“Biggest Pension Event In My Lifetime”

My quote from a Reuters article on the voting by participants in the NYS Teamsters Pension Fund to accept benefit cuts:

The vote is “probably the biggest pension event in my lifetime,” said John Bury of Bury and Associates Inc of Union, New Jersey, who advises pension plans.

Here is the reasoning behind that statement.

It is not this one vote in particular, whose results* should be announced any day now, but rather the theft of pensions as institutionalized by MPRA and reflected in its rigged voting process.

In 1964 we had Studebaker where

Retirees and retirement-eligible employees aged sixty and older received their full pension, but the plan defaulted on its obligations to younger employees. Some received a lump-sum payment worth a fraction of the pension they expected, and others got nothing at all.

ERISA was supposed to fix all that so we would not have another Bonus Army marching on DC, this time for their pensions. For multiemployer plans, it has failed, and a Pension Army is marshaling.

.

.

* My guess, since there seems to be an effort to get ‘no’ votes, is 10,000 against, 5,000 for, and 20,000 not voting which means the benefit cuts get approved overwhelmingly, 25,000 to 10,000.

30 responses to this post.

  1. Posted by dentss on September 7, 2017 at 12:47 pm

    Almost sounds like the Irma in the pension world …..

    Reply

  2. Posted by Tough Love on September 7, 2017 at 1:27 pm

    John,

    I doubt that the vote by the NYS Teamsters Pension Fund is …. “probably the biggest pension event in my lifetime,”

    Maybe to date, but certainly NOT in your lifetime.

    Just wait until you see how the Private Taxpaying Public ravishes the obscene promises that have been made to it’s insatiably greedy and arrogant Public Sector workers.

    You, of all people, should realize that this is a math problem, and the math ALWAYS wins in the endgame.

    Reply

  3. Posted by George on September 8, 2017 at 12:51 pm

    The bonus army were former military demanding various benefits, usually, benefits increases or special bonus payments. More recently government workers, military or not, have no need to march or even strike very much.

    “patriotism… bought and paid for is not patriotism.” – President Calvin Coolidge

    https://en.wikipedia.org/wiki/Bonus_Army

    Kind of odd that they only opinion they wanted from a pension expert was if this was important or not. Kind of like how obscure sports events are covered, ok so why is the Haskell important? https://en.wikipedia.org/wiki/Haskell_Invitational_Stakes

    Reply

  4. Posted by Tough Love on September 8, 2017 at 12:53 pm

    NJ could learn a thing or 2 for, Kentucky’s Governor.

    http://www.kentucky.com/news/politics-government/article171791272.html

    From that article:

    “Gov. Matt Bevin and state lawmakers believe it is important to embrace the revised financial assumptions.

    “No more pretending that everything is just fine,” he wrote. “Everyone needs to understand the severity of the situation. To do otherwise will lead to solutions that fall short of solving the problem.”

    Bevin is expected to call a special legislative session later this year for lawmakers to consider changes to KRS and to the Teachers’ Retirement System of Kentucky, which together face tens of billions of dollars in unfunded liabilities.

    The PFM Group, pension consultants hired by Bevin, released a list of recommendations last week that included an end to defined-benefits pensions for state workers and school teachers in favor of less generous defined-contributions accounts; a raise in the retirement age to 65 for most workers; and the “clawback” of a previously awarded cost-of-living adjustment to some retirees that could reduce their future benefits by 25 percent.”

    *************

    What are the odds that Phil Murphy (the likely next Gov of NJ) who kisses every Public Sector Union butt he sees wwould be willing to do the same ….. instead of just demanding MORE taxes in the already highest-taxed State in the nation?

    Reply

  5. Posted by Tough Love on September 9, 2017 at 8:49 am

    MUST-READ article titled “Borenstein: Here’s the worst bill in Sacramento “.

    Link ……………

    http://www.mercurynews.com/2017/09/08/borenstein-union-bill-would-endanger-help-for-the-needy/

    Quoting from the article:

    “With the Legislature one week from its fall recess, lawmakers must choose between unions seeking an even bigger cut of severely strained county budgets and the ability of those counties to function efficiently and serve the most needy.

    The bill, AB 1250, sponsored by the Service Employees International Union, is arguably the worst of some very bad legislation currently pending in Sacramento. It epitomizes the greed of California’s public employee labor groups and their tight grip on the state Legislature.

