13th Checks and Other Scary Public Plan Chimeras

A hallmark of government today is effective secrecy.  Meetings at which decisions are purportedly made are publicized in small print among hundreds of legal ads.  The media, if they even bother to report real issues, print official happy-face press releases.  Consequences of actions, if even disclosed, get buried in reports that run on for hundreds of pages.

What all this leads to is surprise when an absurd concept like providing an extra monthly payment to current retirees comes to light as it did in Detroit recently as part of an orchestrated campaign to now cut all benefits.  Where in the private sector do pension trustees get told they have extra money and decide to dole out a little to people who have no vested right to it except what is created after the fact?

But when it is oblivious taxpayers footing the bill for the benefits of those making the rules we get concepts like the 13th check and a few others:

DROP Deferred Retirement Option Plans that generate massive lump sum payouts in addition to regular monthly payments when public employees work past retirement age and, because the employee gets to make the election, always wind up costing more than regular deferred retirement accruals.

POB (Pension Obligation Bonds): An absurdly inane idea that results in future taxpayers picking up the tab for current benefit accruals popular only because they turn a nice profit for Wall Street and help governments take pension contributions out of their operating budgets, which leads us to….

TOU (They Owe U): It’s not IOUs that governments are stuffing into their pension trusts since public plan actuarial funding methods and assumptions are designed to move much of the cost of benefits as far into the future as possible so the ‘I’s can disappear to Florida before the full scary tab for their profligate promises comes due.

16 responses to this post.

  1. Posted by John H.W.Cole on October 2, 2013 at 1:46 pm

    I would like to use your blog to educate officials in my town, but your use of derogatory adjectives detracts from the information you are providing and makes it unusable. The words “part of an orchestrated campaign” for example, were about a separate issue which was not explained, and served only to make your article look like you had an axe to grind. “Absurdly inane idea” was derogatory but not informative. Why not say that a pension obligation bond is a borrowing of money to meet a current funding obligation that results in future taxpayers picking up the tab for current benefit accruals. Using the bonds takes the pension contribution out of the current operating budget and masks the problem. The only ones who benefit from this are underwriters and bond attorneys.


  2. Posted by Thomas H. Foregger on October 2, 2013 at 2:19 pm

    I concur. You need to avoid all labels for people and just give an honest report. You know this stuff and can provide a valuable service.


  3. Posted by MJ on October 2, 2013 at 8:32 pm

    Gentleman, a point well taken. Sometimes it can be difficult and frustrating as most “officials” have no idea as to the consequences of their own ill informed decisions but you both make a good point.


  4. Posted by Anonymous on October 3, 2013 at 12:11 am

    It seems that the 13th check was an effort to redistribute the “extra” funds back to the pensioners (and others). This is in contrast to the time honored method of simply not paying the funds and pocketing the money back into the state budgets.


  5. Posted by eatingdogfood on October 3, 2013 at 1:11 pm

    CA CHING, CA CHING, CA CHING! YEAH, IT MUST BE THAT TIME OF YEAR AGAIN! My Union Boss down at the Town Hall emailed me yesterday and.
    Told me that this article was hitting the Papers today, and He told Me.
    to make it Look like I was Working till this Blows Over in a week. I
    know the routine! In a week, I’ll be back to my usual activity of.
    Collecting A Paycheck for Doing Nothing! Hey, Private Sector.
    Workers; You really gotta Pony Up more Taxes! I need at least a 10 %.
    raise! My Cabin Cruiser at the Dock behind my Vacation House in.
    Florida needs a New Engine. My wife has been after me for a new car.
    She wants a BMW X6 G-Power Typhoon S! I told her I can’t afford that.
    car. So then she says she will accept a Mercedes-Benz CL-Class and.
    Nothing else! I also got Private School Tuition of $ 40,000.00 due.
    in September. I got Credit Card Expenses coming out my AXX! That
    new 3000 sq ft extension on my house raised my property taxes $ 15,000.
    The maid and the housekeeper want raises. The gardener also wants a.
    raise. You see Bunky; It ain’t easy in the Public Sector! So come
    on Private Sector Worker; Pony Up and Pay More Taxes so I can afford to.
    live here! You See; Life Is Not Fair, and the DemoRats will take.
    care of Everything! HAPPY DAYS ARE HERE AGAIN!


  6. Posted by George on October 3, 2013 at 10:24 pm

    Pension Obligation Bonds – Should states be allowed to default on these?


    • Posted by Tough Love on October 3, 2013 at 10:28 pm

      Not to a larger degree than defaulting on Promised Public Sector pensions (of the retired as well as the past and future service accruals of current workers).


      • Posted by Anonymous on October 4, 2013 at 12:28 pm

        Other than to speculate and bitch about it does anyone really believe that the pensions and lifetime health benefits will not be paid? Other than a handful of very small towns with Detroit still being a question mark the pensioners will get every last dime.


