Pensions-Pensions and loans? Not Quite Ready for Prime Time

Good morning gentle reader:

I hope this post finds you all doing well.

Yesterday I was allowed to view Illinois State Pension discussions.  The topic at has was alternatives for new financing.

Thank you to the host, Representative Martwick and his.  Representative Martwick mentioned several times his reason for calling the meeting was to listen to actuarial input related to a proposed $130B or so bond sale.  He mentioned several times this was only the first meeting of several and it was his intention to support consideration from various disciplines and alternative solutions.  He sounded to me as a man earnestly looking for viable solutions.

A presentation was prepared by a professor and actuary.  He represented the highest standard of his profession and I hope I can speak with him.

Current practices and accounting rules allow for a theoretical Assumed Rate of Return not based on actual investment returns.  This metric becomes a target, not a standard.

Only one person questioned whether the report considered actual investment returns, and the answer was no.

One cannot make a responsible and prudent long-term financial decision based solely on Actuarial Assumed Rates.  The decisions must consider, and be tempered by, actual financial conditions and performance.  This is the only means to test and evaluate theory.

Illinois is one state considering loans.  Representative King of New York is supporting loans, as is Representative Brown of Ohio.  Illinois is considering a bond while Representative Brown is looking for loans through the Treasury, perhaps at a rate of about 3%.  When all is said and done, a loan is a loan is a loan.  Does it matter where the debt is sourced?

Yes!

On 10/25/17 Reuters published; “UPDATE 3-Repricing boosts yields on Illinois’ $4.5 bln of bonds” shows that a 10-year Illinois bond had a yield of 3.77%.  The story states bonds were rated just a notch above junk status.  3.0% is less than 3.77% by 0.77%.  Assuming Illinois needed about $130B and offered this debt repayment over 30 years, Illinois would pay an additional $1B per year, $30B total by selling bonds over a cheaper loan through the proposed Treasury program.

There was considerable talk of a funding arbitrage as generating additional cash for other purposes.  The problem is that negative arbitrages exist when looking not at theoretical models but historic performance.  If one wants a real-world example of arbitrage benefits it is this.  The low credit rating of Illinois supports high bond yields.  If the proposed bond yield for pension borrowings would be at 3.77%, or higher, Illinois saves the arbitrage spread between yields the markets will allow for new bonds vs. the proposed rates under the Representative Brown proposal.  My calculations above are based on simple interest, not compound.  Actual arbitrage savings will be greater when computed on compound averages.

What is needed is not borrowings, but investments.  I now have two models that are neither taxpayer nor borrowing-centered.  Both models are at the Federal level.  My proposal is that we move to reality, declare a national problem, and perform a national solution

Thank you to Representative Marwick and his staff

Calls and emails are always welcome.

Tim Alexander

Triune

805-402-4943

tim@triunegfs.com

46 responses to this post.

  1. Posted by dentss dunnigan on February 1, 2018 at 9:01 am

    The pool of suckers left to pay the pensions ,we can only dream of is getting smaller ..N.J.’s future is bleak if another 1 million millennials leave ……http://www.nj.com/opinion/index.ssf/2018/01/njs_future_is_bleak_if_another_1_million_millennia.html

    Reply

    • Posted by Triune on February 1, 2018 at 10:25 am

      Good morning Dentss Dunnigan:
      Please do not despair. From your tone, I would guess you see a bleak outlook for your pension. Solutions are available.
      I am not concerned with a single pension, or state. I see this as a national scale. I will be submitting my next shortly, please stay tuned.
      Your greatest enemy is ignorance. You and elected officials demand that contributions be invested in financial markets and produce an investment return. How does this work and is it a partial culprit for pension woes? Yes.
      Why wait until the next election cycle? Why not tell leaders to solve before the next election? We do have valid, workable, non-debt options.
      Please keep your comments coming. Call or write any time.
      Tim Alexander
      Triune
      805-402-4943
      tim@triunegfs.com

      Reply

  2. Posted by skip3house on February 1, 2018 at 9:13 am

    “….. My proposal is that we move to reality….” I agree.