    It also ignores that most counties cannot afford to hire more employees with their costly pension and other benefits. The counties are already billions of dollars in debt for the shortfalls in their retirement programs.”

    ***************************************

    Just more proof that Public Sector Unions are a CANCER inflicted upon civilized society

    Reply

  6. Posted by purplelogic on September 9, 2017 at 10:09 am

    John, You normally make sense but your statement is over the top unless you are really old or in poor health.

    While this vote, if it goes the way you expect and is not overturned in court, will be a milestone for private plan under MPRA, it will hardly be the biggest pension event in your lifetime. That will happen when one of the large impending public pension disasters comes to fruition in one of the big plans (ie Illinois, NJ, or Kentucky etc) after a series of small plan failures.

    When the general public and the governing class realize it is an unstoppable wave will be your big event.

    Reply

    • Posted by Tough Love on September 9, 2017 at 11:34 am

      Exactly.

      The NYS Teamsters Pension Fund problem will be barely noticeable when the massive failure of Public Sector Plans hits …………. and undoubtedly with the insatiably greedy and arrogant Public Sector workers STILL demanding that they be be paid in full and on time ………..and to hell with the Taxpayers.

      Reply

    • I do happen to be really old and, apparently poor health comes along with that, but I put up this blog mainly to explain that quote which I stand behind but not as it specifically applies to this vote.

      The NYS Teamsters vote, like 98% of what are billed as contested elections in this country, is a sham. It is the process that got us here that is the critical event. For our electoral system that process is having the only candidates on the ballot being those willing to take bribes openly going through a vetting system that never gets real issues out there.

      Sudebaker and ERISA I consider before my time as I was not paying any attention then. There you had a pay-as-you-go system that was not working so rules were put in so that Studebaker could never happen again. They even created my job (Enrolled Actuary) to protect participants.

      Then, over the decades, those rules were compromised to a point where the pension system (in this case for multiemployer plans) essentially collapsed. But rather than recognizing the problems that mis-regulation engendered (doing what single employer plans did in 2008 with PPA where 80% funding became time to panic) you had bureaucrats admitting the impossibility at this late date in the default process of ever setting up a mechanism that will protect retirees in multiemployer planrs (many of which got to 30% funding) and instead, with MPRA, set up a system where those retirees would bear the main burden.

      This was a major game-changer. Rather than admitting to screwing up and setting up stricter rules for the future, we had the same funding mechanisms kept in place and the risks associated with the coming inevitable defaults to fall primarily on the participants to the extent their benefits get reduced to whatever extent (down to 110% of PBGC limits for now) some bureaucrats deems necessary.

      Reply

      • Posted by Tough Love on September 9, 2017 at 1:25 pm

        John,

        If the failure of America’s Gov’t to preemptively (and in a timely manner) put in place corrective action for multi-employer Plans is such a huge failure, what do you call the FAR larger (and certainly to be WAY more fraught with conflict) failure of many of Americas Public Sector Plans ?

        Reply

        • Knowing a bit about how government really works through experience with Union County, the stater of NJ, and a bit at the federal level, I view government pensions as essentially transfer payments where those running system get money to the people they want to get the money by duping those who provide that money. In the same class as bonding.

          That the pension scheme has been used so extensively for these transfers makes it look like a pension crisis but it is really a crisis in how tax money is spent. You can’t look at most government actuarial reports and take them seriously. Puerto Rico ran out of money, is bonding to pay retirees, and the actuaries come up with a contribution that is a fraction of the annual payouts.

          Reply

          • Posted by Tough Love on September 9, 2017 at 3:48 pm

            John,

            I completely agree with your 1-st paragraph.

            But in your 2-nd paragraph, it’s strange to say that the HUGE Gov’t sector pension underfunding of ALREADY accrued pension credits only “looks like a crisis”.

            When these Gov’t Plans run out of assets (and many will), it certainly will be a very REAL crisis when Plan participants are told that they will get far less than they were promised and/or taxpayers are told that they will be paying far MORE just so that Public Sector workers can keep 100% of their ludicrously excessive pension/benefit promises.

          • I agree there is a crisis for public ‘pensions’ that is far larger than for multiemployer plans (though less than Social Security) but just as I look at SS as a transfer mechanism between working people and old people so I see public plans having devolved over the decades into a similar transfer mechanism where politicians raise salaries of public employees and have future taxpayers pay for it.

