Not the Path but the Driver

Yet politicians’ current approach to evading such opposition—that of adopting incremental reforms while repeatedly deferring liabilities—is no longer viable.

The structural defects of defined-benefit plans, as well as their implication in a system of decision making impaired by political considerations, necessitate a wholesale shift from defined-benefit to defined-contribution plans.

Fixing the Public Sector Pension Problem: The (True) Path to Long-Term Reform

The quotes come from a well-reasoned paper by Richard C. Dreyfuss setting out the problem, debunking faux solutions, and offering a five-point plan for comprehensive reform that I too advocate as obvious. The problem is not with the proposed reforms, which are viable, but with those who would be charged with implementing them, like this guy:

.

.

No meaningful progress on fixing the system can be made as long as the decision makers continue to be delusional grandstanders incapable of accepting the severity of the problem and the ineluctability of solutions thereto that are antithetical to their very nature.

To bowlderize Lewis Carroll:

If you don’t know how to drive, any road will lead you into a ditch.

We will only have a chance at real public pension reform when decisions are being driven by those in the reality-based community.

23 responses to this post.

  1. Posted by Tough Love on February 6, 2013 at 8:43 pm

    That Quote from Mr. Dryfus …”The structural defects of defined-benefit plans, as well as their implication in a system of decision making impaired by political considerations, necessitate a wholesale shift from defined-benefit to defined-contribution plans.”

    …. is absolutely dead on the money. Bravo for him.

    As to Mr. Sweeny’s claim to have “fixed the pensions”, he’s clearly delusional or an in-your-face liar. While the COLA freeze will provide material savings IF IT HOLDS for many years, the balance of the “reforms” won’t provide anything but miniscule savings for decades, and, for 5 more years we’re still GRADING INTO the full ARC. That Grade-in alone will ADD $15 Billion to the unfunded liability, not do anything to fix it.

    Reply

  2. Do you know if any qualified person has been given plenty of time with Mr. Sweeny to actually show examples of the various outcomes? Perhaps, if he saw the problem in terms of just one employee, the pension fund for that person,…….Mr. Sweeny would see light he can’t see through the billions?
    Billions are not understood, just a infinite measurement. Use,just those numbers we associate with daily, maybe to the 75,000 or so at a ball game?

    Reply

  3. “3. Current shortfalls could be made up with taxes over some amortization period (as is being done now) or borrowing…”
    Why is this bull included in your ‘Terminate the NJ Defined Benefit Plans’ in the NJTA blurb you ‘advocate’ above? Accomplishes what? Makes you wonder about NJTA goals………

    Reply

  4. Posted by Tough Love on February 7, 2013 at 12:19 pm

    John,

    Only slightly off-topic, but the following is a quote from a 12/29 blog discussion between Gov. Tom Kean and Gov. Brendan Byrne/For The Star-Ledger, which can be found here:

    http://blog.nj.com/njv_kean_byrne/2002/12/new_jersey_a_look_ahead.html

    Quoting … “KEAN: That becomes important because of the quality of life we demand. We pay our public servants here more than they could earn in any other state in the country, and we’re proud of it, and that’s good. Except to do that we have to exact the highest property taxes. Nobody’s in favor of paying public servants less.”

    **********************************************************************
    With a leadership mindset like that, no wonder NJ is in the financial toilet.

    Well here’s one vote for compensating our Public Sector workers (ALL of them) a great deal less, not necessarily in base “cash pay”, but in ending their grossly excessive pensions and benefits, the taxpayer paid-for share of which is ROUTINELY 2-4 times (5-6 time for safety workers) greater in value at retirement than those of comparable Private Sector workers earning the SAME pay, working the SAME number of years, and retiring at the SAME age…… and all while earning lo less in “cash pay”.

    There is ZERO justification for these pensions an benefits (which REMAIN extraordinary even AFTER the very minor changes implemented in the past year) … and ENDING this continued financial rape of Private Sector Taxpayers should be priority #1.

    Reply

    • Posted by Al Moncrief on February 7, 2013 at 1:28 pm

      Hi TL, did you notice that in his paper Dreyfuss writes:

      “The fourth step involves reducing benefits that have not yet been earned by enrollees who are still working.”

      It appears that Dreyfuss recognizes that vested public pension contractual obligations are inviolate . . . they have been “earned.” He rightly focuses on LEGAL, PROSPECTIVE public pension reform. He hasn’t crossed over to the dark side of abandoning the U.S. Constitution (why are any conservatives over there?)

      TL, the day is drawing nigh when I succeed in converting you to an advocate of prospective public pension reform. Since it is inevitable, why not just accept this reality today?

      Al

      Reply

      • Posted by Tough Love on February 7, 2013 at 1:55 pm

        Al, OKJ, I will agree that significant reductions for FUTURE service should be the FIRST place to go for reform, but since (for decades) PAST service pensions accruals have been excessive … because of the unfair (to taxpayers) horse-trading of Public Sector Union campaign contributions and election support for favorable votes (from our elected officials) on pay pension, and benefits, reductions to PAST service accruals cannot and should not be ruled out.

        Where dire financial circumstances so dictate, they must be fair game. Greed must have consequences.

        Reply

        • Posted by Al Moncrief on February 8, 2013 at 6:33 pm

          I see that greed is finally having consequences for S&P. I place much of the blame for the 2008 financial crisis on bad ratings by such firms. Hey, on the question of “fairness.” Does “fairness” really come into play in the realm of contractual obligations? All parties enter into contractual arrangements voluntarily, so are these contracts not by definition “fair”?

