News Rhode Island: The Little State With a Big Mess

[rhody]

From http://www.cnbc.com/id/45006325"

From our State Treasurer, Gina M. Raimondo...

If current trends held, Ms. Raimondo warned, the Ocean State would soon look like Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.

and

After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents.

and

“I want to get the biggest travesty out of the way here,” Mr. Valletta boomed from the back of the hall. “You’re going after the retirees! In this economic time, how could you possibly take a pension away?”

Someone else in the audience said Rhode Island was reneging on a moral obligation.

Ms. Raimondo, 40, stood her ground. Rhode Island, she said, had a choice: it could pay for schoolbooks, roadwork, care for the elderly and so on, or it could keep every promise to its retirees.

“I would ask you, is it morally right to do nothing, and not provide services to the state’s most vulnerable citizens?” she asked the crowd. “Yes, sir, I think this is moral.”

and

On a September evening out in North Scituate, at the historic Old Congregational Church, Ms. Raimondo told a crowd about what had happened in Vallejo, Calif. That city filed for bankruptcy in 2009 and, after grueling negotiations, left pensions intact but drastically cut bus service, police patrols and other government functions, along with the pay of the city workers who provide all those services.

“That’s not what we want for Rhode Island,” Ms. Raimondo said. “That’s not the future we want for our children.”

and

The state has moved to safeguard its bond investors, to avoid being locked out of the credit markets. Last week, the General Assembly went into special session and proposed rolling back benefits for public employees, including those who have already retired. Whether the plan will succeed is anyone’s guess.

This is troubling because you can easily see that that situation has all the elements for class warfare, pitting the rich against the poor, its seniors against the population in general of all age groups and incomes. Communities have step up and make tough choices.

Rhody...

 

[rhody]

Did I touch a nerve ? Are any of you who live in the US close to or in an almost identical situation R.I. is in right now ?

Rhody...

 

[Oltz]

No this is exactly what "conservatives" have been saying was approaching since the 90's

We can no sustain the governement outlays at this rate.

 

[WhoWee]

From http://www.cnbc.com/id/45006325"

From our State Treasurer, Gina M. Raimondo...

This is troubling because you can easily see that that situation has all the elements for class warfare, pitting the rich against the poor, its seniors against the population in general of all age groups and incomes. Communities have step up and make tough choices.

Rhody...

my bold
How many people are included in the $14.8 Billion pension fund?

The state population is 1,052,567 and 14.4% over 65 - about 151,000 total retirees (all types - not just public employees).

If EVERY person in the state over the age of 65 was eligible - the obligation would be about $97,600 per person?

http://quickfacts.census.gov/qfd/states/44000.html

Even the NY Times took an interest:
http://www.nytimes.com/2011/10/23/b...the-pension-crisis-is-now.html?pagewanted=all

"Illinois, California, Connecticut, Oklahoma, Michigan — the list of stretched states runs on. In Pennsylvania, the capital city, Harrisburg, filed for bankruptcy earlier this month to avoid having to use prized assets to pay off Wall Street creditors. In New Jersey, Gov. Chris Christie wants to roll back benefits, too.

In most places, as in Rhode Island, the big issue is pensions. By conventional measures, state and local pensions nationwide now face a combined shortfall of about $3 trillion. Officials argue that, by their accounting, the total is far less. But with pensions, hope often triumphs over experience. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent; the real number for the last decade is about 2.4 percent. A phrase that gets thrown around here, à la Rick Perry describing Social Security, is “Ponzi scheme.”"

 

[rhody]

Thanks WhoWee,

In trying to keep things as simple as possible, in essense, it comes down to this.

Do we slash budgets (police, fire, municipal, infrastructure, etc...) to make up the shortfall promised to the people receiving pensions, and raise taxes too, or do we not raise taxes, and find a way to reign in future pension payments, (i.e. reduced compound cola's).

