Pensions-Public vs. Private, Mortal Enemies?

A commenter, MJ, has some thoughts that led to this posting.  Thank you MJ for your comments.

I am an economist and Monetary Theorist.  I am approaching the pension crisis from a different perspective.  I am still researching various types of pensions and therefore do not yet render an opinion.  One item that drives me nuts is commenters banging the table and screaming that all public pensions are crimes and X-style pension is robbery so we must move to Y-style immediately!

Let’s slow this runaway train.  Remember, all types and styles are similarly underfunded.  My analogy is telling a man treading water;” You are safe!  Swim to any sinking ship for rescue!”

Not much of an improvement.

Folks, we need to get over the discussion of convert to this or abolish that.  We need to recapitalize first, then reform.  What good comes from finding a consensus of pension style in 2030 only to get  “OOPS!-They all failed.”

I am in Starbucks now and looking at data I have on hand.  I am comparing; CALPERS ’16, CALSTRS ’17, IL SERS ’16, IL TRS ’17, LAFD ’17, NJ SERS ’16.  These are the reports I am going with.  I will compare these to Social Security average annual payments.  Is there a true discrepancy?  I would like to include private pensions but I do not have access to data.

With my last post one reader questioned my quote of an average CALSTRS retirement benefit.  I cited my source as the audited financial statement.  The reader provided a number more than twice what I cited.  The commenter was adamant his was right but had no credible, authoritative source.

We need some ground rules.  First, any thoughts, comments, and suggestions are welcome on my posts.  Do not be afraid.  But there is a material difference between fact and fiction.  We must maintain some lines of demarcation.  Fact is objective verifiable data from a qualified, authoritative source, such as an audited financial statement.  You are welcome to share opinions but remember that opinions and facts are two very different items.  I believe part of why we have the mess now is that so many make decisions based on opinion and fantasy, not fact.

Moving on.

I am comparing; CALPERS ’16, CALSTRS ’17, IL SERS ’16, IL TRS ’17, LAFD ’17, NJ SERS ’16.  These are the reports I am going with.  I will compare these to Social Security annual benefits paid.  Here we go.  CALPERS ’16-$31,600, CALSTRS ’17-$47,300, IL SERS ’16-$31,300, IL TRS ’17-$53,800, LAFD ’17-$68,200, NJ SERS ’16-$124,100.  Then the Social Security could have an average in the range of $17,000 per year.  It is hard to tell with Social Security as there are so many variables.

Here is my conclusion.  On average, retired IL teachers seem to be paid about 14% more than CA teachers.  I guess the difference is the winter wardrobe expense.  For CA winters we have to find our soCKS.  For IL winters, you find AZ.

The difference between CALPERS and CASTRS is retired CA Teachers have, on average, six years of college and a massive continuing education requirement.  A retired LA fireman may be paid just over twice the average retired CALPERS and about 44% greater than CALSTRS.

I am OK with this.  My sister and her family work hard and participate in CALPERS.  They give my state of CA hard work for the salary and retirement package.  But if my house is on fire in the dead of night and I call her she will swear.  If I call the LAFD they may still swear but will come and deal with the fire.

A fireman may draw a retirement pension 44% greater than CALSTRS teachers.  The fireman may have less of an educational demand but a much greater bodily physically demanding job.

My point here is that which of my commenters has the right to define what industry or profession gets what benefit.  I am fine with the fire and police getting a nice pension so long as they come when called.

I do not want to see any more comments from folks screaming public employees get way too much.  Except for NJ.  My numbers must be wrong.  I would welcome any comments showing my error with the NJ data.

Teachers work hard, are well educated and it seems reasonable to expect appropriate compensation.  I believe a pension is a reasonable compensation and the rate of pension should take into account the industry and skill sets.

The problem I see is not the rate of pension but the mechanism of funding.  More to follow.

Tim Alexander



35 responses to this post.

  1. “My numbers must be wrong.”

    Yes, they are either wrong or irrelevant, or both.

    Sorry, Tim, you are way behind the curve on this one, in more ways than you can imagine.

    Yes, the mechanism of funding is a problem.

    The “rate of pension”* is important because, if public employees are, or are believed to be overcompensated, the solution is simple… reduce or eliminate public pensions.

    But it’s never that simple, is it?

    *The “rate of pension” is important… Actually, “total compensation” is important. The rate of pension AND salary combined.

