Realistic Pension and Benefit Reform is Drastically Needed
Government pension systems nationwide have over $3 TRILLION in unfunded liabilities. Decades of rising retirement benefits for workers—some of which politicians awarded to employees without setting aside adequate funding—culminating with the 2008 financial meltdown have left American cities and states with trillions in unfunded retirement debt. (1)
What we didn’t know, the Feds recently placed 150 union pension system plans on ‘critical’ status in the private sector. It was reported, that many of the union pension plans are in the bankrupt status (but do not have to close down). As a result, union “members” have been forced to pay bribes to hold onto their jobs. But now they find the extortionist unions are about to have their pension systems go belly up. This is what happens in a totalitarian State—bribes, lost pensions and jobs going to “free right to work states” and “other nations overseas”. (2)
“The Labor Department reported that 150 union multi-employer pension funds are in “critical status,” that they lack enough assets to meet at least 65 percent of their future obligations. Another 85 funds are listed as “endangered,” they lack enough assets to meet at least 80 percent of their future obligations. There are several reasons for the programs’ under-funding, i.e. declining membership,” according to the Labor Department, unions account for just 11.1% of all workers, in the private sector, a three-decade low, resulting in a a larger pool of retirees, due benefits vs. a smaller pool of new members, a formula for unsustainability, the recession, and the failure of union leaders to negotiate for increase payments into the plan. (2)
There are eerie similarities with the “public sector unions” even though these plans are managed by the government, i.e. reduction of its labor force, that is expected to continue, due to the unsustainability of its pensions and benefits unfunded debt, regardless of any inconsequential increase of its payments into the fund by a smaller work force. Where they differ, the private sector plans managed by the unions are no match to the public sector plans, in terms of vast higher percentage of pensions and benefits formula in relation to salary base pay, that includes salary perks and bonuses, and the public sector’s early retirement perks at age 50 for safety officers (police / fire fighters) and age 55 for non-safety officers.
Also, with a smaller work force, public sector employees will continue to reap the benefits of overtime at time and a half, bringing their salaries well in excess of $100,000 for the average safety officer. Just in the City of Glendale, a few years ago, public records showed that about 11% of the nearly 1,400 city retirees draw annual pensions of more than $100,000 a year – and some of them far more than that. Former City Manager Jim Starbird draws $238,686, followed by ex-Fire Chief Christopher Gray at $200,783 and former Police Capt. Ray Edey at $198,386 at the top of the list. (3) It should be of no surprise that the percentage of employees drawing six figure pensions, today, is much higher, that does not include free healthcare benefits for life in its calculations, worth thousands of dollars annually, with no monthly premiums or deductible.
Under the terms of the Federal criteria for pension systems, CalSTRS and CalPERS are both “endangered”. CalPERS reports they are 77 percent funded, that doesn’t take into consideration their unfunded debt for retiree healthcare benefits. The Public Employees’ Retirement Fund was funded at 69.8 percent as of June 30, 2013 based on the most recent actuarial value of assets. The biggest problem is that the massive unfunded liabilities of both CalSTRS and CalPERS are unsustainable. Even with the large ROI for the past three years, it cannot make up for the losses from the recession. Plus, with retirees living longer, CalPERS has put out a statement concerned about the economic fallout of retirees receiving checks for years longer than anticipated based on outdated actuarial tables. (4) So long as the fiscal burden of providing pensions and healthcare expands at a faster rate than the private economy, states and localities will push for more and more taxes to prop up the system, while reducing the city employee workforce and essential city services if they are unable to raise taxes for past promises culminating in unfunded debt that are intended to screw future generations of taxpayers.