In either scenario, we have to reduce future liability, and raise the contributions and minimum age at which people can retire with a full pension with reduced benefits from the old system

Do we punish all taxpayers (uncluding those now receiving pensions) by raising taxes to pay for an out of control pension system to the benefit a small percentage of the population in addition to slashing operating budgets, or do we not raise taxes and keep approaching the abyss of bankrupcy by paying pensions without of control compunded cola's, or do we find a way to defer paying promised increases (as propsed now) based on compounded cola's and keep retiree's from reaping the rewards of incomes that vastly are ahead of inflation ?

I presented a case in my first post where taxes were raised and budgets were slashed to reward the few at the expense of the many. Will that happen again in R.I. ?

Rhody...

 

[WhoWee]

Thanks WhoWee,

In trying to keep things as simple as possible, in essense, it comes down to this.

Do we slash budgets (police, fire, municipal, infrastructure, etc...) to make up the shortfall promised to the people receiving pensions, and raise taxes too, or do we not raise taxes, and find a way to reign in future pension payments, (i.e. reduced compound cola's).

In either scenario, we have to reduce future liability, and raise the contributions and minimum age at which people can retire with a full pension with reduced benefits from the old system

Do we punish all taxpayers (uncluding those now receiving pensions) by raising taxes to pay for an out of control pension system to the benefit a small percentage of the population in addition to slashing operating budgets, or do we not raise taxes and keep approaching the abyss of bankrupcy by paying pensions without of control compunded cola's, or do we find a way to defer paying promised increases (as propsed now) based on compounded cola's and keep retiree's from reaping the rewards of incomes that vastly are ahead of inflation ?

I presented a case in my first post where taxes were raised and budgets were slashed to reward the few at the expense of the many. Will that happen again in R.I. ?

Rhody...

From your first post: my bold
"After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents."

For the percentage to double - either the cost is doubling, revenues are falling - or both. Again, how many people are covered in this system and what as been promised? If the state can't pay - either all interested parties in RI will find a way out - or call on Washington to solve their problems.

My guess is all of your state and local taxes will be raised - almost a given. The current retiree benefits will most likely not be touched other than scaling back COLA's and possibly dropping healthcare benefits - put people into Medicare system.

The next issue is future retirees - they will probably be at the mercy of the situation.

I know my opinion is unpopular on PF - but I don't think there should be any public sector unionization.

On a positive note - maybe someone should start a class action initiative among non-Government residents to achieve a specific outcome? With a population of 1 million - you might get 600,000 signatures - if taxes are about to double.

 

[rhody]

Question, what happens when Congress's http://www.mediaite.com/online/jay-carney-zings-herman-cain-and-congress-9-approval-not-the-kind-of-nine-that-they-want/" hits 0.0 ?

Then what ?!@

Rhody...

 

[Vanadium 50]

Historian Walter Russell Mead has written about this http://blogs.the-american-interest.com/wrm/2011/10/23/rhode-island-athens-of-america/". Some excerpts:

In Rhode Island, it is Democrats, not nasty union-hating Republicans, who are doing the dirty work. Democratic mayors are telling their unions that there isn’t any money — not because they are vicious corporate stooges who hate working people and want to see them suffer, but because There. Isn’t. Any. Money.

But “objectively”, as our Marxist friends would say, the union leaders and their political chums were the worst enemies of the workers: they told state workers that their benefits were secure even as it became increasingly obvious that, as a matter of arithmetic, they were not.

Let’s be crystal clear about this. To tell a 50 year old pretty lies about the soundness of a pension plan is one of the most wicked and irresponsible things you can do without actually shedding blood; people who believe these phony promises will not make the extra savings, work the extra years or otherwise take steps to protect themselves until it is too late. Telling those pretty lies is exactly what Rhode Island’s establishment has been doing for some time; it is what Ostrich Party legislators, trade unionists, journalists and governors are still doing across much of the country.

 

[AlephZero]

Question, what happens when Congress's http://www.mediaite.com/online/jay-carney-zings-herman-cain-and-congress-9-approval-not-the-kind-of-nine-that-they-want/" hits 0.0 ?

Then what ?!@

Rhody...