    “It is invalid to compare pensions outside the context of total compensation.”

    Don’t be invalid.


  2. Posted by Triune on February 4, 2018 at 1:10 pm

    Thank you for your comments, I welcome intelligent conversation.
    You make very valid points. Total compensation is the critical factor. I am with you on that. I also know we cannot eliminate benefits, including pensions. Some industries, teaching, fire, police, economists, are critical. When we reduce benefits and pensions, we run the risk of possibly increasing turnover. Look at my next post on that.
    Please do me a favor. Do not say I am wrong, show me where. NJ pension annual audits are public record. Do the math. Find total benefits paid and divide by total number receiving benefits.
    My statement is not an attack on any receiving pensions.
    Suppose my math is wrong, please show me where. But what if, in the unlikely event, I am right? Trying to rescue a failing pension when the average benefit is twice the average of other states may be beyond even my abilities.
    Part of my ongoing mantra is refi and reform. Suppose my math is correct and you are receiving an average pension larger than twice that of other states, equalization is coming. Either the pension fails, or excesses will be reduced. I support this effort.
    To any pensioned NJ reader. If my math is correct, a restructuring is coming. The way to limit cuts is to be active early.
    Stephen, thanks again. Please, run your own numbers and let me know.
    Call or write any time.
    Tim Alexander


  3. Tim, I believe it was more than one reader who questioned your average. Here is a credible, authoritative source. This happens to be CalPERS, but CalSTRS has a similar report. See CalSTRS CAFR.

    Page 155… “Average Benefit Payments – As of June 30, 2017 – 10-Year Review”

    Average pension, 26-30 years service credit… $5,288

    Why is it important? Because your Social Security average is for someone retiring recently, with at least 40 years paying into SS.

    Your CalPERS or CalSTRS averages are for some workers who received a pension for as little as 5 years service, or some who retired thirty years ago, when the average Final Average Salary was about $1,500 per month.

    Not an apt comparison.


    • Posted by Triune on February 4, 2018 at 1:33 pm

      Thank you again. I performed the most basic analysis and did so for a reason. When I compute averages based on filters, I can present a skewed result. I want to start analysis with what happened this past year. Then I will do the same for prior years.
      My method is overly simplistic, but will not allow for a skewed result. It is all parties, all in. Testing based on a limited time range does not include changes to pension structure. Again, test the average for a single year, then compare to prior years. This is my simple, initial test.
      Test everything. You will be surprised.
      I welcome criticism. I ask only this, test my numbers first, report back, then define and perform your own test.
      I always use the audit reports.
      Thank you again. Call or write any time.
      Tim Alexander


    • Posted by Tough Love on February 4, 2018 at 4:26 pm

      No big deal here, but SS only uses your highest 35 years of wages in the calculation of SS retirement benefits.


  4. “NJ SERS ’16-$124,100”

    I don’t have easy access to NJ pension records. I can safely quote Carl Sagan…

    “Extraordinary claims require extraordinary evidence” 

    $124,100 average NJ pensions is uber-extraordinary.


    • Posted by Triune on February 4, 2018 at 2:16 pm

      You do have access to NJ, CA, and IL pensions. Here it is. I have the math, I just ask you to try.

      Click to access 2016divisioncombined.pdf

      Suppose there were a public pension suspected of hiding excess. Suppose you are the accounting tasked with hiding excesses when you must publish publically. How is this done?
      The easiest way is to create your own metrics. This allows you to build in filters that hide the data to be buried. If your findings are challenged, your numbers are factual, misleading, but factual. You quote manufactured metrics. Are they correct or misleading? I do not know and do not make any claims.
      Please, try my way first. Question everything. I may be wrong but take five minutes and show me where.
      So long as a person is unwilling to do own research and confirm everything, they are prey for any scam including the benefits of a three legged mule.
      Please take five minutes.
      PS-thanks for keeping me on my toes. Now get off your damn ass and crunch the numbers. Call with your findings.


    • Posted by Tough Love on February 4, 2018 at 4:46 pm

      I reside in NJ, and as far as I know NONE of NJ’s State or Local Plans goes by “SERS”, and while there are a few (minuscule, closed to new employee Plans) none show a $124K average annual benefits paid (for ALL those now in a retired status).

      While the small Plan for NJ Judges certainly provides a generous pension, (and while I can’t find the average annual payout) I doubt that when ALL judges (who retired in all past years) are included in the average, that even that is $124K annually.