    Reply

  3. Posted by Tough Love on February 1, 2018 at 3:30 pm

    Quoting ……….”3.0% is less than 3.77% by 0.77%. Assuming Illinois needed about $130B and offered this debt repayment over 30 years, Illinois would pay an additional $1B per year, $30B total by selling bonds over a cheaper loan through the proposed Treasury program”

    I’m guessing that your $1 Billion (and hence the $30 Billion in total “additional” payments) comes from $130 Billion x (3.77% -3.00%) = $1,001,000,000.

    But that’s NOT how it works when, as you stated…..”…this debt repayment over 30 years” (meaning that the loan would be paid-off or self-amortizing over 30 years) ….. because each year’s payment includes a partial repayment of the loan principle.

    Under a 30 year self-amortizing loan at 3..00 % (with annual payments at the end of each year), the annual payment is $6,632,503,711.63 (with total payments of $198,975,111,349), and under the same loan using 3.77%, the annual payment is $7,309,388,490.00 (with total payments of $219,281,654,700).

    Therefore, your $30 Billion savings (associated with the 3% loan vs the 3.77% loan) is wrong for multiple reasons.

    (1) simply computing the DIFFERENCE in the mathematical sums of the 30 year annual payments at the 3.77% and 3.00% rates gives:

    $219,281,684,700 – $198,975,111,349 = $20.306.543.351

    (2) and even though that is far below your $30 Billions savings figure, it is still not an appropriate way to estimate the true “savings” because it does not properly reflect the time value of money. To get a PROPER estimate, we need to discount (at interest) the difference between the annual payments (i.e., $7,309,388,490.00 – $6,632,503,711.63 =
    $686,884,778.37) to the date of the loan, and discounting the annual difference of $676,884,778.37 gives:

    using 3.00%, the present value (or “savings”) is $13,267,240,398.78

    using 3.77%, the present value (or “savings”) is $12,038,629,675,84

    using 7% (what NJ currently assumes it will earn on it’s investments), the present value (or “savings”) is $8,399.491,091.27

    Because the whole idea behind the POB is that NJ can invest the bond proceeds at a far higher rate than the POB coupon rate, using the SAME rate that NJ assumes that it will earn on pension investments is most appropriate choice for the discount rate.

    Hence, the estimates “savings” (expressed in today’s dollars at the time of the bond sale …i.e., on a present value basis) is not $30 Billion, but about $8.4 Billion.

    Reply

  4. Posted by Tough Love on February 1, 2018 at 4:50 pm

    Quoting ……….. “What is needed is not borrowings, but investments. I now have two models that are neither taxpayer nor borrowing-centered. Both models are at the Federal level. My proposal is that we move to reality, declare a national problem, and perform a national solution”

    The problem with your “models” is that you want to use (Fed) money that belongs to ALL of America’s citizens but GIVE IT (at least in part) to a group ….Public Sector workers ….. who by any and every reasonable metric have been promised pension (not only MULTIPLES MORE than what comparable Private Sector workers are promised by their employers) that are grossly excessive, unnecessary to attract and retain a qualified workforce, and grossly unfair to Taxpayers now called upon to pay for 80% to 90% of the total cost of those promises.

    Or more simply (as actuary Mary Pat Campbell call your ideas) …….. Drain The Treasury.

    Reply

    • Posted by PS Drone on February 1, 2018 at 5:49 pm

      Not just unfair, imbecilic to even be considered based on the $20 trillion of acknowledged Federal debt and another $100 Trillion (minimum) of NPV of net future liabilities for Medicare, Medicaid, SS and Federal Pensions.