Politicians and union bosses have conspired to create huge unfunded liabilities that threaten to create a death spiral (a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California) for state and local governments. Excessive pensions for state and local government bureaucrats are creating a fiscal nightmare for governments across the nation. Why should taxpayers continue to live, work, and pay taxes in cities where a huge chunk of their tax money is diverted to pay off past promises rather than to deliver essential goods and services (education, parks, trash pickup, police, etc) that is more relevant to taxpayers? (1)
Gov. Jerry Brown sold a $6 billion tax increase to voters in 2012 by promising that nearly half of the money would go to bolster public schools. His big tax hike for education actually has very little to do with helping kids to learn. Instead, the money is being diverted to finance the lavish pension system. Last June Gov. Brown signed legislation that will require school districts to increase funding for teachers’ pensions from less than $1 billion this year in school year 2014-15, which started in September, to $3.7 billion by 2021, gobbling up much of the new tax money. (1)
Public-pension funds have garnered attention in recent years for being underfunded, but a more precarious situation has received much less notice: health-care obligations for public retirees. …only 11 states have funded more than 10% of retiree health-care liabilities, according to a November 2013 report from the credit-rating agency Standard & Poor’s. Government Accountability Office estimated, that the current number may be closer to $1 trillion, according to a 2014 comprehensive study released by the National Bureau of Economic Research. (1) In Glendale’s case, no money has been set aside or funded for future retiree healthcare obligations.
Since 2010 more than 15 states, not including California, have passed laws to reduce health-care cost-of-living adjustments—automatic benefit increases linked to the consumer-price index. Automatic “COLA’s have not been factored into actuarial funding tables. In other words, they’re unfunded. Courts in eight states upheld these reductions on grounds that cost-of-living adjustments should not be considered a contractual right. (1)
Even the Supreme as recently as January cast doubt on old union pacts. In decades past, union contracts often included a promise from the employer to pay for healthcare, even after the worker’s retirement. Promises of lifetime health benefits should not be seen as “vested rights”, unless they are spelled out in the contract. “When a contract is silent as to the duration of retiree benefits, a court may not infer “lifetime promises”, that the parties intended those benefits to vest for life,” wrote Justice Clarence Thomas. He noted that federal law protects promised pensions, but it does not require employers to provide future benefits for healthcare. (5)
When Gov. Jerry Brown released his latest budget proposal earlier in January, he said California’s finances were balanced but remain precarious. Although the economy has been getting stronger, “History would suggest, however, that any fiscal renaissance will be temporary.” If the stock market shifts from gains to losses, Standard & Poor’s said, the budget could be dramatically affected because about half of the state’s revenue comes from the wealthiest 1% in California. Lawmakers should treat surging revenue as a “temporary upswing” and “build a modest cushion for the next downturn while beginning to address its existing long-term commitments. (6)
Government pensions and health benefits have culminated into a “Culture of Corruption” due to politician greed. Earlier this month, a group appealed mandatory union fees to the Supreme Court, asking the Court to strike down laws in California, Illinois and about 20 other states that require teachers and other government employees to pay union fees, even if they are personally opposed, i.e. non-union members, who are opposed to forced “fair share” fees and forced unionism, much that has nothing to do with collective bargaining, but more to do with political influence to buy union support at the collective bargaining table. This could be a major threat to public-sector unions whose clout grew in the 1970s after the high court upheld laws requiring all employees who benefit from collective bargaining to contribute to the union. But the aim was to get the issue squarely before the high court in hopes a conservative majority would overturn the 1977 decision in Abood vs. Detroit schools, which upheld “fair share” fees. (7)
To fix the system will take a voters revolt. They need to refuse to increase taxes or vote for legislators that demand higher taxes. Voters and personnel need to be honestly informed as to the financial status of each government pension system, state and local. The most essential reform would be to force government, at all levels to put out yearly reports detailing the unfunded liabilities and the numerous tax and program sources of their funding. (8)
Most importantly will be for government, including the City of Glendale, to achieve realistic pension and benefit reform, that includes raising the retirement age back to pre-2001 levels, lowering the pension formula for future pension obligations while leaving all service credits earned to date based on the current formula intact, requiring the City and active city employees to immediately start contributing towards their future retiree health benefits, and to continue to pay a premium and deductible after retiring.
For future city employees, the defined benefit model should be scraped, and pensions for government workers should be based on the defined-contribution model, and healthcare promises should be more limited and in the form of health savings accounts. Currently, taxpayers are on the hook for 100% of the City employees health benefits from the date of retirement, as early as age 50 until they are eligible for Medicare at age 65. Afterwards taxpayers reimburse employees for their 80% Medicare premium coverage and pay 100% of the 20% differential supplemental co-payment costs.