      Tim, as you states….fact & sources are important. Please provide the “source” (or element of a calculation w/sources if more than one figure/source is included).


      • Posted by dentss dunnigan on February 4, 2018 at 6:03 pm

        Drop all COLA ,claw back past cola payments and do away with medical ,up employees contribution to 15% to 20% ..with money saved you make required pension payments promises broken with that …


  5. Posted by rdquinn on February 4, 2018 at 1:40 pm

    Teachers and other public employees deserve a fair and adequate compensation package THAT IS ALSO AFFORDABLE BY TAXPAYERS footing the bill. That is not the case now. On average their total pay package is considerably high than the private sector. Federal workers are even higher. That is why funding is so bad in many cases. The pensions are far too generous as are retiree health benefits in many cases. This needs to be fixed even if it means base pay, which is more predictable, is raised as a partial offset.


    • Posted by Triune on February 4, 2018 at 2:17 pm

      Amen. I like your thinking. But, what is promised must be funded.
      Keep the comments coming.
      Call or write any time.
      Tim Alexander


      • “But, what is promised must be funded.”

        I’m afraid I must agree with Tough Love, and numerous other, here.

        What cannot be paid will not be paid.

        Or, quoting Girard Miller “Pension Puffery”…

        “There is no question that some state constitutions declare the pension promise to be inviolable, and some state courts have held that the pension promise is a contract. In “normal” economic times when the pension plan is properly funded, almost everybody would agree that contractual pension obligations should be fulfilled. But these are not ordinary times, and dozens of major public pension plans are facing the potential for depletion of their assets during the lifetimes of current employees if nothing is changed.”

        “almost everybody would agree that contractual pension obligations should be fulfilled.”

        Key word, “almost”. Tough Love can explain that one to you.


    • There is a difference between “affordable” and “equitable”. My Camry is over eight years old. The msrp for a new one is $23,495. Not affordable, for me, anyway. That doesn’t mean their asking price is not “fair”.

      “On average their total pay package is considerably high than the private sector.”

      Considerably questionable. “Federal workers are even higher.” Is probably true because comparable studies were done by the same researchers using the same methods.

      “This needs to be fixed even if it means base pay, which is more predictable, is raised as a partial offset.”

      Hands down, the simplest way to make realistic comparisons between public and private compensation is to have both on a Defined Compensation plan. The employer’s contribution, plus salary, IS total compensation. Simple math. But the simple way is not always the best way.


      • Posted by rdquinn on February 4, 2018 at 7:31 pm

        State worker total compensation is on average 44% higher than private sector. Federal workers except top grades are up to 77% higher. BLS studies.


        • That is the classic apples to oranges fallacy. Every month, when BLS publishes the “Economic Cost of Employee Compensation”, on page four is this disclaimer.

          “Comparing private and public sector data
          Compensation cost levels in state and local government should not be directly compared with cost levels in private industry. Differences between these sectors stem from factors such as variation in work activities and occupational structures. Manufacturing and sales, for example, make up a large part of private industry work activities but are rare in state and local government. Professional and administrative support occupations (including teachers) account for two-thirds of the state and local government workforce, compared with one-half of private industry.”


          When economists compare public to private pay, they normally use private workers in large corporations (500 workers or more). Because most governments also have 500 workers or more.

          If one compares average public compensation to that in large corporations, they are nearly equal, but the private workers have more paid time off.

          The big dichotomy is not between public and private workers. It is between small and large employers, which most governments are.


          • Posted by Tough Love on February 5, 2018 at 12:14 pm

            Quoting Stephen Douglas ………..

            “If one compares average public compensation to that in large corporations, they are nearly equal, ”

            You know that’s a VERY misleading Statement. The AEI study corrects for many things including employer-size, and the conclusion is very clear ………. that on average for all workers taken together, there is a material Public Sector Total Compensation ADVANTAGE.

            23% of pay in BOTH our home States of NJ and CA.


          • Perhaps my hints have been too subtle. I do not agree with his opinion of the “correct” cost of pensions. I am not alone in that.

            Girard Miller, “Pension funds are not going to invest their entire portfolio in 3 percent Treasury bonds right now — or ever — so the risk-free model is not even descriptive of reality and has little normative value.”