      Reply

      • Posted by Triune on February 1, 2018 at 6:48 pm

        PS Drone:
        Thank you for your observations and comments. The debt is a tremendous problem that needs to come down.
        But I see other issues, that you highlighted. We have what, 30 or 40M retired Americans and more each day. If the pension crisis is not stopped immediately, we could have, perhaps three quarters of 30 or 40M Americans see a loose of 50% of their disposable income. I fear this begins as early as 2020.
        You mention Medicare and Medicaid. What happens when retired persons are no longer able to contribute any towards medical costs? What happens to quality of life when one cannot afford a balanced diet? The costs you mention, the costs you fear, will skyrocket even faster. It is my opinion the best chance to moderate and control medical and social expenses of senior citizens tomorrow, is to protect their retirement today. In a sense, I am saying that we need a fire-break style solution now, else the cost of senior care, medical, mental, welfare, etc., skyrockets.
        This is a primary reason for my working so hard.
        I appreciate your comments and hope you can better understand my reasoning.
        Please feel free to call or write any time.
        Tim Alexander
        Triune
        805-402-4943
        tim@triunegfs.com

        Reply

        • Posted by Tough Love on February 1, 2018 at 7:52 pm

          Quoting ……….

          “If the pension crisis is not stopped immediately, we could have, perhaps three quarters of 30 or 40M Americans see a loose of 50% of their disposable income. I fear this begins as early as 2020.”

          If you REALLY wanted to do what’s fair and just for ALL of America’s Taxpayers, INSTEAD of called for a bailout of the now ludicrously excessive Public Sector Pensions (including those of your 2 close relatives that you mentioned in an earlier post), you would be strongly advocating to “stop the madness”, by which I mean the continued granting of ADDITIONAL Public Sector pension accruals for FUTURE service under the current formulas & provisions that any economist worth his salt would acknowledge is unnecessarily excessive and unaffordable.

          Unless there existed demonstrably lower Public Sector cash wages (and then only after adjusting for hours workers and “productivity”), there is ZERO justification for Taxpayers contributing more towards the retirement security of their Public Sector workers than what THEY typically receive from their employers……….. and that should apply to BOTH pensions AND retiree healthcare subsidies.

          Reply

        • Posted by PS Drone on February 2, 2018 at 1:44 pm

          What happens? We are all going to find out the hard way when the country finally owns up to the fact that it is hopelessly bankrupt. Medical care provided by others will be appropriately rationed and individuals finally will have to own up to the fact that they are mostly responsible for their own health outcomes.
          You know – Lose weight, stop smoking, exercise, eat healthy, EXERCISE.

          Reply

    • Posted by Anonymous on February 1, 2018 at 6:43 pm

      Zzzzzzzzzzzzzzzz

      Reply

  5. Posted by Tough Love on February 1, 2018 at 8:46 pm

    Tim, Linked below is an article titled ….”The cost of healthcare for California government workers when they retire rises sharply to $91.5 billion”

    I recommend that you read it carefully, and then reflect on WHY it is reasonable or appropriate for CA’s Taxpayers to be responsible for that $91.5 Billion in unfunded promises when CA’s Private Sector Taxpayers most often get NOTHING in employer-sponsored Retiree healthcare benefits.

    What makes them so “special” and deserving of a better deal ….. on the Taxpayers’ Dime ?

    Reply

  6. Posted by Tough Love on February 2, 2018 at 12:05 am

    A frequent contributor to Pensiontsunami is Leo Kolivakis and today’s post is titled “America’s Pension Shithole? “. You can find it here:

    http://pensionpulse.blogspot.ca/2018/01/americas-pension-shithole.html

    The entire commentary is VERY worthwhile reading, but ESPECIALLY the part that starts about 2/3 of the way down with:

    “Update: A wise reader of my blog shared this with me (added emphasis is mine): ”
    ___________________

    Reply

    • Quoth the wise reader…
      ” the only way to fix a pension plan that has become too expensive due to low interest rates, increasing life expectancies and/or ill-advised pension negotiations (for example, agreeing to pension “spiking”) is to dismiss all of the employees (if the court permits states to fire those it can no longer afford to employ) and start again with a DC plan or a Target Benefit plan.”

      Notice the wise reader omitted…
      ” DON’T PAY THE BILLS, THE DEBT GETS LARGER.”
      …which is particularly relevant in Chicago, Kentucky, New Jersey, Pennsylvania, Connecticut.
      …………………….
      Leo Kolivakis…
      ” I agreed with him that the pension storm cometh, not on shifting workers to DC or target benefit plans,…”
      ……………………..
      Wise Reader…
      ” How would one explain this to voters in the states that did not similarly mismanage their public pensions? Why should public servants in Illinois be unjustly enriched at the expense of taxpayers in other states? ”

      Horace…
      “It is your concern when your neighbor’s wall is on fire.”

