With the recent spate of attacks on climate science and evolution it should not be a surprise that traditional defined benefit pensions in the public sector are now also under attack. There are powerful political actors in this country who are anxious to build a bridge back to the 19th century; taking us to a time where working people enjoyed few protections and could not count on sharing in the gains of economic growth.
The effort to weaken or destroy public sector unions and take away their pensions is the latest battle in this larger war. As usual, the right has been busy making things up to push its agenda, confident that the media will not expose untrue claims.
At the center of the right's story is the view that governments are somehow being reckless or irresponsible when they provide guaranteed pensions for their workers. They tell us that these guaranteed benefits will bankrupt state and local governments, imposing impossible burdens on future taxpayers.
This story can be easily shown to be untrue. While the right has been scaring the public with talk of a trillion dollars in unfunded liability in state pensions, this sum can also be expressed as about 0.2 percent of state income over the time-frame in which the liabilities will have to be paid.
In other words, if states raise 20 cents in taxes or cut 20 cents in other spending for every hundred dollars of future income, they will be able to meet their current pension obligations. This is not a trivial sum, but it doesn't seem likely to bankrupt our youth either.
Furthermore, the vast majority of this shortfall was due to the plunge in the stock market that followed the collapse of the housing bubble. Overly generous pensions were not the problem. The problem here were the greedy Wall Street types who profited from the housing bubble and the incompetent economists who did not see it. Of course the market has recovered much of its losses, so future years' pension reports are likely to show that most of shortfall has already been eliminated.
But it is important to understand the basic logic of defined benefit pensions, since many are trying to eliminate them altogether. Defined benefit pensions are in effect a form of insurance. They guarantee workers a level of retirement income based on the years that they work.
This guarantee of future income is more valuable to workers than getting the same amount of money in salary since it would be very expensive for workers to buy the same insurance from the financial industry. From the standpoint of the government, the insurance is virtually costless.
State and local governments will survive into the indefinite future. If the stock market is down any given year or set of years there is little consequence for a government offering a pension fund. Of course, a down market would be devastating for an individual worker if it happens at the point where he/she retires.
This simple logic means that governments can give workers something that is of great value - a guaranteed retirement income -- at very little cost. (Research shows that even after adding in pensions, health care and other benefits, public sector workers are paid slightly less than their private sector counterparts.) This means that because governments offer defined benefit pensions they can either attract better workers at the same pay, or the same quality workers at lower pay, than if they did not offer pensions. This is as basic as economics gets.
Not offering pensions would be comparable to a company that had beautiful grounds, with a lake and woods, and then telling workers that they could not use them. Obviously workers would value being able to bring their families to swim at the lake and hike through the woods.
When considering different job opportunities many workers would be willing to forgo somewhat higher pay to work at a company that gave them access to such facilities. If there was little cost to the company to make its grounds available, it would just be shooting itself in the foot by closing them to its workers. This is the story with defined benefit pensions; although the issue is far more important since it involves the retirement security of workers and their families.
Most private sector workers formerly enjoyed defined benefit pensions, but these pensions in the private sector are now a fast dying relic. Rather than bring about a downward leveling by eliminating defined benefit pensions for public employees, it makes more sense to take steps to re-establish defined benefit pensions for all workers.
Defined benefit pensions did not create this economic crisis. Citigroup, Goldman Sachs and the other giant banks did. It says a lot about the state of politics that these too-big-to-fail banks seem likely to survive the crisis, while defined benefit pensions may not.
Corporate America has spent the past 100 years and more doing everything in its power to destroy unions. To a great degree, they have succeeded.
the private-seÂÂÂctor worker has no bargaining power. private-seÂÂÂctor workers no longer even __rememberÂÂÂ__ what it was like to be able to negotiate with her or his employer on even terms. Over the past 50 years, Corporate America has destroyed the workers' memories of pensions, medical benefits, and workplace rights.
Let us take a look at a country where the worker's rights are respected and protected:
Germany.
When the global banking system was about to collapse, it was German banks that stepped in and shored up the European-bÂÂÂased debt that American banks held.
German workers---ÂÂÂall of them---recÂÂÂeive lifetime 100% medical, dental, eyeglass, and hospitalizÂÂÂation coverage. They all receive ___six___ weeks of vacation. They all receive 12 holidays.
German companies cannot lay off workers without the permission of the German GovernmentÂÂÂ.
German worker will receive a pension equal to 70% of her or his lifetime average net pay. The required payment from the employer is 9.5% of pay. The employer matches this amount.
Germany's economy is doing quite well.
Was it not the USA that won World War II? Shouldn't we have it nicer than the Germans?
The Germans get 100% free lifetime medical care. Why not us? Are we not as good as the Germans?
My best freind lived there for 6 years when she was in the service.She loved it.My aunt is from Austria and goes back frequently to visit family.
You wrote, "There are powerful political actors in this country who are anxious to build a bridge back to the 19th century; taking us to a time where working people enjoyed few protections and could not count on sharing in the gains of economic growth."
Please stop protecting these powerful political actors and name them. We should give them a chance to address our concerns and/or change their intentions.
"The effort to weaken or destroy public sector unions and take away their pensions is the latest battle in this larger war." - it is not to take away pensions but to reduce the drain on general funds, and change work rules that have inhibited efficiency
"From the standpoint of the government, the insurance is virtually costless." - no, in San Jose CA a quarter of the cities general fund went to benefits for retirees last year ...resulting in a very difficult financial situation.
