By Doug Porter
Three recent news stories and one older account tell the tale of what’s really going on behind the current public sector pension “crisis” in the United States.
To make a long story short: there are good pension systems and bad pension systems. Some are broke and need to be fixed. Some aren’t. But all public sector pension plans are under attack as part of the conservative goal of reducing government and the greed of Wall Street hedge fund managers seeking to get their hands on a huge pot of money.
Frying Pan News published an account this week about a group of pension policy advocates here in California working on a until now secret ballot initiative that would cut State and local government employees off at the knees, retirement wise.
At Salon.com we learn about the for Enron executive whose been working hard to craft the argument that defined pension benefit programs need to be scrapped no matter what shape they’re in.
At Rolling Stone, Matt Taibbi takes a sharp tongued look at the profits being made by corporate ‘management’ of pension plans.
San Diego’s own Carl DeMaio was part of the working group that produced the document detailed by Pulitzer Prize-winning journalist Gary Cohn at Frying Pan News:
In a move to slash the retirement benefits of public employees in California, a group of mostly conservative policy advocates has been working behind the scenes on a possible 2014 ballot initiative. A copy of the still-secret draft initiative, which could dramatically impact the lives of hundreds of thousands of Californians and send a signal nationwide, has been obtained by Frying Pan News. (See the document’s text click here.)
If enacted, the proposed law would allow the state and local governments to cut back retirement benefits for current employees for the years of work they perform after the changes go into effect. Previous efforts to curb retirement benefits for public employees have largely focused on newly hired workers, but the initiative would shrink pensions for workers who are currently on the job.
“This initiative defines that a government employee’s ‘vested rights’ only applies to pension and retiree healthcare benefits earned for service already rendered, and explicitly empowers government employers and the voters to amend pension and retiree healthcare benefits for an employee’s future years of service,” the private draft states.
In other words, current state and municipal workers’ retirement benefits will only be partially guaranteed by the number of years they have already worked; from the time the initiative becomes law, the accrual of those benefits will be drastically curtailed.
Author David Sirota provides an excerpt of a major report written for the Institute for America’s Future at Salon.com . (You can find the full report by clicking here.)
The goals of the plot against pensions are both straightforward and deceptive. On the surface, the primary objective is to convert traditional defined-benefit pension funds that guarantee retirement income into riskier, costlier schemes that reduce benefits and income guarantees, and subject taxpayers and millions of workers’ retirement funds to Enron’s casino-style economics.
At the same time, waging a high-profile fight for such an objective also simultaneously helps achieve the conservative movement’s larger goal of protecting profligate corporate subsidies.
The bait-and-switch at work is simple: The plot forwards the illusion that state budget problems are driven by pension benefits rather than by the far more expensive and wasteful corporate subsidies that states have been doling out for years. That ends up 1) focusing state budget debates on benefit-slashing proposals, and therefore 2) downplaying proposals that would raise revenue to shore up existing retirement systems.
The result is that the Pew-Arnold initiative at once helps the right’s ideological crusade against traditional pensions and helps billionaires and the business lobby preserve corporations’ huge state tax subsidies.
In an article entitled Looting the Pension Funds. Rolling Stone’s Matt Taibbi spares no words in denouncing what’s going on with pension plans nationally:
Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn’t just about money. Crucially, in ways invisible to most Americans, it’s also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America‘s states and cities.
Not only did these middle-class workers already lose huge chunks of retirement money to huckster financiers in the crash, and not only are they now being asked to take the long-term hit for those years of greed and speculative excess, but in many cases they’re also being forced to sit by and watch helplessly as Gordon Gekko wanna-be’s like Loeb or scorched-earth takeover artists like Bain Capital are put in charge of their retirement savings.
It’s a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians. And it hasn’t happened overnight. This has been in the works for decades, and the fighting has been dirty all the way…
…The siege of America‘s public-fund money really began nearly 40 years ago, in 1974, when Congress passed the Employee Retirement Income Security Act, or ERISA. In theory, this sweeping regulatory legislation was designed to protect the retirement money of workers with pension plans. ERISA forces employers to provide information about where pension money is being invested, gives employees the right to sue for breaches of fiduciary duty, and imposes a conservative “prudent man” rule on the managers of retiree funds, dictating that they must make sensible investments and seek to minimize loss. But this landmark worker-protection law left open a major loophole: It didn’t cover public pensions. Some states were balking at federal oversight, and lawmakers, naively perhaps, simply never contemplated the possibility of local governments robbing their own workers.
In reading these articles you’ll learn that time and again the ‘crisis’ in pension funding has either been misstated (as in comparing future liabilities to present assets) and/or that public employees are being asked to completely shoulder rising costs caused by others mistakes. There’s no doubt that public pension funds have gone through a “Wild West” period and the process needs to be fixed (I can’t use the word reform anymore—it’s Republi-speak for screw non-rich people).
But, before we go throwing out the baby with the bathwater, consider this excerpt from a two year old article by McClatchy News:
From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers. However, that widespread perception doesn’t match reality.
A close look at state and local pension plans across the nation, and a comparison of them to those in the private sector, reveals a more complicated story. However, the short answer is that there’s simply no evidence that state pensions are the current burden to public finances that their critics claim.
