Posts Tagged ‘reform’

Not the Path but the Driver

Yet politicians’ current approach to evading such opposition—that of adopting incremental reforms while repeatedly deferring liabilities—is no longer viable.

The structural defects of defined-benefit plans, as well as their implication in a system of decision making impaired by political considerations, necessitate a wholesale shift from defined-benefit to defined-contribution plans.

Fixing the Public Sector Pension Problem: The (True) Path to Long-Term Reform

The quotes come from a well-reasoned paper by Richard C. Dreyfuss setting out the problem, debunking faux solutions, and offering a five-point plan for comprehensive reform that I too advocate as obvious. The problem is not with the proposed reforms, which are viable, but with those who would be charged with implementing them, like this guy:

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Public Employee Unions Can’t Win This Way

“It isn’t lost on us that the one commonality in Wisconsin, San Diego and San Jose is that we were considerably outspent.  You have politicians conspiring with corporations to take away pensions from workers.” Steven Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees. quoted in a New York Times article.

Mr. Kreisberg is correct (except for one word*) but the generous pension and retiree health benefits that unions have historically won for their members through political influence are now obviously unaffordable** and cannot be sustained by buying more political favors and deluding more voters.  There is a better way – maybe the only way – and it involves a radical change of course.

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Who’s to judge if New Jersey pension reform is legal?

Paul DePascale is a New Jersey public employee who believes that the portion of the recently enacted pension reform law that raises his pension and health care costs is like decreasing his salary, which he claims is unconstitutional, and this afternoon he sued the state in Mercer County where he is likely to gain a sympathetic ear.  Not that Mercer County is particularly corrupt but rather his case is likely to be decided by a judge.  Paul DePascale also happens to be a judge and whoever decides (or directs a jury to decide) his case will have a direct financial stake in the outcome.

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Politicians making up their own numbers

The most frustrating aspect of really seeing how we’re governed is the utter powerlessness of reason in decision-making.  Politicians do whatever they want, generally to benefit their favored constituencies, with logic playing no apparent role as was evidenced yesterday.

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Winning the COLA War

The only significant reform in the Christie Reform Agenda on Pensions calls for “the elimination of additional annual future Cost of Living Adjustments” with this justification from the governor’s office:

“Many states are reducing pension liabilities by lowering or eliminating cost of living adjustments (COLA), or eliminating COLAs for current and future employees.  For example, Colorado reduced its 2010 COLA from 3.5% to 0% with a rate of 2% starting in FY2011.  Minnesota reduced COLAs from 2.5% to 1-2% depending on the fund, and South Dakota made a 1% reduction in 2010 with future years COLAs based on investment performance.”

Those states are all getting sued.  So is New Jersey now by CWA Local 1033 and soon by the state PBA.

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Union Power Failure

Public employee unions are very powerful in New Jersey.  They can get tens of thousands of members to rallies and campaign events, finance political candidates, and have ready access to mass media.  What they’ve done with that power is a betrayal of their membership.

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Frustrating Pension Reform in New Jersey

The New Jersey pension system is “teetering on the brink of collapse” according to State Senate President Stephen Sweeney in arguing for a bill that will do absolutely NOTHING to forestall that collapse as admitted in the Fiscal Impact section at the end of that bill summary:

“According to testimony provided by the Department of the Treasury to the Senate Budget and Appropriations Committee, increases in State and local employee contributions to the various State and local pension funds, in accordance with the provisions of the bill, will be $3.9 billion in the first ten years and $120 billion over 30 years….The Administration did not provide the committee with any information about the underlying assumptions for its fiscal estimate.”

I figured the additional annual contribution employees would be making would come to about $250 million and with creative use of compounding $3.9 billion is possible over 10 years*.  Since about $8 billion is being paid out of the fund annually these days and a spate of retirements is certain to come those additional contributions will allow for a few more weeks of payments but will not shave a day off of the drop-dead date of the plan.  That’s because the additional money will come from the employees themselves and simply raise the amount of remaining assets that will have to be returned to all employees when that’s all that’s left in the plan.  That is, if the plan would have had $40 billion dollars in 2014 without any changes (totaling what the participants had put into the plan and not yet received back) then those additional contributions might raise the fund value to $41.5 billion but that would still amount to the total returnable contributions.