          • Posted by Tough Love on September 9, 2017 at 4:17 pm

            John,

            Agreed. but when the Plans run out of assets and the choice becomes either cuts in promised pensions or huge tax increases to pay full benefits on a pay-as-you-go-basis, it’s not FUTURE taxpayers that will be called upon to pay for it, but CURRENT taxpayers.

  7. Posted by PurpleLogic on September 11, 2017 at 2:45 pm

    John,

    I believe Tough Love is more on track here. As many say, this is a math problem and the math will win. And the math says the crisis is very real.

    When a fund is depleted something must give, and state/local governments have practical, political, and mathematical limits to how much they can raise taxes or cut other spending to support pensions. If any fund can escape it though it is probably Social Security, as the Federal Government can effectively borrow endlessly and prop up the fund even after it is otherwise insolvent.

    Private pension plans have been going under for years, with workers getting screwed, minus some relief from PBGC, This and the MPRA, however unfairly administered, have simply not yet registered as a crisis in the public consciousness.

    After the trickle of municipal bankruptcies becomes a stream, with more medium sized cities like Hartford CT joining the list, the turning point will occur when a large, economically vibrant city, ie Chicago, Houston, or a whole state, ie KY, IL, NJ, becomes insolvent. That will be the biggest pension event in our lifetimes because it will start a cascade that will be hard to recover from.

    Reply

    • Posted by Tough Love on September 11, 2017 at 3:44 pm

      The real “wake-up” moment will come when a City in Bankruptcy comes up with a reorganization Plan that treats it’s Bondholders and Pension debt the SAME way …. and with equal % reductions..

      From a legal standpoint the is no justification for giving FAR larger haircuts to Bondholders, but I realize it’s done that way because MOST Bonds are covered by insurance and it’s the insurer that has to make the Bondholder whole. The existence of such insurance is not relevant and screwing the insurer is not legally supportable.

      Reply

  8. I’m not old and here is what I think for what it is worth…I don’t usually curse but I don’t give a rat’s ass about these public pensions and whether they go poof or keep going for the next 100 years by which time I will be in a better place. The current system will never ever change…..I’ve been on this blog and others for over 12 years and not one thing has changed and the more things change the more they stay the same. There isn’t going to be a “wake up” call…….it will go on into the future and unfortunately there isn’t a damn thing anyone can do. We were fortunate in that we got out 3 years ago and never looked back but its all a gamble Life is short…buy the shoes, eat the cake,go on a fabulous vacation every year, drink the good wine….really who the fuck cares…….if the generation of our children wants to support all of this what the fuck do I care we are enjoying their inheritance now !!

    Reply

    • Posted by Tough Love on September 11, 2017 at 8:20 pm

      MJ,

      Unlike Private Sector Corporations that do have rules that they MUST follow (GAAP Accounting, Sarbanes-Oxley, etc.) and SEC oversight, the Public Sector just hides and lies and it’s a rare occasion indeed when anyone is held account accountable for misdeeds….. even when very serious.

      That’s why that lady investment guru (forgot her name) was so wrong when should claimed the municipal sector was heading for the toilet 5 years ago. She significantly underestimated the Public Sector’s ability to hide, lie and phony up the books. But there ARE limitations.

      Assuredly we ARE getting closer. When Plan assets approach zero, the SH** hits the fan because for pension payments to retirees to continue on a pay-as-you-go-basis, taxes will need to go through the roof ….. and THAT will NOT go over well with Taxpayers. Who knows, the politicians may even see the writing on the wall. change sides, and throw the greedy Public Sector Unions/workers “under-the-bus”.

      Hartford CT is about to file Bankruptcy. Lets see if the State “blinks” and gives them the money they demand or if not, if they chew up those holding their debt. If the latter, perhaps we’ll finally see the Public Sector pensions get the cuts they deserve.

      Reply

  9. Posted by S Moderation Honestly on September 12, 2017 at 3:19 pm

    TL…

    “Unlike Private Sector Corporations that do have rules that they MUST follow (GAAP Accounting, Sarbanes-Oxley, etc.) and SEC oversight, the Public Sector just hides and lies and it’s a rare occasion indeed when anyone is held account accountable for misdeeds….. even when very serious.”

    Many states, perhaps, are “guilty” of setting discount rates too high, therefor lowering today’s contributions, and they have been underfunded since 2008-2009 (As have many private sector pensions, not just in the U.S., but globally.)

