Pensions-Recall When?

Good morning and Merry Christmas.

I have spent the past few days reading a great deal, such as Mr. Bury’s; “Breaking News: NJ Senate on S3620”.

In my other readings, comments on my writings and so on, I am impressed.  I get many intelligent questions, comments, and new sources for consideration.  I try to dialog as much as possible.

There is some anger and this is troubling to me.  Anger with direction or purpose may translate into action.  Anger that is idle may fester into rage.  I also see this in some of what I read.

Without direction anger may equate to low voter turnout, disenfranchisement, etc.  Scientifically we may describe this as inertia or resistance to motion (change).  How do we overcome this?  Finding money for pension relief and reform is the easy bit.  How do we overcome disenfranchisement-this inertia?

Gentle reader, you are invited to reflect on the above-cited release; “Breaking News: NJ Senate on S3620”.  How do you, gentle reader, feel about this?  If you believe the press release, this is a necessary law to correct an inequity.  Do you accept the press release stating the monetary impact is nominal?  Or do you see this as a slap in the face to the citizens of New Jersey?  If the fiscal impact is truly nominal, how do you perceive this act?  Necessary or a self-serving when selfless acts are needed?

New Jersey is your state and you must decide.  What needs to happen in the Garden State, gentle reader, of such critical importance that you would be compelled to stand and take immediate action?  Your state and pension deficits are growing by the day.  Your state credit ratings are sinking and moving towards junk bond status.  Any competent financial projection would conclude you are moving towards insolvency-bankruptcy.  Is this concerning to you?

New Jersey is not alone, IL is one of several states in similar circumstances.  States are not allowed to go bust but I fear this may be soon tested.  Given the current status of our administration I would expect little federal tax relief should this happen.  Remember, there is no precedence protecting pensions from being moved to an unsecured status.  You cannot count of the recent California rulings.

I know there are some retired persons wanting only to keep their head down and collect a check.  These days are rapidly coming to an end.  It is better to face problems now than later.

Have you, gentle reader reflected on the NJ State Constitution, ARTICLE I-RIGHTS AND PRIVILEGES, sections one and two;

  1. All persons are by nature free and independent, and have certain natural and unalienable rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing, and protecting property, and of pursuing and obtaining safety and happiness.
  2. a.  All political power is inherent in the people.  Government is instituted for the protection, security, and benefit of the people, and they have the right at all times to alter or reform the same, whenever the public good may require it.
  3. The people reserve unto themselves the power to recall, after at least one year of service, any elected official in this State or representing this State in the United States Congress…

My title here has two meanings, Recall When (an earlier time when life worked as it should) or Recall, When (a political recall)?  California is the dumbest state in the nation and even we had enough sense to throw our fool, misbehaving governor under a bus.  Just google “Gray Davis Recall”.

By any sense of reason it would be foolish to conduct a recall during an election year.  But if necessary it sends a very powerful message.  Are your elected officials working for you? If so, then great!  But if not stop the insanity and consider cleaning house now. You have the power.

Gentle reader, in closing, reflect for a moment on my pet troll; seemingly devoid of intellect, insight, reason, or compassion.  But possessing a single super power: passion.  Remember a long time ago four men went out and answered a call. They carried a message and changed the world.  These men lacked, prestige, wealth, etc., but they had passion.  We call them evangelists.  Imagine the impact if my pet troll had a Grinch-like conversion.  Where we now see him as a village idiot he could become the town crier.  If he could take a fraction of his grumpy energy and, with a change of heart, put that same passion into a cry for action the Garden State would again become a blooming paradise.

I leave you with a seasonal Christmas message of Joy; you have a choice.  You, gentle reader can “Recall When”, or perform a Recall When”?

Tim Alexander
Triune
tim@triuneGFS.com
805-402-4943

26 responses to this post.

  1. Posted by Anonymous on December 25, 2017 at 1:53 pm

    Merry Christmas Tim, go light on the peppermint mocha frappuccino – LOL! believe whatever State goes over the cliff first it will create an unstoppable domino effect for States that follow.All stakeholders need to come to the negotiating table void of ego and with each other’s best interest at heart. Then we have a chance to rationally solve this issue.