            “As I’ve testified to the GASB during their public hearings, a risk-free discount rate would ultimately result in excessive burdens on today’s generation of taxpayers and invite mischief in the future as this approach is a sure-fire way to produce over-funded pension plans in the long run. (I know this sounds laughable in today’s funding environment, but that is the logical multi-generational result of the risk-free model.)”

            “But, I do support the GASB’s general concept of a lower blended rate for calculating pension liabilities and pension expenses in the financial statements when liabilities exceed portfolio assets. (You can’t buy stocks with an unfunded liability.)”

            Not that the risk free rate doesn’t have it’s uses for calculating future value for reporting purposes, but it is not to be taken literally for every calculation.

            Monique Morrisey critiqued Biggs Connecticut public pay comparisons, and is just one of many who have alternate calculations.


            And the time factor. As I have stated before, Biggs data (as well as EPI and other studies) is up to ten years old now. Ten very volatile years. In Morrisey’s words…

            “”With public-sector benefits already declining, there is no reason to ‘reform’ these benefits to make public-sector pay competitive, as Biggs suggests,” Morrissey said. “Such cuts would only make it harder to recruit educated workers while increasing outlays for state-funded safety net programs.”

            Let the PhDs debate, and choose your side, or look somewhere in the middle.

            I think your almost religious attachment to “23%” is borderline pathological, but on the plus side, it always gives me the opportunity to tell “the rest of the story”. Let anyone make up his/her own mind, but get both sides of the debate out in the open.

            #23%bulls hit


          • Posted by Tough Love on February 5, 2018 at 3:24 pm

            I don’t support use of a “risk-free” rate (now about 2.5%) either, but Public Sector Plans SHOULD BE required to use the SAME rate now required in the valuation of Private Sector pensions. Large Corporations aren’t stupid and have legions of lobbyist to fight what is looked at as “unreasonable”. Clearly, Corporations accept the rate that they must use to discount Plan liabilities as reasonable.

            And the CONSERVATIVE rate required in the valuation of Private Sector Plans (in the 3.5% to 4% range) is there to protect the PBGC (a failure of which would surely come back to Taxpayers). So if CONSERVATIVE rates are there to protect Taxpayers in the valuation of Private Sector Plans, WHY aren’t CONSERVATIVE rates required in the valuation of Public Sector Plans?

            Yeah, I’m going to offer an answer ……..

            Because if Public Sector Plans were REQUIRED to value their pension Plans using CONSERVATIVE rates in the 3.5% to 4% range, the TRUE expected cost of these Plans couldn’t be HIDDEN from their Taxpayers and hence these now ludicrously excessive “promises” would never have been ade in the first place.


  6. Skewed results are inevitable. Resistance is futile.

    “I will compare these to Social Security average annual payments.  Is there a true discrepancy?  I would like to include private pensions but I do not have access to data.”

    If you want to compare the pensions of public and private workers, keep in mind that many public workers have SS in addition to their pensions. If you do not have access to private pension data, don’t despair. The variety is so great, any “average” would be meaningless anyway. As would any “average” public pension.

    If I haven’t said this before, for a basic education on public vs private pensions AND pay, read

    It’s only 80 pages, but a very good description of compensation fundamentals. The data is up to ten years old, and it does not include law enforcement or city/county pensions. A must read, in my humble opinion.


    • Posted by Tough Love on February 4, 2018 at 4:55 pm

      And EQUALLY (if not MORE) important is the AEI Study that uniquely provides State-Specific differentials in Public vs Private Sector Wages, Pensions, and Benefits (primarily retiree healthcare):

      Click to access -biggs-overpaid-or-underpaid-a-statebystate-ranking-of-public-employee-compensation_112536583046.pdf


    • Posted by Triune on February 4, 2018 at 5:04 pm

      I will not slide on letting you avoid your assignment. Here is the link.

      Click to access 2016divisioncombined.pdf

      Please go to page 6 and see total deductions, including benefits at $17.5B.
      Now look at the table on page 18, “Plan Membership and Contributing Employers”
      Under the PERS column is 171,422 persons drawing some benefit. Divide-DO THE MATH. It is not beyond you.
      I ask you to do simple division and you refuse, why? Your doc you sent on spread between public and private pensions, seems to me on an initial glance, to suggest the difference is not so great. I am still learning and that is not a conclusion.
      In all the screaming of frustrated trolls equating pensions to theft, were you ever encouraged to compare one public pension to another?
      Using my simple metric gives any reader the opportunity to form an opinion on fact. If I have an error, it must be I am not capturing the total number of retired. Double the number of retired people I found and the average annual pension per person becomes a more normal number.
      PS-thanks for keeping me on my toes. Now get off your damn ass and crunch the numbers. Call with your findings.