      S Moderation…
      Even if the fire is his fault.

      Reply

      • Posted by Tough Love on February 2, 2018 at 2:54 am

        Not a bad idea. In fact I’ve called for outsourcing all but Police (and giving Police DC, not DB Plans).

        And you know what ………… they did EXACTLY the above in Sandy Springs Georgia, and it has worked out marvelously.

        Reply

      • Posted by Triune on February 2, 2018 at 6:55 am

        Mr. Douglas:
        Good morning and thank you for your comments. May I advise caution with the statement; “the only way is….” Such a statement generally denotes a lack of new thinking and promotes continued and failed thought process.
        Just yesterday I spoke with an intelligent and educated person, active in CALSTRS. This person got a letter in the mail from the pension that as of June 2017, all is well. No funding problems.
        How do you encourage an intelligent and educated person to stop believing the marketing hype, take off the rose-colored glasses and crunch number? This person is more than capable.
        When the uninformed are screaming about this pension is morally right and the other is wrong, they forget a few important points. The 2017 CALSTRS lists annual average benefits paid about $48K/year or $4K/month. Not a luxury living and certainly not when you consider the average teacher has a master’s degree.
        No doubt a storm is coming. My read is as early as 2020. I live in America, not communist Russia or China. I live in the land of the free. You? What right does one man have to decry any one type of pension virtue and another vice? Have you ever watched what the average grade or middle school teacher goes through to first be qualified to stand in a classroom and then remain a teacher? It is frightful.
        I am well aware of the theory of a disconnect between public and private pay and pensions. As for me, I a OK with the concept of some public labors offing a larger pension as an employment enticement.
        Here are some numbers for you. Social Security estimated the max benefit available to be about $32K per year. The above cited CALSTRS average is about $48K, or 50% more. Before screaming unfair, remember teachers have, on average, a minimum of six years advanced education, as well as ongoing cert requirements. What is this extra effort worth? In accounting, appraisal, and actuarial terms, this is a material fact to be considering in pricing benefits.
        Do not get me wrong, I am non-partisan and not supporting a single style of benefit over another. But oversimplification of a crisis will not aid in solutions.
        It is now 3:45 am. I have been up since two. I like to start my day with a prayer for lost souls, and asking for wisdom and the jump on the day? What about you? The pension crisis is national, we need to declare it as such. Remember we are not talking about numbers but people and lives. Is it the fault of a man if he believes part of an exchange for his services is a paycheck and pension?
        Please feel free to call or write any time.
        Tim Alexander
        Triune
        805-402-4943
        tim@triunegfs.com

        Reply

        • Posted by skip3house on February 2, 2018 at 8:20 am

          …. Is it the fault of a man if he believes part of an exchange for his services is a paycheck and pension?…”
          Yes, it is the fault of the employee. Self responsibility includes your choice of work,……and a study of its pay, ‘promised’ benefits,……
          You must control your own savings, not as is now…..

          Reply

          • Posted by MJ on February 3, 2018 at 8:30 am

            To piggy back on personal responsibility…we know many, many public workers and it is amazing to me that not one of them saves anything for retirement and are depending on their rich life time pensions and SS is applicable. I know this because they talk about it at will and often

            Of course, this is not a scientific study but still must be a sample of the public worker mentality…….and most that we know are living quite large and do nothing but complain about their jobs

            For the sake of civility I keep my mouth shut………….

        • Posted by Tough Love on February 2, 2018 at 10:21 am

          Quoting …………

          “Here are some numbers for you. Social Security estimated the max benefit available to be about $32K per year. The above cited CALSTRS average is about $48K, or 50% more.”

          Wow, it’s hard to believe that you made that statement without some very needed clarifications.

          FIRST you are comparing a Maximum to and Average. Think that’s appropriate ?

