that change will be inevitable and the letters will get sent out.

    Reply

  8. Posted by Seethetruth on April 23, 2012 at 10:57 pm

    Hope the same type of letter goes out to welfare rats and scammers

    Reply

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