          Things are heating up in Kentucky, look for a COLA-theft lawsuit there soon. Also, the battle over Corbett’s prospective pension reform plan (Monahan) in Pennsylvania will intensify soon. Al

          Reply

          • Al, I presume you mean this:
            http://www.bloomberg.com/news/2013-02-07/s-p-data-fudging-began-in-2004-u-s-suit-says-timeline.html

            though I see S&P as having a solid defense,should they choose to employ it, of claiming that everyone knew they were being paid by the entities they rated so is it their fault that people chose to believe them?

            I’m sure they would have also inserted language in the fine print of their ratings documents to that effect.

          • Posted by Tough Love on February 8, 2013 at 10:45 pm

            While on occasion, I suppose in the normal course of business contracting, the party negotiating for one side betrays the employer they are supposed to represent. In such circumstances, you aregenerally correct in that while unfair to the employer (being betrayed) that employer likely cannot reform the contract (even though “unfair” to him) unless the other party to the contract was colluding with the employer’s negotiator. But, the employer CERTAINLY has a Civil cause of action against his employee.

            In the Public Sector arena, it’s not “on occasion” but TYPICAL for this to happen when negotiating employee pay, pensions, and benefits because the interests of the “management” negotiators are more aligned with those of the Union employees than with those of the Taxpayers. Since “management” knows that they will always get better incremental pay and pensions above the rank and file, the more they give the rank and file, the more they tend to get. Not only does nobody look out for the real payee ….. the Taxpayers, but the structure is always such that rarely is the betraying negotiator personally liable for financial impact of their betrayal.

            Yes Al, that’s “unfair” (to the Taxpayers) and unfair in such a deep fundamental way that the betrayed Taxpayers should have recourse to reject such contracts and renege on any pension promises contained therein.

          • So, it may not be the case where taxpayers stand reasoning when the opposition is also the Judge…….. we can at least hope.

        • Posted by Willy05 on February 11, 2013 at 10:11 pm

          We would be on the right path with prospective reforms and a gradual transition to a defined contribution plan. Nothing prevents a negotiated resolution of the current COLA issue. eg. Reinstate COLA for those over 65 and up to 75 K per year. Allow current employees to retain the the current pension system for 5 more years with a cap on future pensionable income of $100,000. In fact capping the pensions alone in effect sunsets the defined benefit plan over time due to the inevitable effects of inflation.

          Reply

          • Posted by Tough Love on February 11, 2013 at 10:38 pm

            Why set cutoffs so high … Private Sector taxpayers rarely get such pensions.

            Why are Puiblic Sector workers deserving of a better deal than those that pay their way ?

    • Posted by Anonymous on February 7, 2013 at 2:16 pm

      Who doesn’t believe that we should pay the publics less except the publics?? Considering they make more in salary and benefits why should the employees make more than the employers??

      Reply

  5. Posted by muni-man on February 7, 2013 at 1:04 pm

    NJ’s continued underfunding is the best course of action to force the transition from DB to DC.

    Reply

    • Posted by Anonymous on February 7, 2013 at 5:06 pm

      I thought that the funding is being phased on over 7 years? What about the current and retiree unfunded health benefits?

      Reply

      • No the funding is not being phased in over 7 years. The mini-ARCs that are going in are being phased in over 7 years so for 2013 (the third year of this scheme) the actluaries will come up with a ‘Required’ Contribution and the state will put in 3/7ths of what that is. This intentionally exacerbates the underfunding. If the wanted to fix this in 7 years they would need to be putting in abut $15 billion a year.

        No OPEB funding at all.

        Reply

        • Posted by Tough Love on February 7, 2013 at 5:46 pm

          “Funding” is simply accounting ………….

          The REAL question will be WHEN (not if) the Plans run out of money whether our Elected Reps will have the cahonas to REDUCE the actual pension payments below what was “promised”*

          It won’t help the TAXPAYERS if our self-interested politicians continue to pay full pensions on a pay-as-you-go basis.

          Here’s my worst case guess when we get to that point …

          YUP, we’ll be stuck with pay-as-you-go for PAST service accruals, but there will either be a hard freeze on FUTURE service DB-Plan accruals or a very significant reduction in future service accruals and/or a significant increase in employee contributions. Hopefully such changes won’t be limited to employee contribution increases (which will undoubtedly be the lesser of the evils from the Union perspective) because it would take an incremental 20% of pay to make a dent and getting that would be next to impossible.

          .

          Reply

          • Isn’t all this talk a re-run of past discussed problems and solutions?
            When does action begin?

          • Posted by Tough Love on February 7, 2013 at 5:59 pm

            skip3house, Did you listen to Sweeny’s video and how the Pension problem was solved … nd he want to be the next governor.

            HE certainly won’t be the source of any material “action”.

          • Of course, TL.. The reason for my comment 2 way above – a polite suggestion Mr. Sweeney needs to know more, and my comment 3 about the NJTA meaningless bull.
            Extend the polite suggestion, somehow, to the 2013 candidates. Seems one party should spell out the truth, or do neither have principles? I for sure know one party cannot produce a list of the principles it always touts.
            “…This was former NJ…………………’s project. He never completed it and nothing was printed or issued……”

          • Posted by muni-man on February 7, 2013 at 7:42 pm

            There is no political solution. The only way the plans survive at all is if the publics take a big, permanent benefit reduction hit. Paygo is a political impossibility and will NEVER happen. It’s smart to save TP dough along the way by continuing the underfunding.

  6. Posted by Javagold on February 7, 2013 at 4:45 pm

    Christie has a 3 BILLION structual budget defecit…….lets see what he does with the pension ponzi black hole

    Reply

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