      • “I will not slide on letting you avoid your assignment.”

        I will assume that is satirical, cause that’s not the way it works here.

        Mr. Love said yesterday, of this article, “That should be a dozy.”

        In the question of comparing federal compensation to private, which should be similar to this, there are a couple of very instructive articles…

        Long story short, page 23… Six professional studies, six widely divergent outcomes.
        “We have no idea how federal pay compares to the private sector. So let’s stop acting like we do, expert says.”
        Quote from Andrew Biggs, author of the 2014 study…

        “My point is not that 2 percent is “wrong” and 14 percent is “right,” but rather that there is a range of reasonable answers found in studies of federal salaries and the CBO’s result is likely toward the lower end of that range.”

        A “range of reasonable answers”

        Or, as Mr. Douglas says, Comparing public to private compensation is like trying to nail Jell-O to a tree, or vice versa.


      • Posted by Tough Love on February 4, 2018 at 8:00 pm

        Quoting Tim’s comment to Stephen Douglas……………..

        “Please go to page 6 and see total deductions, including benefits at $17.5B.
        Now look at the table on page 18, “Plan Membership and Contributing Employers”
        Under the PERS column is 171,422 persons drawing some benefit. Divide-DO THE MATH. It is not beyond you.”

        Tim, I don’t know about you, but when I divided $17.5 Billion by 171,422, I get $102.087 not $124,000.

        But more importantly, your $17.5 Billion is NOT only pensions …… which as I pointed out in previous comments is $10,4 Billion …. but pensions AND benefits (i.e., retiree healthcare payments.)

        If you divide $10.5 Billion by 171,422, you get an average payout of $60,669 (still high, but at least within the range of “reasonable”).

        Yes, THIS TIME you noted that the $17.5 Billion included “benefits”, but WHY would you then compare a per-retiree average of pensions AND benefits in NJ with pension-ONLY averages from other States? That’s NOT reasonable.


  7. Posted by Triune on February 4, 2018 at 2:34 pm

    Thanks so much for the reference. This seems very authoritative. I will read in detail later. I also like to reach out to authors. My glance at the paper seems to refute claims of excess, but I need to read. My take from figures one and two are that salaries are lower and benefits a bit higher. But again, I need to read closely.
    PS-thanks for keeping me on my toes. Now get off your damn ass and crunch the numbers. Call with your findings.
    PPS-My busy day waits not for me. I have to jump here. May your day be productive and blessed and may you sleep with the angels tonight.


    • “crunching the numbers” will only lead to more disagreements, not less.

      Both are from the same time period. Both are written by some of the top names in pension theory. In this case, I believe both are California specific, and include all public workers, state, city, and county, and do not omit law enforcement.

      On wages, there is little disagreement. On pensions and benefits there is a huge difference.

      I could get off my damn ass and crunch the numbers, but,

      1) I only have access to their published reports, not their back-up data and full methodology.

      2) nobody would believe me, anyway, as both these reports are produced by well respected Economists, and there is not widespread agreement on either of them.

      As I may have mentioned, there is good reason to question any “average” you may see, even if the data is dead-on accurate and verifiable.

      Consider this paragraph from Biggs 2014 paper…

      “Taking the log of wages before running the regression has been standard practice for decades, as it provides a better fit for the model and allows for easy interpretation of wage difference as percentages. However, recent research has questioned the use of logs in wage regressions. The reason is that private sector wages exhibit greater variance (have more high earners and low earners) than state wages. Logs compress both wage distributions, effectively de-emphasizing some of the highest-paid private-sector workers but leaving state workers less affected. Taking the log could therefore make private workers appear less well-compensated (relative to state workers) than they really are.”

      They use logarithms AND algorithms, Tim, crunch that!

      The biggest difference in these two papers (and in Biggs 2014 paper) is stated in the conclusion…

      “In the case of California public employees, wages are slightly lower in the public sector. Initially, benefits appear only slightly higher, implying rough parity in compensation between the public and private sectors. However, properly accounting for retiree health benefits and defined-benefit pension plans generates a public compensation premium of around 15 percent. The additional job security granted to public-sector employees is equivalent to an approximately 15 percent increase in public compensation, meaning that the total public-sector pay premium in California may be as high as 30 percent.”


