NO to ERISA for Public Plans

Roger Lowenstein, the author and financial journalist who has been in front on so many important issues including the public pension crisis, has an article in this weekend’s WSJ titled ‘The Long, Sorry Tale of Pension Promises‘ which ends with:

“if you want governments to come clean, go after their drug of choice—credit…..Before we get more Detroits, or more Studebakers, the federal government should enact an Erisa (with teeth) for public employers. More simply, it could announce that local governments that fail to make timely and adequate contributions to their pension plans would lose the right to sell bonds on a tax-free basis. That would get their attention.”

I thought so too, once, but with Mr. Lowenstein’s imprimatur making it more likely and upon reflection I now see two problems with an ERISA for public plans.

  1. States and cities with severely underfunded pension plans should already be shut out of the market.  What bond fund would be celebrating getting a good price on Detroit debentures?  If bond-buyers got the real figures on public pensions in Chicago, Philadelphia, Illinois, and New Jersey those places couldn’t give away bonds with maturities of over five years and their only customers might well be idiots and the Federal Reserve (though it’s hard to see how idiots would be able to come up with enough money to buy up all that worthless paper).  Moody’s and GASB might be a source for honest numbers soon so why bring the federal government into it?  Which leads to the second point.
  2. Government manipulates numbers (i.e. unemployment rate, GDP), for the advantage of various vested interests that manipulate it.  In the private sector a good try at getting serious with defined benefit funding (PPA effective in 2008) was practically eviscerated by 2012 with MAP-21.  Having a government define funding rules for other governments could undermine real reform efforts as regulators create official funded ratios that could mirror those currently coming out of the politician/union/actuary obfuscation complex.

 

12 responses to this post.

  1. Posted by Tough Love on September 22, 2013 at 1:19 am

    Again ….. ERISA for Public Sector Plans only addresses the issue of “funding” while neglecting to ROOT CAUSE of the problem ….FAR too generous Public Sector pension promises, MULTIPLES greater in value at retirement than those of comparable Private Sector workers retiring with the SAME pay, at the SAME age, and with the SAME years of Service.

    We must focus on the ROOT CAUSE to find solutions … such as material (50+%) reductions in the pension accrual rate for the FUTURE service of all CURRENT Public Sector workers.

    Reply

  2. Posted by Eric on September 22, 2013 at 10:00 am

    John:
    The real idiots are the ones that thought that the Fed would actually begin to “taper” its bond buying program. Many stock brokers told me that I was nuts believing that it would never happen because the Fed is now stuck in keeping quantitative easing to infinity. See Dr. Paul Craig Roberts for a great discussion on King World News.
    Your 5 year window, John, is telling regarding buying the bonds of those entities you have listed.
    Eric

    Reply

  3. Posted by gary on September 25, 2013 at 12:08 pm

    John:

    Are you aware that Trenton is absolutely boiling with early buyout rumors? How could this be possible with the suspension of the COLA and the sorry shape of the plan? the rumor is Christie thinks this would hellp him in his nomination bid but I think it would have the opposite effect. Thoughts?

    Reply

    • Haven’t heard the rumors though I may be in Trenton tomorrow meeting with some people so I’ll ask. This may have something to do with changes that would come after the election (when public employee unions don’t need to be placated) and I would think it would have more to do with health benefits for future retirees.

      Reply

    • Posted by Tough Love on September 25, 2013 at 12:44 pm

      While subsidized early retirement programs make some (those who elect to accept the offer) happy and have positive effects on political support, such offers can also have negative political implications ….. e.g. from the already over-burdened Private Sector Taxpayers who may see this as simply another of the many unaffordable and unfair (to Taxpayers) give-aways to Public Sector workers.

      Interestingly the the breadth of such giveaways … that Taxpayers ultimately pay for ….. seems to extend far and wide. As an example, I recently heard a newscast describing a program in which Public Sector workers (It may have only been for safety workers) get the balance of school loans forgiven if they pay all scheduled loan payments for only the fist 10 years. While its nice to respect the contributions of safety workers, they are certainly better paid on a cash basis and FAR FAR better compensated in terms of pensions and benefits. so why should taxpayers be forced to shovel more of their hard-earned money to them ?

      Clearly the elected officials who grant such things are doing so for self-interest … to get these worker’s votes, election support, and their Union’s campaign contributions.

      While we may never be able to get rid of Public Sector Unions, Taxpayers should certainly support an end to collective bargaining, and laws to make Public Sector Union campaign contributions a criminal act.

      Reply

  4. Posted by gary on September 25, 2013 at 1:12 pm

    Thanks…the rumor I heard is years of service plus age must equal 80 and the lucky person gets an extra five years tacked on…which makes no sense because most of these folks were planning on retiring soon anyway. And I don’t think this would help Christy get the nomination nod over a Cruz or Rand Paul, it would just make him look more like a RINO.

    Reply

  5. Posted by Anonymous on September 25, 2013 at 3:10 pm

    Public sector pension plans are an anachronism and should be immediately terminated – the balances forwarded to the Social Security administration and the public employees getting the same crappy deal everyone else in this country is going to get.

    Naturally this will not happen but instead each state, in its turn, will need to go insolvent and /or address the matter at their respective state Constitution level through the amendment process.

    One thing is for sure, being domiciled in NJ, IL or CA is a really bad idea if you are a taxpayer.

    Reply

    • Posted by Tough Love on September 25, 2013 at 3:48 pm

      Interestingly, I too have (like your last sentence) though of the State vs State implications of Pension Tsunami heading our way.

      In fact, for the States in the best financial with very modest unfunded Public Sector pensions and retiree healthcare obligations (and where those obligations are NOT expected to grow), I anticipate seeing publicity campaigns to lure successful and growing businesses (and higher income individuals) fed-up with the financial “mugging” going on now to pay for the absurd “promises” made to the greedy Public Sector minions.

      Just like the several southeastern States replaced the central northern States as the hotbed of manufacturing (by getting rid of the excessive pay and efficiency-strangling work rules of the Private Sector Unions) we may see a resurgence of Corporate investment and individual migration to the States (a few in the northernwestern quarter of America come to mind) where Public Sector workers are fairly paid (vs their Private Sector counterparts) but not over-compensated (via the grossly excessive pensions and benefits they get today).

      Reply

  6. If it is any conciliation, the publics must live in NJ in order to work in NJ.

    Reply

    • Posted by Tough Love on September 26, 2013 at 12:38 am

      But when they retire, they can leave and spend those EXCESSIVE pensions elsewhere. likely States with no sales tax, and MUCH lower property taxes.

      Taxpayers ….DEMAND and end to these absurdly excessive Public Sector Defined Benefit pensions AND the retiree healthcare benefits THEY (but not you) get while YOU pay for it.

      Reply

  7. Posted by Eric on September 26, 2013 at 8:59 am

    MJ:
    That is only newly hired publics.
    Eric

    Reply

    • Posted by Anonymous on September 26, 2013 at 12:43 pm

      Well then I guess we are screwed! The residency requirement from what I recall was mandated a few years ago. Gets back to what. TL talks about in that once the newer publics realize they are being screwed over by the retirees it will be a whole new issue. As you yourself have said trust no one. The publics can be screwed over in the blink of an eye. This is only the beginning!

      Reply

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