          SECOND, that $32K MAXIMUM SS benefit is for 2017 retirees while the CalSTIRS average is from ALL Retirees including those with pensions far lower than those granted 2017 retirees because:

          (a) they retired long ago with low wages and lower pension formulas (and less generous provisions)
          (b) they were part-time workers
          (c) they had short careers but qualified for the pension
          (d) they are collecting the 50% survivorship pension from a deceased spouse
          __________________

          You can’t bullshit the knowledgeable ……… and many readers of this Blog are a lot more knowledgable than you believe.

          Reply

  7. Posted by Triune on February 2, 2018 at 8:53 am

    skip3house:
    Good morning and thank you for your comments. May I politely disagree. What right do we have to limit consideration in exchange for services? The problem is not offering a pension, but is there a plan, other than bonds and taxes, to fund. So long as a plan is in place to fund, I do not see it as responsible.
    I have many friends and family that lost all in the depression. They were responsible with the private sector pay, and investing. The problem I see is what happens when people follow the rules for a lifetime and are left destitute, what then? Have you had random strangers collapse in a pitiful mound of sobbing flesh, realizing there pension is lost? I have, repeatedly.
    How would you entice a qualified person to enter and spend a lifetime as a teacher, fire fighter, or peace officer? The promise of a pension is an important consideration.
    Just now I have walked to Starbucks and am speaking with a man close to 30 years LAFD. He is a professional, and I am glad to have him in my FD. I just asked, and the promise of a pension is important to his career decision.
    The problem is not to which industries, or who get’s what. In America we have free decisions. The problem is that what is promised need to be funded at the time of promise.
    I am pushing my work so hard now because we need a firebreak now, else we may see public and, private pension failures. We can and will bring in prudent reforms, but also need to bring new capital asap.
    It is barely 5:30 AM and I have been working for hours. A big part of the discussion has been Il and the proposal to float a $130B bond. Il cannot afford the bond and cannot afford to be the first state to fail.
    Keep the comments coming and call any time.
    Tim Alexander
    Triune
    805-402-4943
    tim@triunegfs.com
    PS-What did you think of the paper I sent?

    Reply

    • Posted by Tough Love on February 2, 2018 at 10:28 am

      Quoting ……….

      “How would you entice a qualified person to enter and spend a lifetime as a teacher, fire fighter, or peace officer?”

      By paying them an annual wage comparable to that which a reasonable similar job and having the same education, experience, skills, and knowledge would get them in the Private Sector, and providing benefits (while active and retired) and retirement security COMPARABLE to that typically offered by large employers in the Private Sector.

      Keep in mind, “job security” is MUCH greater in the Public Sector, with estimates of that incremental value nearing 10% of wages.

      Reply

      • Posted by PS Drone on February 2, 2018 at 1:40 pm

        I love the word “entice” when it comes to talking about employment as LEO or worse, Fire. I recall that some years ago the City of Chicago had 10,000 applicants for 300 open positions in the Fire Dept. No “enticement” needed there obviously.
        No need for 70% or 90% pensions after 30 years. Cut their pay, pensions and retiree medical and guess what, very few will leave. Where are they going to go to get anything remotely equivalent to what they have scammed over the past 30 years?

        Reply

      • Posted by MJ on February 3, 2018 at 8:36 am

        Yes, how can one put a price on never losing your job no matter what is going on with the economy……….so that job security is worth a whole heck of a lot in this job market……an one does not have to be overly skilled to fill some of these public worker positions

        Reply

        • It’s a double edged sword.

          In 2008, Arnold Governor Schwarzenegger made public statements that government workers were “not doing their part” because there was 12 percent or more unemployment in the private sector, and none in the public sector. (Whatever that means.)

          Meanwhile employees were furloughed three days a month, approximately a fifteen percent decrease in salaries. Ideally, we all should spend less than we earn, and save reserves for such an event, but that rarely happens in the public or private sector, especially with those below $50k annual incomes.

          C’est la vie. Some employees lost their homes or cars and/or ran up credit debt. Many Sacramento public employees wisely decided to eschew lunches, lattes, and other local spending. Local business profits and employee pay suffered. People lost jobs. Businesses closed.