      • Posted by Triune on February 4, 2018 at 4:41 pm

        Stephen: There is no math beyond you. Believe in yourself. To refute or validated my numbers, all you need is basic division. I go toe to toe on math-it ain’t that bad.
        More often than not, excessively complex math can be a compensation tool, like a fast ‘vette.
        PS- you are doing everything except your assignment. You are providing valuable reports to me. But you are avoiding your assignment. WHY?
        PPS-thanks for keeping me on my toes. Now get off your damn ass and crunch the numbers. Call with your findings.


  8. Posted by Tough Love on February 4, 2018 at 7:39 pm


    I’m perplexed. You try to come off the experienced, professional, and knowledgeable but repeat the SAME false statements over and over. This time you AGAIN stated ………

    “Remember, all types and styles are similarly underfunded.”

    CalPERS funding ratio, as well as the average for all Public Sector DB Plans is in the mid 60s% using the VERY liberal assumptions & methodology commonplace in Public Sector Plan valuations, while Corporate-sponsored Private Sector Plans have an average funding ratio in the mid 80s% using MUCH more conservative valuation assumptions & methodology REQUIRED of them by the US Gov’t.

    The “official” (mid 60s%) Public Sector funding ratios would drop into the mid 40s% if their Plans were valued on a basis IDENTICAL to that used by Private Sector Plans. Hence on an apples-to-apples basis we have mid 40s% for Public Sector Plans vs mid 80s% for Private Sector Plans ………. Private Sector Plans therefore being almost TWICE as well funded. If you question this why not ask Mr. Bury if what I stated is accurate?

    Bottom line ………… all types and styles are NOT similarly underfunded.

    Quoting Tim………. “Folks, we need to get over the discussion of convert to this or abolish that. We need to recapitalize first, then reform. ”

    No we needn’t and SHOULDN’T “recapitalize” Public Sector pensions that are (by any and every reasonable metric) grossly excessive and unfair to taxpayers called upon to pay for it. Because the current structure is CLEARLY excessive and unaffordable, notwithstanding legal impediments, what we NEED to do (as just the first of many steps) is to freeze these Plans with respect to FUTURE service accruals. Have you never heard of the expression ………. the first step in digging yourself out of a deep hole, is to STOP digging?

    Then you go on to (a) compare one (excessive*) Public Sector pension to another (also excessive*) Public Sector pension, and (b) compare Public Sector pensions to Social Security.

    * “excessive” by comparison to what a similarly situated Private Sector worker would get in retirement security from his/her employer.

    NEITHER is relevant, and did you know that nationally about 75% of all State and Local Public Sector workers DO participate in Social Security and get BOTH a pension and SS? And in MOST cases Public Sector workers who do NOT participate in SS BENEFIT by NOT participating. Not only do they not contribute, but (at the higher than average income level associated with most non-SS-participating Public Sector workers) the “return-on-investment” is very lowr.

    You SHOULD BE comparing Public vs Private sector employer-sponsored pensions (whether provided via DB or DC Plans). Granted, Private Sector data is harder to come by……….. but choosing to comment on what’s irrelevant because what’s relevant is hard to find is NOT helpful or appropriate. Look at some of the AEI studies linked above…… difficult yes, but the authors of those studies were able to find sufficient data for RELEVANT comparisons.

    And because you raised the point, many people (including myself) would agree that simply due to the nature of their jobs, Safety workers SHOULD get a “somewhat” higher pension than a similarly-situated (in wages, age at retirement, and years of service) Private Sector worker. If you asked a group of Private Sector workers, I believe some would say 10% greater, some would say 25% greater, and a smaller number 50% greater, but I can assure you that nobody would say anywhere near what we have in place today all across America …….. 4 to 6 TIMES greater in “value upon retirement” Safety workers pension. It is patently absurd.


  9. Posted by Tough Love on February 4, 2018 at 8:07 pm

    In the Prior Blog, I posted a reply to Tim Alexanders question to me …………

    “PS:Who are you? Where do you live, working or retired? What is you personal interest and or concern with the crisis? Go back and look at my prior post where I list the average payments between various pensions?”

    Because it is relevant to today’s Blog-discussion I pasted my response to Tim below.


