Detroit is a Tragedy, But Patronize Our Advertisers

In the United States, 88 percent of public employees are covered by a defined benefit pension plan.  That’s about 19 million people.  An additional 100 million pay taxes of some sort which makes the story of what happens to Detroit pensions of almost universal importance to a vast majority of the population to varying degrees.  But that’s not how the advertiser-driven mainstream media sees it.

A Forbes story posted today presumes Detroit’s 30,000 pension participants are screwed and warns:

Detroit’s debacle, decades in the making, is very sad. But when a 2-second Google GOOG -0.26% search on “retirement planning” yields 123,000,000 results, including lots of useful free advice and financial calculators, all while less than half of Americans even bother to do the math—now that’s a real tragedy.

Yes, a real tragedy and possibly something that a Forbes’ advertiser might be able to help with.

Most of the reporting on this Detroit debacle has been sound-bites, edited press releases, and parroting the official line.  Where is the analysis of how a 96% funded plan can develop a $3.5 billion liability according to a secret actuarial report that no news organization seems eager to get?

Issues with the Detroit bankruptcy and pension defaults are not the type of content that organizations primarily geared to selling mutual funds, cars, and credit cards are eager to publicize* which is why the best source of news on these (and many other) topics is the blogosphere where capitalist propaganda typically does not deflect your attention from truth.  Please check back to this blog along with:

Actuarial Outpost

Andrew Biggs

Benefitslink

Mish’s Global Economic Trend Analysis

Pension Pulse

Pension Risk Matters

Pension Tsunami

Public Sector, Inc.

Truth in Accounting

Watchdog

.

.

.

* Who is going to max out their Capital One card after finding out that their bonds will default and their pensions disappear under the weight of a deceitful politician/union/actuary complex?

15 responses to this post.

  1. Posted by Al Moncrief on July 28, 2013 at 11:30 pm

    Hey John, NCPERS says these two Detroit plans are well-funded:

    “Public pensions are not part of Detroit’s problem. In fact, its public pensions are well funded – over 96 percent for the Police and Fire plan and over 87 percent for other city employees.”

    http://www.ncpers.org/Files/NCPERS%20Response%20to%20Bloomberg.pdf

    Is it true? It seems that the focus should be on whether the city has the ability to pay the ARC, not the accrued unfunded liabilities, which I have read are between $2.5 billion and $3.5 billion out of the total muni debt of $18-20 billion. The unfunded liabilities of these plans will be paid out over many decades. The primary questions are whether or not Detroit can meet its ARC obligations every year, whether the ARC stabilizes, and what impact meeting this ARC payment will have on the level of services going forward. Obviously, Detroit cannot simply stop contributing altogether for employee retirement. As I recall, if the retirement plan for the muni workers is not at least as good as SS, the plan will not be a “qualified plan.”

    The more I follow it, the slimier public pension administration seems to be. As TL constantly reminds us, in some jurisdictions unions have used their influence to ramp up pension benefits (although Colorado is an exception in that it was Republicans who put in place incentives to encourage early retirement), at the other extreme we see certain advocates would like to see all public pension contracts scrapped. This is very strange since these same people are typically ardent supporters of the U.S. Constitution. Perhaps they are only ardent supporters of the U.S. Constitution as long as this support does not result in their paying another dollar in taxes?

    Reply

    • Posted by Tough Love on July 29, 2013 at 2:05 am

      Quoting ..”As I recall, if the retirement plan for the muni workers is not at least as good as SS, the plan will not be a “qualified plan.””

      Interestingly, yes, the plan’s benefit “design” must be at least a rich as SS … but if it’s not funded (and the IRS doesn’t force Public Sector Plan sponsors to adequately fund these promises), what good does that do ya ?

      Reply

    • Posted by Tough Love on July 29, 2013 at 2:08 am

      Al, Re your last sentence …

      Perhaps the citizenry would not so object to paying that additional tax $ if a reasonable portion of it went to something OTHER THAN supporting excessive Public Sector pensions & benefits.

      Reply

      • Posted by Al Moncrief on July 29, 2013 at 4:55 pm

        Oh come on TL, pensions are only consuming an average of three percent of all state and local government expenditures in the US. The private sector puts much more than that into SS.