          Still, and the Governor seemed not to even be aware of this, the number of state employees INCREASED; new hiring exceeded attrition.

          And many “private sector employees” were not complaining because, guess who took those increased jobs? The man who replaced me was glad to become “public sector”… until his 6 month probation was up, he decided that he could earn more in 9 months of his old job (IBEW electrician) than he could in 12 months with Caltrans.

          Reply

          • Posted by Tough Love on February 3, 2018 at 5:14 pm

            I know an IBEW electrician who works in big commercial construction (NYC). About 1/4 of the year he’s at home with the kids while the wife works because his Union has no openings for him. This doesn’t happen to Public Sector workers.

          • ” he decided that he could earn more in 9 months of his old job (IBEW electrician) than he could in 12 months with Caltrans.”

          • And, if I am not mistaken, they can draw unemployment while not working.

          • Posted by Tough Love on February 3, 2018 at 7:13 pm

            I don’t know about CA, but in the metro NY area getting into the IBEW is almost as hard as getting a job as a Police officer in the leafy bedroom communities of NJ.

            As such it’s NOT a reasonable occupation for comparison of Public and Private Sector wages.

  8. Tim,
    If you read the link to Leo Kolivakis article, “wise reader” was not I, but one of his readers. I disagree with the entire paragraph.

    Yes, simplistic thinking is the enemy of a meaningful solution, and usually an emotional reaction, not a logical one.

    The $48k CalSTRS Pension is another true, but misleading fact. I was told recently that a “full career” CalSTRS retiree receives about $107k. I am actually OK with that because I know it was also true, but misleading. It includes not just teachers, but administrators, and is the average for those starting at age 25 and retiring at 65. According to CA Legislative Anaylst Office, the average retirement age for teachers is 62 (which happens to be about the same retirement age for all workers, public or private.) It appears that the average full career teacher does have a higher pension than the average full career public sector worker. AS IT SHOULD BE.

    “Is it the fault of a man if he believes part of an exchange for his services is a paycheck and pension?”
    A recent study, I hear (I have only read excerpts) says that a lot of workers know very little about their pensions. When I was working, the subject of pensions rarely came up. I knew very little about the crisis until two years after I retired. To imply that a janitor, or even a professor of Economics, “should have known” 30 years ago that his pension was unsafe, therefore should have saved “extra” on his own is ridiculous.

    I agree with Leo and several other notable pension experts, that a properly run DB pension is superior in most ways to a DC plan. It’s the “properly run” we need to work on, not the “DB”.

    Reply

    • Posted by skip3house on February 2, 2018 at 10:26 am

      Many today were reared by a ‘Mommy knows best’ home, and thought it carried over to capitalistic system….didn’t..

      Reply

    • Posted by Triune on February 2, 2018 at 10:32 am

      Again good morning Mr. Douglas:
      We are both busy today. Please keep your comments and thoughts coming. You are free to call or write any time.
      I am sorry but I do not see the Leo link, perhaps you could send again. I am not familiar with this gentleman.
      One of the greatest problems we face is false and misleading fact. You doubt my CALSTRS figure of $48K as an average retirement. I do not know where you receive your information, but mine is from the audited report. Remember this is an audited report and any misleading information can lead to significant civil penalties.
      The report can be found here.
      https://www.calstrs.com/comprehensive-annual-financial-report
      Page 28 under Mission Statement is the following quote;” In 1913, the annual bene t was $500; today, the average annual member- only bene t is approximately $48,000.”
      Now let’s test this. In the audited statement on page 18 we see a breakdown of the numbers, about 295K receiving benefits. Total Benefits Paid in 2017 31 are about $13.8B. Dividing we see about $47K. My numbers pass a reality test.
      Dear Mr. Douglas, please check facts. If you were right, please feel free to file a civil complaint with the accountant.
      I do agree we are far away from any pensions being “well run”, which is why I constantly say refi and reform!
      Thank you for your comments. Call or write any time.
      Tim Alexander
      Triune
      805-402-4943
      tim@triunegfs.com

      Reply

    • Posted by Tough Love on February 2, 2018 at 10:46 am

      I too agree that a “properly run” DB pension is advantageous to a DC Plans primarily because of the sharing of the mortality risk (i.e., not individually needing to accumulate assets sufficient for your needs well beyond your tabular life expectancy ….. should you be so fortunate).