    Reply

    • Posted by Triune on December 25, 2017 at 1:58 pm

      Amen and merry Christmas. Warning against frappuccino too late. Am on such a sugar high that you would not believe.
      Thank you for your comments.
      Tim

      Reply

  2. Posted by Tough Love on December 25, 2017 at 2:11 pm

    Well, in that long post, I found one point (beyond the general rambling).

    Quoting Tim ……….. “Finding money for pension relief and reform is the easy bit. ”

    Those who know far more than you about Public Sector pensions (and likely EVERYONE who has earned the right to call themselves an “economist”) would find BOTH parts of that statement (finding the money, and reform) ridiculous.

    *******************************************************
    P,S. You REALLY should look into becoming a Preacher. It’s clearly your passion, and you will be a great deal happier (and more productive).

    Reply

  3. Posted by Marcus Aurelius on December 25, 2017 at 2:18 pm

    Merry Christmas Mary J. Rottencrotch

    Reply

  4. Posted by Anonymous on December 25, 2017 at 2:22 pm

    Merry Christmas from the White House

    Reply

  5. Posted by George on December 25, 2017 at 6:53 pm

    Just google Grey Davis recall!!!!

    I did, he was replaced with showman Republican Arnold Schwarzenegger, who accomplished basically nothing.

    And when ‘The People’ turned on the 2 parties during the 2016 presidential election we ended up with showman Donald Trump, who is on track to basically keep the Bush Obama forever war going forever.

    But who will replace Phil Murphy?
    Showman Joe Piscopo!!! Chris Rock lives in NJ, doesn’t he? Take your pick because replacing the chief executive of highly bureaucratic entities does not seem to change much. It is sad how little show biz talent Jersey has to replace Gov Murphy.

    You imply you are Californian, you may not be familiar with minor NJ celeb and occasional candidate for Governor of NJ Joe Piscopo and therefore not get the joke.
    https://en.wikipedia.org/wiki/Joe_Piscopo

    Reply

    • Posted by Anonymous on December 25, 2017 at 7:15 pm

      I guess all you can say is at least CA tried! Although I’m not one for change for the sake of change if it’s not for the good.

      Reply

      • Posted by Triune on December 26, 2017 at 12:16 am

        Thanks folks. I would disagree. Arnold was better, in my opinion, than Gray.
        I politely suggest you miss my point. What need to happen before voters demand change? Back to my original question that has not been answered. If the NJ senate pushes senate pension reform, for their sake, how do the NJ voters feel? Is the necessary or self serving? Please tell me what need happen before you feel compelled to take immediate action? This is a serious question.
        Tim Alexander
        Triune
        805-402-4943
        tim@triunegfs.com

        Reply

  6. Posted by Tough Love on December 25, 2017 at 10:46 pm

    Rather than listening to more of Tim’s proselytizing and wafting between easy money (to solve the Public Sector pension crisis) and the difficulty of doing so, how about we examine something more immediate and compelling ………. the apparent mindset and motivations of NJ’s Gov-elect, Phil Murphy:

    http://www.northjersey.com/story/news/new-jersey/2017/12/22/murphy-miffed-christie-over-pension-change-could-cost-state-and-local-governments/974790001/

    The title of this article is:

    “Murphy miffed at Christie over pension change that could cost state and local governments”.

    What did Christie do to so “miff” Murphy ? He lowered the assumed investment earnings assumption (and thereby, the interest rate used in discounting Plan liabilities) from 7.65% to 7%, a rate closer to the (roughly 6% rate) that most investment advisors believe is more appropriate. Doing so increases the Plan liabilities as well and the annual contribution requirements.

    Wow, being “miffed” is odd given that Gov-elect Murphy has promised to fully fund NJ’s Public Sector pensions, apparently not just PAST service accruals, but also FUTURE service accruals based on the same VERY rich and hence VERY costly formulas & provisions that are in place today, the latter observation being based on Murphy’s lack of ANY support for implementing the proposals of the NJ Pension and Benefit Study Commission.