        Reply

        • Posted by Tough Love on July 29, 2013 at 5:07 pm

          Why do you continue to state this lie ?

          At the State level that “may” be true, but only because of certain HUGE expenditures in the denominator of that ratio (Medicare, education, etc.), but it’s patently false at the county, city, and municipal levels …. with some approaching 20%.

          Reply

  2. Posted by JerseyGuy on July 29, 2013 at 5:32 pm

    Hi John. Great job as always. I know we spend so much time talking property taxes here in New Jersey but I was curious to know what is truly driving the costs? Is it really a matter of public sector benefits (pensions, health care, salaries)? I’ve heard alot of suggestions that combining municipalities (i.e. County wide board of educations, County wide police force, etc.) would save alot of money. However, is that really true or is that just an empty talking point. I know Wendell Cox has tried to dispell the possible myth that high density cities have lower operating costs than suburbs.

    Also, alot of lefty commentators often say that promoting high density development will also result in lower property taxes. However, many of the suburbs in the South are equally as sprawling at Northern NJ and still have low property taxes with good services.

    Looking forward to your response!

    Reply

    • Posted by Tough Love on July 29, 2013 at 7:17 pm

      In NJ, School Taxes are roughly 70% of total Property Taxes, hence THAT’s the first focus.

      Countywide School Boards ..AND School Administrations (superintendents and their staffs, guidance, special education, It purchasing & support, all the lawyers, engineers, & consultants)..End all these little politically motivated fiefdoms and a bundle could be saved. Of course, change is difficult, and those in these positions today will do everything they can to stop it.

      Even though the biggest money is associated with schools, we CERTAINLY must address the grossly excessive Defined Benefit Pensions of ALL Public Sector workers (especially police)….. ALWAYS 2-4 times (4-6 times for safety workers) greater in value at retirement than those of comparable Private Sector workers retiring at the SAME age, with the SAME pay, and the SAME years of service. It’s NOT just the MUCH richer formulas, it’s the absurdly generous provisions as well (do you thing it’s cheap to let these workers retire at 55 or even 50 …. and have taxpayers pick up and ADDITIONAL $15K-$25K in family healthcare premiums until they ARE 65 ?)

      And wouldn’t we all like to claim some lower back pain and translate that into a tax-free disability pension … all on the Taxpayers’ dime.

      I wonder if we will have to become Detroit before it changes.

      Reply

    • JG,

      We are spending a lot in NJ (highest property taxes in the nation) but a ridiculously small percentage of it is on pensions – and nothing on future OPEBs so taxes would need to double (at least) if an honest value were placed on the promises.

      Nothing will work in NJ as long as the dysfunctional electoral system exists. Nobody in decision-making positions has any incentive to fix problems that they do (or will) benefit from continuing to exist.

      Reply

      • Posted by Tough Love on July 29, 2013 at 9:57 pm

        We sure are underfunding the “promised” pensions… likely to the tune of only 10-15% of the TRUE cost (of these absurdly generous promises) of amortizing the unfunded liability over the remaining careers of these workers.

        The questions is …………. do the workers get (WAY less than promised, ala Detroit, or will the NJ taxpayers ultimately be buried under tax increases to pay all that has been promised.

        Reply

  3. […] plans. The dark blue bars are an assertion on the part of Kevyn Orr, who had a report done, but which has not been publicly released, as far as I can […]

    Reply

  4. Posted by Pat on July 30, 2013 at 9:18 am

    John,
    There is a NY Times article on shifting retiree medical costs onto obamacare. What is your opinion?
    http://www.nytimes.com/2013/07/29/us/detroit-looks-to-health-law-to-ease-costs.html?pagewanted=all&_r=0

    Reply

    • Nothing there about reducing benefits though that seems assumed if they’re going into those exchanges.

      Don’t know much about Obamacare but the references to taxpayers saving money seem misplaced. Unless there are real benefit cuts then some taxpayers will still pick up the tab though it will be a different set of taxpayers. And if it works in Detroit it will mean that every other government would be obligated to go the Exchange route since otherwise their taxpayers would not only be paying for the cost of health care for their own retirees but, through their federal taxes, also subsidizing other municipalities.

      Reply

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