Pension contributions from state and local employers aren’t blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at BostonCollege puts the figure a bit higher at 3.8 percent.
And if you’re looking for more on why the vaunted 401K is a bad deal for retirees, read this recent SD Free Press article.
Pigs Fly as OB Council Announces End to Marshmallow Fights
Credit: OB Rag
Ocean Beach’s July 4th celebration has always been on the edgy side, as tens of thousand of San Diegans crowd onto the shoreline for a fireworks show sponsored by local merchants. Booze, drugs and rock ‘n roll can all be part of the experience.
An ongoing subset of the festivities over the years—a once neighborly duel with marshmallows as the weapon of choice—has escalated into a much bigger (and many say out of control) event. A little harmless fun has turned into a major mess.
Our sister publication, the soon to be 6 years old OB Rag, has been covering this story for years now. And there’s little doubt about widespread sentiment among residents and merchants for this sticky clash to disappear into the annuals of the beach community’s rich history.
Tuesday night the OB Town Council voted for an end to the marshmallow fighting. The Fireworks show that draws the big crowds will continue.
Good luck with that.
From here I’ll turn the narrative over to OB Rag’s Frank Gormlie:
Yet the vote last night appears to be a unilateral effort by the council to grab the bull by the horns and wrestle it to the ground. This could be a problem if you’re in a china shop.
The OB Town Council – being a private organization – does not have any legal or technical jurisdiction on or of the issue. It does have moral and civic authority however.
But, the unholy tradition of the merry marshmallow melee is not the town council’s to cancel. It is a community problem and issue, hence, it’s up to the community to deal with it. The town council cannot simply rule by fiat.
Is this it – is this the community’s consensus? To ban the fight? And ask the cops to ticket those who throw marshmallows? Did you, dear reader from OB, vote on this issue?
The OB Rag had hoped that there would have been more of an effort to develop a community consensus on what to do with the marshmallow wars. Many have complained – including us – of the outrageous gooey mess left this past year. It’s a community problem, there needs to be a community consensus and solution.
There’s a lot more to this than meets the eye, so do follow this link over to the Rag.
Immigration Activists Play the Waiting Game in Sacramento
There are seven immigration bills on Gov. Brown’s desk and he has until mid-October to take action, according to Fox5 News:
“What you see now is that frustration boiling up into legislation,” said California Assemblywoman Lorena Gonzalez, author of two of the several bills which could soon extend many of the same rights held by U.S. citizens to an estimated 2.5 million immigrants living in California illegally.
These include being a member of a jury, practicing law and getting a driver license.
Other measures would bar police from turning over immigrants with minor offenses for deportation, make it illegal for employers to retaliate against workers by threatening to alert immigration authorities and go after attorney’s defrauding non-citizens.
“I think the state is acting responsibly in a way that allows immigrants, who are otherwise completely law abiding, to be able to fulfill their personal responsibilities, ” said Gonzalez.
Tie Required to Listen to Congressional Tea Baggers…
Finally, this Tweet, from Congressman Scott Peters:
Red eye. Sleep. Shower. Coffee. Votes. Then invited off House floor for not wearing a tie. #oops #itsnotcalifornia pic.twitter.com/aGvyG68x55
— Scott Peters (@ScottPetersSD) September 26, 2013
Have a good weekend!
On This Day: 1779 – John Adams was elected to negotiate with the British over the American Revolutionary War peace terms. 1962 – “The New York Times” ran the story “Bob Dylan: A Distinctive Folk Song Stylist” after a concert at Carnegie Hall. 1973 Vice President Spiro Agnew said he would not resign after he pled “no contest” to a charge of tax evasion. He did resign on October 10.
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Doug Porter
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With respect to pensions, this battle has already taken place in the private sector and workers lost … big time. My company capped their pension plan in 2003. It was a huge cut in my compensation. Initially, they matched a 4% 401K contribution with 6% match, but that disappeared after 2008 and now we basically get nothing. (We get a partial match capped at $3k per year if the company makes it’s financial goals. That does not happen very often.)
Somewhere down the road, this will all come back to roost. It already adds to the pressure on the job market when those of us without pensions can’t retire and continue to work longer then previous generations. When we do eventually retire, we will not be contributing as much to the economy because our income will be significantly smaller that past seniors.
I read that 401-k article here and that author makes a few misstatements (specifically about returns & values). A few things to consider:
1- DB plans (pensions) originally gained in popularity after the 16th Amendment was passed (as a way to lower the overall tax burden). DC plans (401k) were originally designed as a supplemental retirement savings account. The problem is that they have contribution caps; a lot of older people would probably save a lot more if there were no caps.
2- the shift from DB to DC plans was never about “screwing workers” rather it was about managing risk.
3- there is no reason we can’t offer DC and DB plans to public employees if we simply find a way to transfer (or mitigate) the market risk from the taxpayer. Choices are good.
I would be very worried if my retirement income were in a co-mingled rather than segregated account right now. Our state and federal governments are a fiscal mess and decisions about retirement income are political rather than based on investment policy. I would personally want control of my assets but I wouldn’t begrudge a co-worker who opted to trust someone else to manage his retirement. Again, it’s all about choices