    Murphy IS a “financial” expert, and while likely more so in the minutia of investments, he assuredly understands NJ’s Public Sector pensions as well as most other experts. There is no doubt that he realizes just how generous they are and how much money it will take (annually) to fully fund them ….. especially if using the FAR more appropriate/conservative GASB or Private Sector assumptions & methodology. He assuredly ALSO knows that the pattern of funding does NOT impact the ultimate cost of the promised pensions (pay more today or pay more tomorrow), and that if he TRULY wants to reduce (or at least stabilize) NJ taxes, that the promised pension BENEFITS (not the funding pattern thereof) must be addressed.
    —————————————————————

    Before I go on, an important disclaimer…………… I do NOT believe that NJ’s Taxpayers should fully fund (or fully pay) all that has been promised. I feel that way because (a) the granting of these grossly excessive pensions is the DIRECT result of the Public Sector Unions BUYING the favorable votes of our Elected Officials with BRIBES disguised as campaign contributions and election support, and (b) by any and every reasonable metric, NJ’s Public Sector pensions are grossly excessive, unnecessary to attract and retain a qualified workforce, are unfair to taxpayers (now called upon to pay for 80% to 90% of total Plan costs), and are clearly unaffordable. And to be clear (and address SMH’s always-brought-up commentary), when I say grossly excessive, I mean that current NJ Public Sector pensions, when added to benefits (including active and retiree healthcare) and wages, results in “Total Compensation” materially greater than that granted comparable Private Sector workers. The AEI study determined the NJ Public Sector “Total Compensation” ADVANTAGE to be equivalent to 23%-of-pay (33% with the incremental value of greater Public Sector job security included), and assuredly even greater had NJ’s Safety workers (with far greater than average wages, pensions, and benefits) not been EXCLUDED from that AEI study.
    —————————————————————

    If Murphy REALLY wanted to “fully fund” NJ’s Public Sector pensions, he assuredly would NOT be looking to put in LESS than what a valuation employing an APPROPRIATE interest rate would call for. While it is arguable whether even a 6% assumption is too high (MANY, including myself believing that the roughly 3.25% assumption required by the US Gov’t in PRIVATE Sector Plan valuations IS the appropriate assumption in order to properly reflect the “risk” of investment under-performance), there is ZERO doubt that the current 7.65% assumption is WAY too high and that the new 7% assumption remains MUCH more lightly to be too high than too low.

    It appears that Murphy has no REAL interest in fully funding these Plans but just wants the continued Union support that accompanies the APPEARANCE of doing so. This of course puts him in the SAME category as most prior NJ Governors and Legislators ….. contribute the minimum possible (consistent with not losing the Union’s support), save the cash for pet projects and rewarding the loyal, and let the next generation of taxpayers deal with the EVEN GREATER mess you will assuredly leave behind.

    Murphy appears miffed because (with the now-increased pension contribution requirements) he will be squeezed on cash for pet projects and rewarding the loyal, as well as meeting his absurdly optimistic campaign promises to fully fund pensions, education, free college, etc. etc. etc.

    But it’s worse………

    Murphy is not only looking to minimize Plan contributions, but by not supporting the extension of the 2% Police Salary Arbitration Cap, will be making things MUCH worse.

    Lets look at the impact of just ONE NJ Police Officer retiring after 25 years (likely above the Patrolman level) with a current salary of $150,000 (certainly NOT unusual for recent full career Police retirees in MANY NJ communities). With a pension equal to 65% of final pay and an annuity factor of about 15 times (20 if COLAs are reinstate), if an arbitrator were to award say a 4% increase in wages for each of the 3 years of a NEW contract (vs 2% under a cap extension) and if the Officer retired at the end of that new 3 year contract (but still with 25 years and at age 55), how much GREATER would be the lump sum value of the Officer’s pension WITHOUT the cap extension vs WITH the cap extension?