Doesn't the Constitution say that's the time you are allowed to start shooting each other?

 

[WhoWee]

Question, what happens when Congress's http://www.mediaite.com/online/jay-carney-zings-herman-cain-and-congress-9-approval-not-the-kind-of-nine-that-they-want/" hits 0.0 ?

Then what ?!@

Rhody...

By the time the 2012 election is over, the "rich" will be so demonized the Newport Mansions will have been taken by force and "rented" out under Section 8 for enough to cover the pension shortfalls - just kidding/IMO of course.

 

[rhody]

V_50, WhoWee, Aleph,

We may share similar views because deep down I am a pragmatic realist, I sense you all share similar beliefs. Please correct me if I am wrong.
This belief applies to every aspect of my life, not just politics. I have always improvised and adapted to every difficult situation in life.
It has served me well, and I believe that attitude will be an asset in the uncertain times that lie ahead.

Rhody...

 

[WhoWee]

V_50, WhoWee, Aleph,

We may share similar views because deep down I am a pragmatic realist, I sense you all share similar beliefs. Please correct me if I am wrong.
This belief applies to every aspect of my life, not just politics. I have always improvised and adapted to every difficult situation in life.
It has served me well, and I believe that attitude will be an asset in the uncertain times that lie ahead.

Rhody...

IMO - we are on the same wavelength. I think we needed a crisis to wake up the average working person. Agree with me or not about how or why - but our rights have been taken away very gradually over the past 50 years - and replaced with a future obligation to take care of a permanent underclass (restricted only by the system that pretends to help). At the same time, the Government (at every level) has been allowed to grow to an unmanageable size and further disfigured by public sector unions.

I've learned one thing in my business experience - the best time to deal with a problem is now - the longer you wait the more complicated it becomes (and painful to fix).

 

[BobG]

Thanks WhoWee,

In trying to keep things as simple as possible, in essense, it comes down to this.

Do we slash budgets (police, fire, municipal, infrastructure, etc...) to make up the shortfall promised to the people receiving pensions, and raise taxes too, or do we not raise taxes, and find a way to reign in future pension payments, (i.e. reduced compound cola's).

In either scenario, we have to reduce future liability, and raise the contributions and minimum age at which people can retire with a full pension with reduced benefits from the old system

Do we punish all taxpayers (uncluding those now receiving pensions) by raising taxes to pay for an out of control pension system to the benefit a small percentage of the population in addition to slashing operating budgets, or do we not raise taxes and keep approaching the abyss of bankrupcy by paying pensions without of control compunded cola's, or do we find a way to defer paying promised increases (as propsed now) based on compounded cola's and keep retiree's from reaping the rewards of incomes that vastly are ahead of inflation ?

I presented a case in my first post where taxes were raised and budgets were slashed to reward the few at the expense of the many. Will that happen again in R.I. ?

Rhody...

The state government does the same thing that homeowners overextending themselves on their home loans, car loans, and credit card debt do. They make the payments they promised to make. Or else they default on the promises they made and destroy their ability to borrow any money in the future. Or at least it should work that way. Chances are, deciding not to honor the pensions they promised won't affect their credit ratings in the same way defaulting on loans would.

There's a problem with this line of thinking about punishing all taxpayers. It implies that this is somehow unfair - that state residents would elect state legislators that would approve these pension benefits, not care about it when it was done, and only later get upset and say they never realized the legislators they were electing were ruining their economy.

They didn't care then - and now they reap the results of not caring then.

 

[WhoWee]

We had a thread a while back about budget cuts in California - it went a little off-track but there are similarities.
https://www.physicsforums.com/showthread.php?t=462688
*****

Then in this thread - we found out how much a lifeguard's pension might cost taxpayers.
https://www.physicsforums.com/showthread.php?p=3293484&highlight=lifeguard#post3293484

"How would we characterize this pay structure?

http://biggovernment.com/dspady/2011...in-retirement/ my post number 5 from that thread:my bold

"Newport Beach has two groups of lifeguards. Seasonal tower lifeguards cover Newport’s seven miles of beach during the busy summer months. Part-time seasonal guards make $16 to $22 per hour with no benefits. They are the young people who man the towers and do the lion’s share of the rescues. Another group of highly compensated full-time staff work year-round and seldom, if ever, climb into a tower. According to the City Manager, the typical Daily Deployment Model in the winter for these lifeguards is 10 hours per day for four days each week, mainly spent driving trucks around, painting towers, ordering uniforms and doing basic office work—none are actually manning lifeguard towers.