    But the “pioneers” in plans where “assets approach zero, the SH** hits the fan” will be those states which not only low-balled the ARC, but then didn’t even contribute that minimum. Sometimes short changing by half, or more. (You know who you are, New Jersey, Kentucky, Illinois, Connecticut, Pennsylvania, S. Carolina, et. al)

    Not only was no one held accountable (yet), but some observers (again, you know who you are) even applaud and encourage that intentional underfunding.

    Almost certainly, retirees in those states will see some type of reduction in pensions and/or healthcare, but they will not be the only ones in those states to pay the price.

    SMH

    Reply

    • Posted by Tough Love on September 12, 2017 at 3:44 pm

      SMH,

      Hogwash …. as usual.

      Private Sector DB pensions have an average funding ratio in the low 80s using the very CONSERVATIVE assumptions & methodology that they musty follow per US Treasury/IRS regulations.

      Using the very LIBERAL assumptions & methodology commonly used in the valuation of Public Sector Plans, a PUBLIC Sector Plan using Public Sector Valuation assumptions & methodology would have to have a funding ratio of near 120% to have the SAME level of security as the average Private Sector Plan.

      The average Public Sector Plan funding ratio (including the Giant CalPERS that’s backing YOUR CA pension) have funding ratios just north of HALF (yes HALF) that %.

      I agree that politicians were never held accountable to fund the promises that they made, but Plan generosity determines the funding requirements, and grossly excessive Plan generosity was their FAR FAR greater mistake ….. and the ROOT CAUSE of the pension mess.

      Reply

  10. Posted by S Moderation Honestly on September 12, 2017 at 4:39 pm

    “Hogwash …. as usual.”

    Don’t know if anyone has reminded you, lately, but private and public pensions are …not… the same thing. Yes, they use different discount rates, but generally, each using it’s own methods, both private and public plans were well funded in 2000. Each took a big hit in the dot com dive, and each worked their way back to full funding by 2007. And then the proverbial shit hit the fan. Many private plans, like most public plans, are still not fully recovered from 2008. Suggesting that the current pension mess (global) is a result of extreme underlying economic conditions… not plan “generosity”. And the bigger mess still was in those states which neglected to contribute even the minimum ARC.

    “I’ll give it away at the beginning: they’re in trouble because they’re not making the “required” contributions to the pensions.

    Yes, there are all sorts of other reasons as well, such as spiking, early retirements, sluggish payroll growth, optimistic valuation assumptions, etc.

    But ultimately the reason the pensions are so little funded is because the state didn’t put in enough funds.

    And they knew it.

    They knew it for years.

    It’s not because of investment fees, though those should be more transparent. It’s not because of part-time board directors who get a lifetime pension for very little work, though that doesn’t help. (I’ll address why these aren’t significant problems in a later post.)

    DON’T PAY THE BILLS, THE DEBT GETS LARGER”

    Mary Pat Campbell
    ……………………
    And those who approve and encourage that very deliberate underfunding have the chutzpah to complain about “accountability” of public pension officials?

    Generous plans are underfunded. Market level plans are underfunded. Private sector plans are underfunded. Public sector plans are underfunded.

    SMH

    Reply

    • Posted by Tough Love on September 12, 2017 at 6:12 pm

      Quoting SMH ………..

      (1) “Don’t know if anyone has reminded you, lately, but private and public pensions are …not… the same thing. Yes, they use different discount rates, but generally, each using it’s own methods, both private and public plans were well funded in 2000. ”

      Not the same? Boy is THAT an understatement, with Public Sector Plans ROUTINELY 2 to 3 times (4 to 6 times for Safety workers) greater in value upon retirement than those typical granted comparable Private Sector workers who retire at the SAME age, with the SAME pay, and the SAME years of service.

      And no, even at the PEAK of the market Public Sector Plans were not on average “well funded”, noting that even a 100% funded ratio using typical PUBLIC Sector valuation assumptions and methodology equates to about a 70% funded ratio using the assumptions and methodology required by the US Gov’t of PRIVATE Sector Plans.

      (2) ““I’ll give it away at the beginning: they’re in trouble because they’re not making the “required” contributions to the pensions.”

      No, they are in trouble BECAUSE they promised a ludicrously excessive level of pension benefits. Taxpayer should NOT be called upon to fully fund such a ludicrously excessive level of pension benefits.

      (3) “Yes, there are all sorts of other reasons as well, such as spiking, early retirements, sluggish payroll growth, optimistic valuation assumptions, etc.”