    Answer:

    = ($150,000×1.04×1.04×1.04x.65×15) – ($150,000×1.02×1.02×1.02x.65×15)
    = $1,645,114 – $1,552,017
    = $93,097

    And to those (like SMH) who will correctly bring up that the Officer will be contributing more if his/her salary is higher, let see HOW MUCH more he/she would be contributing. Assuming the Officer contributes 10% of his/her wages (I do not know the exact Officer contribution %) the Officer’s contributions over those last 3 years WITHOUT the salary cap extension would be:

    = $150,000×0.10×1.04 + ($150,000×0.10×1.04×1.04) + ($150,000×0.10×1.04×1.04×1.04)
    =$48,697

    And the Officer’s contributions over those last 3 years WITH the salary cap extension would be:

    = $150,000×0.10×1.02 + ($150,000×0.10×1.02×1.02) + ($150,000×0.10×1.02×1.02×1.02)
    =$46,824

    Hence the INCREMENTAL pension contribution from the Officer (during those last 3 years) as a result from letting the 2% salary cap expire and assuring a 4% raise in each of the 3 contract years is”

    $48,697 – $46824 = $1,873

    And in exchange for that Officer’s $1,873, the Officer gets a pension that has increased (SOLELY due to the three EXTRA 4%-2%=2% raises) in lump sum value by $93,097.

    So what is the net incremental PENSION cost to Taxpayers from this ONE Officer (under the assumptions given in this example)?

    $93,097 – $1,873 = $91,224

    And that $91,224 incremental Taxpayer PENSION cost is in addition to the incremental WAGES of:

    [$150,000×1.04 + ($150,000×1.04×1.04) + ($150,000×1.04×1.04×1.04)]
    – [$150,000×1.02 + ($150,000×1.02×1.02) + ($150,000×1.02×1.02×1.02)]
    = $18,728

    Therefore, the total INCREMENTAL (Pension + Wage) cost to TAXPAYERS of the Cap expiration = $91,224 + $18,728 = $109,952 …. for just this ONE Officer.

    If Gov-elect Murphy does not STRONGLY ADVOCATE for an extension of the 2 % Police Salary Arbitration Cap, should we (NJ’s Taxpayers) thank him for looking out for the best financial interests of NJ’s (already grossly over-compensated) Police, or should we vilify him for exacerbating an ALREADY almost insurmountable problem?

    And after that ……….. I

    Implement the proposals of the NJ Pension and Benefit Study Commission.

    Reply

    • Posted by Anonymous on December 26, 2017 at 8:40 am

      Whether or not the assumed interest rate change is appropriate, one has to question the timing of it…..

      Reply

    • Posted by Anonymous on December 26, 2017 at 11:19 am

      There is no question. He did it out of spite. Christie being Christie.

      And he damn well knew about the bridge before it happened.

      Reply

      • Posted by Tough Love on December 26, 2017 at 12:56 pm

        And what about the expiration of the 2% Police Salary Arbitration Cap? With many (lowest rank) Police Officers now get a Total Compensation (wages + pensions +benefits) package worth over $200K annually, are they not ALREADY overcompensated ?

        Reply

        • Posted by Anonymous on December 26, 2017 at 1:26 pm

          How many angels can dance on the head of a pin?

          There “might” be differing opinions on police compensation.

          Incidentally, if the contract does not go to arbitration, the increases are allowed to go, by mutual agreement, above 2 percent, are they not?

          Reply

          • Posted by Tough Love on December 26, 2017 at 2:34 pm

            Not sure if the latter is true, but I suspect it is. Even if so, the Union, KNOWING that an arbitrator can award no more than 2% gives the Union ZERO “leverage” in any demands for more than 2%.

            e.g. If the Unions wants 3% and the town is feeling “generous” (negatively impacting OTHER town workers because of the overall 2% budget cap) it can offer say 2.25% and say “take-it-or-leave-it”.

    • Posted by Anonymous on December 30, 2017 at 11:28 pm

      Now there is some good ramblin.

      Reply

  7. Posted by PS Drone on December 26, 2017 at 5:24 pm

    2% cap, assumed ROR, Millionaires tax, COLA etc. etc. None of it matters in the long run. With the cap on SALT now $10K for property and income taxes combined, New Jersey’s fiscal demise is both assured and significantly accelerated due to dramatically increasing out-migration of productive (non-drone) citizens.

    Reply

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