    My interest is two-fold. First, I am a taxpayer and high-cost expenses (such as those that accompany Public Sector pension and benefit promises) increase taxes. Second, by education/training and years of experience (and while by itself meaning little, professional credentials), while not practicing in this specific field, I have acquired a high level of expertise in pension funding and design.

    I foresaw the “writing on the wall” roughly 20 years ago, with Public Sector pension & benefits much more generous (and hence much more costly) than those granted their Private sector counterparts. Massive increases in Public sector pension & benefit promises since that time (while the Private sector has moved in the opposite direction), together with a volatile equity market and years of very low fixed income returns have only exacerbated the problem. We now face a situation where many Cities/Counties/Municipalities and even States will face VERY dire levels of service-insolvency if these promises are to be met (some not possible to keep under any circumstances) . Yet union-beholden Elected Officials have structured a system of legal protections that in many places pension formulas and provisions cannot be reduced even for FUTURE years of service. Hopefully, you are aware that in Private sector pension Plans it is both legal and quite commonplace for the Plan sponsor to reduce (or completely end) FUTURE service pension accruals. Unknown future financial developments/circumstances make the ability to do so VERY VERY important.

    Quoting ……… “Go back and look at my prior post where I list the average payments between various pensions?”

    I cannot find in your prior posts any comparison of Public/Private Sector comparisons of employer-sponsored pensions (or to DC Plan retirement security often provided by Private Sector employers). The only comparison I found was a specific Public pension to Social Security. I replied to your statement in that instance (pasted below the dashed line), but with nationally 75% of State & Local workers participating in SS (a lower % in CA because, as an outlier, Teachers are not in SS) the comparison should be between Public/Private Sector employer-sponsored pensions (or to DC Plan retirement security often provided by Private Sector employers).

    I’d love to see what you can find/develop. I have studied that relationship quite extensively, and am comfortable stating that for Public /Private workers with 25-30 years of service, retiring at age 60 for non-Safety and 55 for Safety, the “value upon retirement” (and hence cost) of the Public Sector worker’s pension is ROUTINELY 2 to 4 times (4 to 6 times for Safety workers) greater than that of their Private Sector counterpart. “Value upon retirement” encompasses not just the dollar amount of the monthly annuity, but also the very substantial incremental “value” of (A) being able to begin collecting an actuarially unreduced pension at a much younger age than their Private Sector counterpart, and (B) COLA-increases, almost unheard of in Corporate-sponsored Private Sector pensions.

    And yes, as Steven Douglas (a retired CA Public Sector workers) often adds, a comparison of “Pensions” is not a complete picture. We should be comparing “Total Compensation” (wages + pensions + benefits), and to the extent Public Sector “wages” are demonstrably lower (after adjustment for hours workers and “productively” where measurably) than those of their Private Sector counterparts, it is appropriate to grant them greater pensions and/or benefits to offset the amount of such Private Sector wage advantage …. but not more. The only study that I am aware of comparing Public/Private sector wages, pensions, and benefits (primarily retiree healthcare) that shows State-Specific differentials is the AEI study mentioned on this Blog many times in the past. For BOTH your home State of CA and my home State of NJ that study shows a 23% Public Sector “Total Compensation” advantage (33% if the incremental value of the higher Public Sector job security is factored in), and that study excludes Public Sector safety workers which by their exclusion (and knowing that they are compensated far more than non-safety workers) assuredly brought that Public Sector advantage DOWN to the 23% from a percentage which otherwise would have been higher.

    That 23% Public Sector Total Compensation advantage in CA and NJ is the average for ALL workers taken together. While Stephen Douglas correctly points out that a comparison within-income-group-bands shows wide variation, from the perspective of the financial impact upon Taxpayers that is irrelevant.

    I ask you ……… If CA and NJ Private Sector Taxpayers had an ADDITIONAL 23% of wages to save and invest every year, how much more would THEY have accumulated upon retirement …… an extra $500K, $1 Million, perhaps $2 Million for some? Well, those figures are valid estimates of how much Taxpayers are OVER-compensating EACH full-career CA & NJ Public Sector worker.

    Certainly doesn’t seem necessary, reasonable, or fair? And your “model” that supports the use of Fed ( i.e. Taxpayer) funds to “make whole” those now materially-underfunded but ludicrously excessive Public Sector pension & benefit promises, is ALSO anything but necessary, reasonable, or fair.

    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 knowledgeable than you believe.


  10. […] Look at my recent post;” Pensions-Public vs. Private, Mortal Enemies?” […]


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