Potential Deal for State Pension Reform

With states eager for federal bailout money for, among other things, making their severely underfunded public pension plans whole Andrew Biggs and Sheila A. Weinberg put out an article with some useful historical information (excerpted below) proposing “that if a state requests and receives federal aid for pension funding, then the state must agree to bring that public pension under federal regulation that was qualitatively similar to what private pensions work under.”

Three reasons why I don’t see it happening:

  1. The IRS and PBGC are already overburdened overseeing the impending demise of multiemployer plans and won’t have the ability or inclination to handle extra work.
  2. The holes are too big and vary among states. In New Jersey’s case the number is $200 billion and politicians here would gladly accept funding rules for that money.
  3. Funding rules can be undermined. It is not PPA that accounts for the relatively robust funded ratios of private sector plans (as HATFA diluted those rules a few years later) but rather the draconian premiums PBGC charges (sometimes exceeding company contributions) that forced plan sponsors to overfund, freeze, or terminate.

Instead, what the federal government should demand in exchange for any bailout money is to have state and local governments clean house. Based on what I have seen in Union  County at least 20% of my tax money is wasted on political paybacks and change will not originate from insiders who benefit.

Now on to the excerpts:

Worse, state and local government have not turned out to be the model employers one might have supposed at the time of ERISA. Governments have used overoptimistic investment return assumptions, taken excessive investment risk, and often failed to make their full annual contributions. Pension trustees often have not acted as true fiduciaries on behalf of pension participants, collaborating with government officials – often the very people who appointed them – to reduce current contribution costs, even if doing so left fewer resources available to pay future pension benefits.

……….

Moreover, the constitutional arguments against federal regulation of state and local government pensions today seem quaint. The federal government regulates state and local government labor practices in myriad way: federal rules dictate minimum wages, working conditions, the provision of health care insurance and other actions that state and local governments undertake as employers. It is no stretch to believe that federal regulation of state and local government pensions would be constitutional.

……….

What then? If Illinois formally requested federal assistance for its pensions – a request that surely would be followed by New Jersey, Kentucky, Connecticut and other fiscally-stretched states – how should the federal government respond?

The most tempting answer, and one that would hardly be unjustifiable, is “Forget about it.” COVID may have been unforeseen, but state and local government pension funding problems have been brewing for ages, the result of decades of bad stewardship and denial of financial and fiscal realities. Just as a poorly-managed private firm must face bankruptcy, there is nothing inherently wrong with a poorly-managed state or city also doing so. And just as private investors lose money, municipal bond holders in an insolvent state would take a substantial financial hit. And that market discipline might cause municipal bond markets to pay closer attention to public pension funding and general fiscal health, using interest rates as a way to reward well-run governments and punish malefactors. Congress would need to pass legislation to set up a bankruptcy process for states, but that’s possible: in 2016 Congress passed legislation establishing a bankruptcy-like process for Puerto Rico, a U.S. commonwealth of three million residents that defaulted on its debt in that year. More recently, Senate Majority Leader Mitch McConnell has spoken approvingly of establishing bankruptcy procedures for states.

………….

Put in simple terms, in exchange for near-term financial assistance, states would accept the same deal that federal law requires of private sector employers: Run your pensions right or don’t run them at all. If a state chooses to continue running a defined benefit pension plan, it must do so using more prudent funding rules and more rapid repayment of unfunded liabilities. If the state can’t run a traditional pension on those terms, federal law would give the state the leeway to shift its employees to defined contribution retirement plans. That may be a better option than waiting for states to declare bankruptcy.

 

39 responses to this post.

  1. Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 26, 2020 at 2:42 am

    Holy SHIT!
    .
    I FOUND it, a true and correct copy of a video of EG, in the FLESH! And yes, EG is ready to “retire” … We luv you EG, keep up the awesome GED Cop work, only 14 months left little buddy! 🐕 🐕 🐕

    Reply

    • Posted by E on July 26, 2020 at 7:14 am

      No. Not me Rex. I would never get like that.
      Although these rioters would drive me close. Two outcomes this November-
      1) Biden wins and the country changes far for the worse. He has said nothing to condemn any of this. Maybe even an Antifa backed candidate or two wins a major seat. Very plausible.
      2) trump wins and civil war happens. No joke. These riots are spreading and these pathetic dem leaders don’t even condemn it.