      BUT ……….. only if “properly run” means taxpayer-funded contributions towards Public Sector DB pensions are very near EQUAL TO the retirement security contributions that a Private Sector worker typically receives from his/her employer. And yes, appropriately adjusted for demonstrable difference in “wages” (adjusted for hours-worked and productivity) where such differences exist.

      Unfortunately, the Public Sector DB pension structure that exists today is EXACTLY as Leo Kolivakis article’s, “wise reader” describes:

      “US public sector pension plans aren’t really pension plans. They are clever ways to unjustly enrich public servants at public expense. To achieve this end, the plans have adopted unsustainable funding and accounting practices made possible by inadequate actuarial and accounting standards.”

      and

      “The states are told that, once they allow employees to participate in a pension plan, they cannot reduce the pensions employees have earned prior to the change (reasonable), nor can they reduce the pensions that employees will earn throughout the remainder of their careers (absurd). ”
      _______________________

      Which is why getting them to “properly run” is near-impossible ……….. to many greedy/self-interested stakeholders (unions, workers, Elected Officials), and easily hoodwinked Private Sector taxpayers.

      Reply

  9. Posted by geo8rge on February 2, 2018 at 11:55 am

    Amazon, Berkshire Hathaway And JP Morgan Could Disrupt U.S. Health Care And Capitalism As We Know It

    https://www.forbes.com/sites/jaycoengilbert/2018/02/01/amazon-berkshire-hathaway-and-jp-morgan-could-disrupt-u-s-health-care-and-capitalism-as-we-know-it/#4e0f2eea5ca4

    Potentially huge savings on healthcare costs. It might be possible to kick the can down the road on pensions by funding pensions with healthcare savings.

    Reply

  10. But…
    “only if “properly run” means taxpayer-funded contributions towards Public Sector DB pensions are very near EQUAL TO the retirement security contributions that a Private Sector worker typically receives from his/her employer.”

    Balderdash. On the plus side, a very good example of my previous statement…
    ” simplistic thinking is the enemy of a meaningful solution, and usually an emotional reaction, not a logical one.”

    I do agree that pension “reductions” like the CA 2012 PEPRA pensionable income caps are logical “reforms” in that public pensions should provide “security” in retirement. If one wants “luxury” in retirement, he/she should provide that separately, if he or she so chooses. The “so chooses” part is crucial. There surely are some public employees today who would prefer to take a lower pension in exchange for higher current wages. They cannot. Non optional.

    Note* Few people have mentioned that “new” CalPERS members (since Jan 2013), once they have passed the pensionable cap, will no longer have the 8-12 percent contribution deducted from salary, just like those who pass the SS earning cap. Some will gladly spend that money for present wants or needs. Others will save and invest for the future. Personal choice. It’s the American Way.

    Note2* Some of those who save outside CalPERS will actually come out ahead. Remember, the “guaranteed” 7 or 7.5 percent CalPERS pension value is not just a floor, it’s a ceiling, too. Some people believe they can do much better in the market. Some are correct.
    ……………………….
    On a side note, quoting Ed Ring… “And comparing defined benefits – or social security, for that matter – to Ponzi schemes or Pyramid schemes are specious arguments that do not belong in serious debate.”

    Likewise, pejoratives such as “greedy/self-interested stakeholders” add nothing to a serious debate, either. Just my humble opinion.

    Reply

    • Posted by Tough Love on February 2, 2018 at 1:58 pm

      Translating your response……

      (1) Public Sector workers getting EQUAL to their Private Sector counterparts is NOT ok with you………. evidently you still believe they are deserving of a better deal (on the Taxpayers’ dime)

      (2) So you like the PEPRA reforms. Then why not apply them to all CURRENT workers …. just as they would be when such changes are made in the Private Sector?