"(Research shows that even after adding in pensions, health care and other benefits, public sector workers are paid slightly less than their private sector counterparts.) " - well ..again, no...Even Willy Brown (hardly a Repub shrill) emphasized the need for action. In 2010 he wrote a widely-cirÂÂculated column in the San Francisco Chronicle lamenting the "out of control" civil service: "The deal used to be that civil servants were paid less than private sector workers in exchange for an understandÂÂing that they had job security for life. But we politicianÂÂs -- pushed by our friends in labor -- gradually expanded pay and benefits . . . while keeping the job protectionÂÂs and layering on incredibly generous retirement packages."
If the author is correct, all we would have to do to solve people angst is separate the future public benefits from the taxpayer by having them funded by current and future contributions by the public sector workers.
The same is true for pensions....they all seem to be at the option of your employer which puts more power in the control of corporate shenanigans.
Its a shame
As usual, the right has been busy making things up to push its agenda, confident that the media will not expose untrue claims.
When the RW decided to consolidate media ownership in the Reagan eara into fewer larger corporations, it's no surprise the the corporate news MSM media does nothing to expose the untrue claims...............seems to me the RWNM had a plan all along and the libs progs dems didn't do anything, and now it's almost too late.
The biggest issue is the expected return assumption of around 8% annually in perpetuity . If these hedge funds do not earn that return they are allowed to go back to the city or state and ask that they contribute more to make up the difference . These contributions come out of the general funding, so everytime the hedge funds underperform we have to cut services or lay people off. They typically underperform in recessions, so they are pro cyclical.
The public employee defined benefit pension is a government guaranteed annuity with an 8% return in perpetuity . Because it would cost a non public employee more than $1 to buy the same annuity the public employee is getting for $1, it is underfunded and will cause a crisis the moment the market goes down. That is why corporations stopped offering them.
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8% is a very high real return and very unlikely to be realized (ie. risky to try). The private sector would not be able to use that assumption. It is a bit like a Bernie Madoff...too good to be true...although, in fairness, he was worse.
2) Not all of them are eligible for social security (many teachers unions are not)
3) As the article states (and speaking from experience), public employees earn less than their private sector counterparts. Not only do they earn less, in a majority of the positions they are not permitted to have overtime and in many of the higher pay grades, they are salaried positions (such as teachers).
4) Its helpful to do the math rather than just throwing out the numbers. Lower pay also equals a lower dollar amount when it's based on a percentage. A $50K teacher paying 5% ($208 monthly) vs a private sector position paying 10% more ($55K with 5% participation = $229 monthly).
In 1999 Davis retroactively gave a 50% increase to the pension formulas. So everyone that was already retired and was not promised this increase GOT A MAJOR boost and didn't even work for it. "Since then state has increased its workforce almost 40% since the pension formula was changed and boosted the average state worker’s wages by 50%. Local governments, meanwhile, raised their average salaries by 60%. Much of the growth came in the ranks of police and firefighters, who increased significantly in number and in pay.
The problem, particularly for local governments, is that the plans are proving to be far costlier than officials anticipated or prepared for. By their own reckoning, the 10 largest public pension systems in California had a $240-billion shortfall in 2010.
When the funds don’t have enough money to cover their long-term liabilities, state and local governments are compelled to increase their contributions. In Los Angeles, the report says, the city’s retirement contributions are projected to double by 2015, taking up a third of the city’s operating budget. It projects that governments throughout the state will have to raise their contributions by 40% to 80% over the next few years, then maintain that higher rate for three decades." Source, Uncoverage "Commission: CA Gov’t Employee “Pension Costs Will Crush Governmentâ€"
Here is a link to the Little Hoover Commission if you really want an eyeful. http://www.lhc.ca.gov/studies/204/Report204.pdf
The fact is we are paying a large percentage on every dollar and we are STILL short! Which means less services, less potholes filled, less teachers, less firemen etc. which makes our situation even worse.
And one more thing, I will guarantee you every job in this state will be filled regardless of whether they had a pension or not. We currently have 20+% real unemployment here with people begging for work.
Another article addressing these corporate sponsored urban legends:
http://www.mcclatchydc.com/2011/03/06/109649/why-employee-pensions-arent-bankrupting.html?storylink=addthis
Those without defined-benefit plans should be pissed because corporate greed blew their 401(k), but blame the traders and their handlers, not the public employees.
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http://www.zerohedge.com/article/doug-kasey-labor-unions
Doug: My take is that there's nothing inherently wrong with unions, as long as they are voluntary associations of people – they're just associations working in certain trades or in certain places. It's natural. Sure, why not?
But there are problems with the way unions exist in reality today, particularly when membership is made mandatory. That's a violation of the human right to work. When you can't work unless you join the union, and union membership is limited – often to people with political connections or family relations with union officials – it's clear that the union is not a defender of the little guy, but a kind of protection racket. It's a fraud.
That doesn't just harm the individual worker who may wish to enter a unionized field; it has broad economic consequences. When only union members can work, the union can set wages at whatever level they want. That makes the product or service in question more expensive for everyone in society. In other words, unions don't help the average working man – they only help those who can get into the unions. They hurt everybody else: non-union workers, employers, and consumers at large. And it gives union bosses extraordinary power.
L: Always a dangerous thing. As a matter of principle, whenever unions get politicians to write their wishes into law, what they do ceases to be collective bargaining and becomes naked coercion. And of course the politicians pander to the big unions; unions are big blocks of voters. How could it be otherwise?