      I prefer the latter. I think this country is worth fighting for.
      How do even stand it? I mean it is bad here in NYC for sure. But good God, “wall of moms”?
      Do Wheeler or Durkin or Brown or Inslee think they would have a seat at the table if these mutts ever did succeed in taking over the city?
      Not inplausible. At some point without the leaders backing, the police officers are going to say “fuck this, I got a family” and move. With all the doxing going on with the dem leaders who coddle them? No way. You may get to renege on the pensions after all. Of course, you’ll be giving half your dough to Antifa candidates. Because Biden won’t stop it.
      Gun permits backed up like crazy. Just ordered an AR 15 from my local FFL dealer.
      If you’ve read my posts for any length of time, I wasn’t really a gun but. I think we will all be gun nuts soon.

      Reply

      • Posted by PS Drone on July 26, 2020 at 9:30 pm

        Fuckin’ A. Time to kick ass and take names

        Reply

        • Posted by E on July 27, 2020 at 2:28 pm

          Damn right PS. Our elected officials will NOT let us (PD) effectively try to protect you. I would 100% recommend a firearm to just about any resident in town. Nuts to not have one.
          People are beyond fed up with these spoiled brats. It needs to stop. Trump is the answer in November

          Reply

          • Posted by E on July 27, 2020 at 2:31 pm

            You’ll see that the Antifa crowd is spreading to Eugene , OR. And other “sister” protests took place yesterday including in NYC. It can and maybe will move to a theater near us. I want to be ready. Play time is over.

          • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 28, 2020 at 3:59 pm

            It can and maybe will move to a theater near us. I want to be ready. Play time is over.
            Shit, your skinny little ass would tuck tail and head the opposite direction so fast the Roadrunner would be put to shame…

          • Posted by PS Drone on July 28, 2020 at 4:44 pm

            I have a 9MM and a pump action SG. Any recs on where I can get more ammo?

  2. Posted by geo8rge on July 26, 2020 at 10:55 am

    “formally requested federal assistance for its pensions”

    What does that mean? I thought a state’s congressional delegation spent all year every year requesting things and reviewing others requests, and then voting on appropriations.

    Is there a formal way to request pension assistance? They might be thinking FDIC or PBGC, neither accepts formal requests from state pensions.

    Reply

    • Posted by boscoe on July 26, 2020 at 4:11 pm

      I think they asked their congressional delegation to draft and introduce a bill to accomplish whatever they have in mind. I wouldn’t hold my breath. Until the pandemic and the accompanying recession are in the rear-view mirror, Congress is not going to commit to bailing out state and local pension plans.

      Reply

  3. Posted by A on July 26, 2020 at 11:37 am

    “Moreover, the constitutional arguments against federal regulation of state and local government pensions today seem quaint.”

    I wouldn’t think that would be a problem.

    Either use more prudent funding rules and more rapid repayment of unfunded liabilities or lose federal tax deferred status.

    Reply

    • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 26, 2020 at 2:23 pm

      Either use more prudent funding rules and more rapid repayment of unfunded liabilities or lose federal tax deferred status.
      Oh Brother … I see that little tiny light-bulb sized brain of yours needs changing Dougie. AGAIN! Constitutional arguments against federal regulation of the states is extremely complex because the states are sovereign and cannot be sued per the 11th Amendment. Toss in the 10th Amendment that this is a power left to the states and ANY denial of tax exempt status would be litigated to the SCOTUS and take YEARS to resolve. Go Home Junior. We Have This!

      Reply

    • Posted by Tough Love on July 26, 2020 at 3:08 pm

      Better yet, REDUCE the promised pension by the 50+% share that assuredly would NOT have been granted in the absence of the hiding of the TRUE expected cost of these super-generous DB pension from Taxpayers.