      (3) You like the PEPRA income cap. But being so high that still leaves all those earning below the cap STILL getting pension Multiples greater than their Private Sector counterparts. No, the formulas & provisions applicable to ALL Public Sector workers (at all income levels) should mimic those of the Private Sector. THAT’S called fair & equal.

      Reply

      • Lost in translation.

        Again.

        (2) Is currently prohibited by law. Even if the CA Supreme Court nullifies that, don’t expect any big changes soon.

        (3) Multiples better is irrelevant (still). There are private pensions that are multiples better than other private pensions, or no pensions a tall. Stop me if you’ve heard this before. It is invalid to compare pensions outside the context of total compensation. We don’t want to be invalids.

        (1) It is still the case that lower skilled, less educated public workers earn, on average, much more than equivalent private sector workers, mainly because of higher pensions and benefits. More highly, educated, professional public workers earn, on average, much lower salaries, and the benefits are not sufficient to compensate for the lower salaries. Between those two extremes is a sizable cohort who are “just right”. Whether they “average out”, or whether, in your “opinion” we should take from the lower paid to increase the compensation of the higher paid, to get the fair & equal you seem to want is a policy decision made above our pay grade.

        Consider this, in Social Security, two hypothetical adjusted pre-retirement income scenarios: a pre-retirement income of $856 per month and a pre-retirement income of $10,000 per month. Running through the multipliers, the $856 scenario would result in a benefit of $770, or 90% of pre-retirement income, while the $10,000 scenario would result in a $3,000 benefit, or 30% of pre-retirement income.

        Is that fair? Is that equal?

        Something similar happens in public sector compensation. Relative to private sector compensation, lower paid workers earn more, and higher paid workers earn less.

        “Equality” is difficult to define, and even more difficult to measure.

        Reply

        • Posted by Tough Love on February 2, 2018 at 4:29 pm

          Re (2). Correct now. That may change, but even if not, the math” will force it one way or another. Courts rulings or not…… e.g., w/o change the payments will eventually just end.

          Re (3) We’ve discussed this before ……….. on average (for all CA workers taken together) Public Sector “compensation” exceeds that of COMPARABLE CA Private Sector workers by 23% of pay (per the AEI study).

          Re (1) We’ve also discussed this many times …… and it’s still irrelevant. What financially impacts taxpayers is the compensation differential from ALL (ge tit….ALL) workers taken together. Splits by income group is just your attempt to confuse/distract the readers.

          Re your comment addressing Social Security……… SS was clearly set up as a re-distribution mechanism (from the higher income to the lower income). The fact that SS was DESIGNED to do so in no way justifies the multiples greater Public than Private Sector pensions …..with PRIVATE Sector taxpayers paying for almost all of it.

          Reply

  11. Posted by Triune on February 2, 2018 at 12:11 pm

    Thank you Geor8ge for comments.
    I REFUSE to kick the can down the road. My children deserve much better and they should not tolerate! Just because my parents hand me a mess is no reason for me to pass it along. The mess stops now!
    comments and calls aways welcome.
    Tim Alexander
    Triune
    805-402-4943

    Reply

  12. Posted by MJ on February 3, 2018 at 8:17 am

    Tim,

    Is there a valid reason why at this stage of the game where the pension crisis is a recognized national issue that states where there is no constitutional language to support funding pensions can not change how their public employees are compensated

    For example…………no pensions until age 65 anything younger the less you get
    pay for your own post employment health benefits

    Or how about refund all contributions now based on younger ages and invest in DC plans with financial guidance provided for publics

    it seems to me that all of these gimmicks,short term fixes, high risk borrowing is just more kicking the can down the road and yes our children and grandchildren will pay for it all with very shaky retirement options

    It seems ridiculous to me to think that public workers are going to vote out the liberals that they vote for every time

    Just my humble thoughts

    Reply

  13. Posted by Triune on February 3, 2018 at 11:27 am

    Good morning MJ. I welcome all thoughts and comments. Yours now, have led to a second of two posts. I will be submitting within an hour and would dedicate one to you titled, Pensions-Public vs. Private. I found some surprises. Stay tuned.
    Tim Alexander
    Triune
    805-402-4943

    Reply

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