        • Posted by Tough Love on October 4, 2013 at 9:32 pm

          Reality and the MATH always governs, and this is clearly a MATH problem.

          I doubt the Taxpayers will forever (a) continue to elect and re-elect politicians who financially betray them, and (b) remain sheep and accept the endless tax increases and/or service cuts necessary to fully pay for the absurdly generous public Sector pension & benefit promises.

          I do believe there will be many bankruptcies and either the courts will allow pension & benefits cutbacks or cutbacks will occur anyway do to a simple lack of funds. The Courts cannot create money that does not exist.


          • Posted by Anonymous on October 4, 2013 at 10:04 pm

            Do you in fact have a life outside this blog? Or at least some other interests? It seems that you devote a tremendous amount of your time to this one issue.

          • Posted by Tough Love on October 5, 2013 at 3:38 am

            Anon, I doubt you are interested in my well being or personal life.

            I’m guessing that you are a Public Sector worker and it bothers you when those not riding the unjust Public Sector pension gravy train yet paying for it (the Taxpayers) strongly advocate for reform … like a hard freeze and an end your grossly excessive pensions, or if that is not possible, a reduction in the accrual rate for the future service of CURRENT workers by at least 50% (likely leaving your pension STILL better than almost all of your Private Sector counterparts).

            Even if you are already retired and all accruals are for PAST service, remember that in bankruptcy, even the pensions of retirees can be cut.

            Greed HAS consequences.

          • Posted by Anonymous on October 5, 2013 at 11:07 am

            Yeah TL, the greed of the politicians to give the taxpayers the false impression that they don’t need to pay what they promised will have serious consequences on the individual employees who planned their lives on having that pension. Private pension administrators go to jail for this, politicians get reelected.

  7. Posted by Tough Love on October 5, 2013 at 12:06 pm

    Anon, You have 2 “they” in your first sentence. Clearly the 2-nd applies to the Politicians. But does the 1-st apply to the politicians or to the Taxpayers ? Sure, go ahead and try to get the politicians to pay for those promises, but don’t expect the Taxpayers to pay for them.

    I don’t disagree with you that the politicians lied and made self-interested decisions (many of which in Corporate America might have indeed landed them in jail). But the problem is that those underhanded deals …. the granting of these absurdly generous and therefore VERY costly pensions and benefits, in exchange for Public Sector Union campaign contributions and election support …. bound a third party (the Taxpayers) to pay for the cost of those deal, while those Taxpayers’ interests were not represented by either side at the bargaining table.

    Because of that structure, the Taxpayers should not (and in many Cities cannot anyway) pay for these promises and therefore, the workers shouldn’t (or won’t) get them. And am I supposed to be moved by your argument that these workers would be deprived of a portion of something promised:

    (a) via a fraudulent collusion between the Unions and our elected officials (the politicians), with the elected officials who granting them betraying the interests of the Taxpayers they were elected to represent, and
    (b) for which the Taxpayer-funded share is 2-4 times (4-6 times for safety workers) greater in value greater in value at retirement than the pensions and benefits granted comparable Private Sector workers, with those Private Sector Taxpayers being told to pay for it ?

    Your anger is justifiably aimed at the politicians, but it’s kind of late ……. the smarter amongst you (Public Sector workers) should have realized (or at least had very strong concerns) that these promises, being “too good to be true” were also too expensive to be counted upon long-term. And the dumber amongst you CONTINUES to fight changes (which would financially strengthen your Plans) to more realistic Plan valuation assumptions because they fear that the increased contribution requirements will take away money that you want available for raises. I call that shooting yourself in the foot.


  8. Posted by Pat on October 5, 2013 at 5:01 pm

    First, that last anon comment was mine (Pat), i forgot to put my name in.

    Of course the politicians will promise anything since there is no risk to them, beyond losing an election. As for collusion, there is nothing illegal or immoral about union negotiations. If you bargained for too high a fee and your client accepted, is your negotiation over dinner and martinis that you paid for illegal? Or tax deductible? I’m sure you would be going after him with a lawyer and your contact if he reneged.

    Until the politicians (and actuaries) are held accountable with jail time, this will continue.


    • Posted by Tough Love on October 5, 2013 at 6:00 pm

      Quoting … “As for collusion, there is nothing illegal or immoral about union negotiations.”

      Well ….when is clear to everyone who is not brain-dead that the real “negotiation” is how much in Union campaign contributions and election support will change hands for the elected official’s favorable votes on Public Sector pay, pension and benefits, there certainly is plenty wrong with that.

      The Taxpayers have every reason to refuse to pay for the results of such “negotiations”. Let the Unions chase the politicians for the money … or whistle Dixie.


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