      DON’T OVER-PROMISE AND THE BILLS ARE A GREAT DEAL SMALLER.

      Reply

      • Posted by E on July 26, 2020 at 5:45 pm

        By stopping the accrual of CURRENT workers pensions, not just FUTURE workers. Lol.
        Got a problem with equal???

        Now is about the time for an “off topic” Trump bashing comment🙄
        How about a name change from Tough Love to Fit As A Fiddle. 😉😉

        Reply

        • Posted by Reads Lake a Mafia Book on July 26, 2020 at 6:21 pm

          T.L. busy watching FAKE news CNN. LOL. John Bury too.

          Reply

        • Posted by Tough Love on July 26, 2020 at 9:36 pm

          E,

          I would be satisfied with making that change only for FUTURE Service …. but including all CURRENT Actives.

          I guess I can hold my nose and accept NOT going after PAST service accruals (even though ALSO unjustifiably excessive).

          Reply

          • Posted by E on July 27, 2020 at 2:33 pm

            Of course we have S5, but I’ll not object as much if we hold of for a couple years. Lol. 😆
            May not have a country by then though……depends on who gets elected.

      • Posted by A on July 26, 2020 at 6:08 pm

        Person
        Woman
        Man
        Camera
        TV

        Extra credit if you say them in the same order.

        Reply

        • Posted by PS Drone on July 26, 2020 at 9:33 pm

          Biden has that nailed.

          Reply

          • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 27, 2020 at 2:12 pm

            The ONLY thing Sleep Dementia Joe Biden has nailed is that he will be gifting his presidency away to the VP (if he wins) within 24 months of taking office. Shit, maybe within the first 90 days the way Sleepy Joe is headed….

          • Posted by E on July 27, 2020 at 2:34 pm

            Agreed. No question. He will be lucky to through the oath of office, then they stick him right back in the basement, he will be a paper tiger.

  4. Posted by A on July 26, 2020 at 6:33 pm

    Still a one trick phony. Two steps forward, one step back.

    For every complex problem, there is a simple solution.

    What did Ronald Reagan say about that?

    Reply

    • Posted by Anonymous on July 26, 2020 at 9:38 pm

      You’re a no-trick mouthpiece for the mooching Public Sector Unions.

      Reply

      • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 26, 2020 at 10:41 pm

        You’re a no-trick mouthpiece for the mooching Public Sector Unions.
        BM!!! Dougie is knocked out for the 10-count from that MAGA take down 🙂

        Reply

        • Posted by E on July 27, 2020 at 2:35 pm

          Agreed. No question. He will be lucky to through the oath of office, then they stick him right back in the basement, he will be a paper tiger.

          Reply

  5. Posted by MJ on July 27, 2020 at 12:37 pm

    E and PSDrone, can you speak to the NJ laws regarding shooting an intruder that breaks into your home? I’m starting to educate myself on the laws and regulations regarding this as these crazies continue to try and take over.

    Would I be arrested and charged if I owned the weapon legally?

    Does it matter if the intruder is armed or not?

    Asking for a friend

    E, did you see the letter that the Seattle COP sent to businesses and residents? Wondering if it is real or fake news? Know anything about it?

    Reply

    • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 27, 2020 at 2:16 pm

      The Castle Doctrine. In most/all states if someone is IN your home you can shoot them dead on the spot, because the standard is that once a person is actually inside your “castle” they are viewed as a threat of death or GBI. No matter what they’re doing. The McCloskey case in St Louis is a perfect example of self defense using The Castle Doctrine. It is laughable the local DA filed charges on them, and trust me, they are getting tossed as soon as they make it to the Pre-Lim, if not sooner.

      Reply

      • Posted by PS Drone on July 28, 2020 at 4:54 pm

        Dog – Do not forget that this is NJ. Laws like the “King of the Castle” that make sense in most other states are looked upon as horrifying in the great state of NJ. Yet another reason to leave ASAP.