Who are these legislators trying to fool?  Don’t they understand the numbers?  How can they believe there is a crisis and “failure to act is not an option” and then fail to act?   Are they complete idiots?

As I write this I have the debate over the bill being held in the State Senate playing in the background on New Jersey Network.  The more I listen, the clearer the answers:  Taxpayers; No; Hypocrisy; Yes.




* $120 billion over 30 years is too silly of a number to give any credence to unless Weimar-style hyperinflation is assumed along the way.

Delusions of competence on pension reform in New Jersey

State Senate President Stephen Sweeney sees his job as done on pension reform in New Jersey:

There may be a clinical term for this type of behavior and Senate president Stephen Sweeney might not technically be classified a lunatic but anyone believing that the pension aspect of this latest reform bill “clearly fixes the pension for 800,000 people” is some combination of liar and naif.

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Grading Pension Reform in New Jersey

This year’s pension reform bill is out and I will try to explain the proposals.  Rather than quoting text I will insert the page numbers (which are on the top of the page not the bottom) from the bill followed by a brief description of the change, my thoughts, and a letter grade as regards how effective each proposal is likely to be for staving off plan bankruptcy.

  • (2) In addition to the trustees there will be a committee overseeing the pension system.  Useless.  If you can’t trust the trustees what’s another committee going to get you?  In the next reforms are we going to get more commissions, committees, and boards until there are more people overseeing the plan than actually benefiting from it (assuming the overseers don’t benefit in some way already)?  F-
  • (21) Employee contribution rate for those now putting in 5.5% of pay goes to 6.5% immediately and then another 1% is phased in over 7 years.  Expect the unions to call this an 18% increase but, as I said before, the total dollar impact of all the proposed contribution hikes will come to about $250 million annually into a fund that’s paying out about $8 billion a year for now.  D-
  • (22) Judges will have their contribution rate raised from 3% to 12% (because they have the most generous plan) but that’s phased in over 7 years.  Acknowledgement of the generosity of the Judicial plan but with a long enough phase-in for current judges to skate a little longer. D
  • (26) Prosecutors contribution rate goes from 7.5% to 10%. ibid above but without the phase-in. D
  • (26) Police and Fire contribution rate goes from 8.5% to 10% D
  • (33) State Police contribution rate goes from 7.5% to 9%. D
  • (33) Open 30-year amortization will change to Closed with the 2018/19 valuation, stay Closed for 10 years, then return to Open at a set 20 years.  Too technical for details but this is a gimmick to keep the contribution down that is being phased-out at about the time all the money will be gone anyway.  F+
  • (34-35) Change in Early Retirement Age requiring 30 years of service and a reduction of 1/4% per month prior to age 65.  Theoretically would decrease benefits around 2036 when it’s academic but, for now, will slightly reduce the calculated required contribution so as to speed the date of bankruptcy. F
  • (39) It’s not underlined but it does say (new section) and here is where the co-payments for health insurance are delineated ranging from 3% to 35% of the cost of coverage depending on your salary with a four-year phase in of the full cost for current employees.  Will likely be scaled back further and will wind up as more of a transfer from property-tax payers (after higher salaries are negotiated to offset this sacrifice) to the insurance industry. C-
  • (52-53) No more Cost-Of-Living-Adjustments for anybody. B if it stands up in court.
  • (54) If the government does not make their contributions anybody and everybody can sue.  If you read any part of this bill it has to be this section on page 54.  It might as well have said: “We know…you know….believe us, we know you know…we politicians are scumbags who can’t be trusted but if we stiff you again then you can sue us and trust your future to the New Jersey judicial system.  F-
  • (81) A State Health Benefits Plan Design Committee is set up.  (see first bullet) F-

Overall grade: D (and if it weren’t for the COLA elimination – F).

Editorializing on the New Jersey pension deal

A major factor in New Jersey being the most corrupt state in the nation is that the state’s largest newspaper is in cahoots with the crooked politicians either by ignoring their numerous ethical lapses or commending their playacting at ‘reform’ that wind up not disturbing the status quo.  So it is with the proposed pension reform where today’s editorial in the Star Ledger wholeheartedly supports pathetically weak changes that won’t avoid plan bankruptcy but will leave the favored interests undisturbed, as have the other pension ‘reforms’ that preceded it.  Rarely has an editorial so consistently maintained a level of naivete that I will quote it in total with my comments.

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