      Indeed, as well as the MANY MAY retroactively applied pension formula & provision increases (ALL of which should be rolled-back), the ridiculously easy-to-meet “disability” pensions, the end-of-career promotions and greater than average pre-retirement raises, “DROP” Plans (ALWAYS a taxpayer-ripoff), etc. etc., etc.

      (4) “DON’T PAY THE BILLS, THE DEBT GETS LARGER””

      Don’t promise more than necessary, just, fair to Taxpayers, or what’s affordable (and can be fully funded every year WITHOUT the expectation of tax increases to do so) ……… and the problem would have never arisen in the first place.

      (5) “Generous plans are underfunded. Market level plans are underfunded. Private sector plans are underfunded. Public sector plans are underfunded. ”

      If valued using identical assumptions and methodology, average Private Sector DB Plan funding ratios are almost TWICE that of the average Public Sector DB Plan. In fact, many Public Sector Plans are in such bad shape, that If they were governed by current Private Sector valuation rules, MANY would be barred from granting ANY further pension accruals.

      Reply

  11. Posted by S Moderation Honestly on September 12, 2017 at 6:48 pm

    “If valued using identical assumptions and methodology,”

    Not the point, Love. Some of the biggest private plans, according to their methodology, were fully funded in 2007. Now they ain’t. Is it because their plans are too generous?

    No. following their different assumptions, their funding level varied with the economy, just like public pension plans did*… until the “greatest recession”. It was a game changer for both public and private plans.

    *just like public pension plans did… That is, those public pensions which met their ARC. Others (the usual suspects) didn’t even fund the minimum required, for decades before 2007 (something of which you apparently strongly approve) by 2007, those state systems were sitting in a tank of gas, and 2007 lit the fuse. That’s not math, that is suicide.

    SMH

    Reply

    • Posted by Tough Love on September 12, 2017 at 7:58 pm

      SMH,

      So you thing the relevant point is that the average PRIVATE Sector Plans are now only in the 82% to 84% range*, but were much better funded in 2007 ?

      * http://www.asppa-net.org/News/Article/ArticleID/9040

      No, what is FAR FAR FAR more important (and scary) is that:

      (a) PUBLIC Sector Plans (when valued using the identical assumptions & methodology required of Private Sector Plans) are only slightly north of HALF as well funded as Private Sector Plans..

      Yes, PUBLIC Sector Plan funding ratios did vary “with the economy” …. but again, at about HALF as well funded as PRIVATE Sector Plans.

      (b) No, a funding ratio in the 82%-84% range for Private Sector Plans is not a “game changer”, and well within reasonable expectations as plans recover from the great recession of 2008. Single employer Corporate Plans are overall in good shape. Many multi-employer (union) plans are basket cases. Seems like anytime a Union is involved things go badly.

      Unlike current Public Sector Plans funding ratios, which for YEARS have been so poor, that if they were required to follow the same rules REQUIRED of Private Sector Plans, MANY would be barred from granting any further accruals. Not really a “game changer” here either, as it’s been this bad for many years !

      Reply

  12. Posted by Earth on September 13, 2017 at 7:54 am

    Earth to SMH:

    Yes, SMH, tell us what you really thing.

    Reply

  13. Posted by Anonymous (NOT Earth... the other Anonymous) on September 13, 2017 at 3:27 pm

    I REALLY thing SMH is Earth. And SMD, and unanimous, and, very rarely, Slick Willy.

    But not Anonymous. That would be redumbdant.

    Reply

  14. Posted by S Moderation Honestly on September 13, 2017 at 3:47 pm

    Tough Love…

    “(b) No, a funding ratio in the 82%-84% range for Private Sector Plans is not a “game changer”, and well within reasonable expectations as plans recover from the great recession of 2008.”

    Seriously? After eight years? With all the strict Government controls? In a bull market?

    The public plans that do survive will be stronger (that which doesn’t kill you) for the lessons learned and the reforms already made and continuing to be made.

    SMH

    Reply

    • Posted by Tough Love on September 13, 2017 at 4:22 pm

      Recover (market levels back to those of 2007/8) STILL means that the Plan hasn’t earned the rate assumed in discounting Plan liabilities over those years.

      Educate yourself.

      Reply

  15. […] In checking the US Treasury’s MPRA website today we find that The Western State Office and Professional Employees Pension Fund withdrew their application on August 11 and the result of the New York State Teamsters Conference Pension Fund benefit vote on suspending benefits was released. My prediction had been: […]

    Reply

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