        Reply

    • Posted by Tough Love on July 27, 2020 at 2:19 pm

      I was one told by a LOE………..

      If someone is breaking in via a window, left him/her get all the way in before shooting him/her so he/she lands INSIDE your house.

      And ……… make sure you kill him/her because you want only ONE story, YOURS.

      Reply

      • Posted by E on July 27, 2020 at 2:43 pm

        The saint louis case was a total political joke. The folks did nothing wrong.
        TL, you are right to a point. You really don’t need to wait until the threat is entirely in your house. Halfway in or so would do.
        We arrested a drunk guy who was trying to open a gate at the bottom of a deck staircase. Couldn’t do it. It was 330 am and homeowner in kitchen with a handgun. Said he was gonna shoot him if he came on deck and tried to break into house. Totally 100% justified.
        Play stupid games win stupid prizes.
        Basically, MJ if someone breaks and enters your home it’s best to draw down on them and tell them to leave, if they have a weapon don’t do that, just shoot. If they advance on you with or without you are free to shoot.
        Full disclosure— won’t work like that if is the little old lady that lives down the block with dementia and everyone knows is harmless or a 8 year old coming in to get a ball that rolled in a window somehow. Call the cops for that. Lol. Don’t shoot em in that case. Only shoot the bad guys. Haha.

        Reply

        • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 28, 2020 at 1:26 am

          Basically, MJ if someone breaks and enters your home …
          “Hahahah >>>>Breaks and Enters”!!!

          Are you east coast clowns still USING that 18th century terminology? We dumped that term over 100 years ago in CA. It is trespassing, possibly burglary, and you need not “break” anything, if the front door is wide open and you just walk in that is all it takes. Schooling the illiterate never gets old …

          Reply

      • Posted by PS Drone on July 28, 2020 at 4:52 pm

        And no lawsuit to pay eternal medical expenses due to paralysis. Usually takes two shots to the upper chest to do the job.

        Reply

        • Posted by Tough Love on July 28, 2020 at 6:16 pm

          I recall a suspect being chased by NYC Police who run into the subway, jumped onto the tracks to trying to escape, and was hit by a train and lost his legs.

          He sued the City and won a huge judgement.

          A structure that allows such outcomes is insane !

          Reply

  6. Posted by Tough Love on July 27, 2020 at 2:36 pm

    Getting back to THIS Blog-article’s topic, and quoting from Bigg’s actual proposal ……… —————————————————————————————————

    “But there’s a second part as well. ERISA sets rules that private pensions sponsors must live by. But it also gives employers who can’t live by these rules other options, in particular the option to sponsor a defined contribution 401(k) plan. For some private sector employers a defined benefit pension still makes sense, and those plans are by and large well-funded. But for many other employers a 401(k) is the better option and ERISA sets rules for running those plans.

    Many state governments effectively don’t have those options. State constitutions and legal interpretations often state that, from the very first day an employee sets foot on the job, the terms of his pension cannot be changed. These rules make it very hard for states like Illinois or California to reform their plans, since even eliminating all retirement benefits for newly-hired employees would take decades to put a dent in their costs. In the private sector, by contrast, ERISA rightly forbids employers from taking back pension benefits that employees already have earned, but allows flexibility in changing the rate at which employees earn future benefits. As with any other form of employee compensation, private-sector employers may strike a balance between pensions that are too costly for them to afford and pensions that are insufficient to attract and retain the employees they need. It is bizarre that states assume much stronger pension protections than ERISA explicitly states for private sector employees, since ERISA strengthened pension protections for private sector workers.

    Since federal law pre-empts state laws, a state government plan that were made subject to ERISA would not only have stricter funding rules but also greater flexibility to change the plan if elected officials decided that the existing benefit formula was unaffordable. Again, benefits already earned by employees could not be taken away, but the states would gain flexibility in setting the rate at which employees earn future benefits. ”
    ————————————————————————————————–

    The ability to reduce the future service accrual rate for the future service of all CURRENT workers (or even to end all future service DB Plan accruals and switch to a DC Plan for future service) is KEY.

    CURRENT funding requirements under the phony (way too high) 7%-7.5% rate that Public Sector Plans now use to discount Plan liabilities are ALREADY untenable for most City’s taxpayers. There is virtually now way that these Plans could switch to a valuation using a rate near 3% w/o a DOUBLING+ of current contribution requirements.

    But NEVER underestimate a Public Sector Union’s disdain for Taxpayers. I can see them supporting such a proposal but fighting tooth and nail to have only the most minor and immaterial reductions in future service accruals.

    ANY seriously considered proposal should have a firm rule ……… CURRENT contribution levels can increase no further, and any decrease in the valuation interest rate (which would in the absence of other changes) necessitate significant INCREASES in contribution requirements, MUST be accompanied by accrual rate reductions sufficient to erase 100% of such increases.

    Taxpayers are tired of being the “sucker” in the room.

    Reply

  7. Posted by A on July 28, 2020 at 12:56 pm

    Back on topic “Too Much and Never Enough…”

    Pretty common knowledge, public sector pensions are, on average, more generous than private sector pensions. Public sector wages are, on average, lower than the private sector. I.e. benefits are a higher proportion of compensation for the public sector. Is it too much?

    What is the proper pension-to-wage replacement value? The “financial advisors” say 70 percent, very roughly.

    Biggs, again…
    https://repository.upenn.edu/cgi/viewcontent.cgi?article=1080&context=prc_papers
    ————————————-
    “Pension reform should do three things. First, make the true costs and generosity of government pensions more transparent, so policy makers and voters have a better understanding of what they have promised.

    Second, bring the generosity of pension benefits more in line with the private sector. Some state governments might have to pay more generous salaries to attract and retain workers—but most wouldn’t.

    Third, public pensions should treat short and long-term employees more equitably. It is bizarre that state governments, despite per-employee pension spending that dwarfs that of private firms, allow many employees to leave public service with practically nothing set aside for retirement.”

    https://www.wsj.com/articles/andrew-biggs-how-to-become-a-public-pension-millionaire-1394834779
    ————————————
    It’s a personal preference, would you rather have more money today, and have the choice and responsibility of investing part of that salary for your retirement, or have lower wages today and a secure retirement?

    Reply

    • Posted by Tough Love on July 28, 2020 at 1:05 pm

      Quoting ………

      “Pretty common knowledge, public sector pensions are, on average, more generous than private sector pensions. Public sector wages are, on average, lower than the private sector.”

      Both true, but you forgot to include :

      (1) Public Sector benefits (primarily healthcare both while active and in retirement) are also MUCH MUCH more generous, and

      (2) on average, Public Sector Total Compensation (wage + pensions + benefits) are also MUCH more generous than those granted comparable Private Sector workers …….. in fact (per Dr. Biggs) 23%-of-pay higher in both our home States of NJ and CA.
      ————————-

      No need to thank me for correcting your misleading statements.

      Reply

    • Posted by Tough Love on July 28, 2020 at 1:09 pm

      Quoting ………..

      “It’s a personal preference, would you rather have more money today, and have the choice and responsibility of investing part of that salary for your retirement, or have lower wages today and a secure retirement?”

      Again misleading ….. because (on average) Public Sector Total Compensation (wages + pensions + benefits) is GREATER (see the 23% above) than that of comparable Private Sector workers ……… and they sure are determined (by every action they take) NOT to give that up…………. i.e., MOOCHERS.

      Reply

    • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on July 28, 2020 at 4:19 pm

      It’s a personal preference, would you rather have more money today, and have the choice and responsibility of investing part of that salary for your retirement, or have lower wages today and a secure retirement?
      WHY is Dougie such a STOOGE? Public Employees get BOTH today, huge up front wages/salary and HUGE pensions. Thy get those BIG and HUGE up front salaries because they do NOT FUND their multi million $$ pensions. End of Story. Dougie down for the 10 count. Again …

      Reply

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