Like many communities across California, the city of Newport Beach is facing the harsh realities of budgeting with less revenue after housing values and the stock market plummeted. Now the city’s full-time lifeguard force has finally come under scrutiny. Next week the city council will decide if cuts are needed to the full-time lifeguard force where last year the top earner received $211,000 in pay and benefits, including a $400 sun protection allowance. In 2010 all but one of the city’s full-time lifeguard staff had annual compensation packages worth over $120,000.

Not bad pay for a lifeguard – but what makes these jobs most attractive is the generous retirements.

These lifeguards can retire at age 50 with full medical benefits for life. One recently retired lifeguard, age 51, receives a government retirement of over $108,000 per year—for the rest of his life. He will make well over $3 million in retirement if he lives to age 80. According to the City Manager, a new full-time guard costs less to hire than what is spent on this one retiree. The city now spends more taxpayer dollars on retired lifeguards than it does on those who are working.""
*****

My point is this - the people that approved these pay structures more than likely thought they were "doing smart business" (Paulie from Rocky IV or V when he gave POA to the accountant). They probably looked at the local cost of housing and the need for qualified crews - and perhaps never calculated the long term cost of the program?

Personally, I live in the midwest and know the YMCA hires teenagers and college students for $8 up to less than $16 per hour - a full time position at the most exclusive swim club might pay a salary with benefits in the $30 - $40K range but would also include teaching classes and basic EMT. People in OH know an average annual compensation package of $120,000 for a lifeguard is too much money - in CA they either don't know or don't care?

Now to be fair to Newport Beach, their budget shows current Lifeguard cost dropping from a high of $4,071,882 in 2010-11 to $3,440,666 in 2011-12 - a significant cut.
(1st page under Expenditures)
http://www.newportbeachca.gov/Modules/ShowDocument.aspx?documentid=10020

In the same time frame, their total retiree costs increased about $400,000 over the year.

 

[rhody]

The state has been aware of the problem for decades, they have made five half baked attempt attempts to fix it. All failed. I have lived here for twenty seven years and in each election cycle was hoping that candidates who are realistic and pragmatic would be elected. I voted that way. It has not happened. This has led me to the conclusion that what it will take to break the cycle is:

a: The block of voters who continue to vote with others who do not share my views retire and move away.
b. The block of voters who continue to with with others who do not share my views pass away.

Having said this however, that leaves the other side in a big dilemma, they cannot tax and reduce spending their way out of this mess. RI has some of the highest taxes in the country and is not a business friendly state to work in. There is no choice this time. Both sides are locked in an epic battle. How it will end remains to be seen. I will report the results as they unfold.

Rhody...

 

[WhoWee]

Here is where the battle will take place - same as Wisconsin and Ohio. my bold
http://www.businessweek.com/ap/financialnews/D9QLBDE80.htm

"RI unions say pension problem overstated"

"Rhode Island labor unions that are fighting a proposed public pension overhaul accused state Treasurer Gina Raimondo on Thursday of overstating the problem to justify extreme changes.

Their remarks came during a third day of legislative hearings on a proposal by Raimondo and Gov. Lincoln Chafee and a day after hundreds of supporters and opponents of the legislation filled the Statehouse to weigh in on the bill.

Paul Valletta of the State Association of Firefighters said Raimondo "cooked the books" with actuarial assumptions and conservative market projections that exaggerate the pension system's problems. He accused her of supporting "draconian" changes to the retirement system to raise her political profile.

"She created this problem and now she's riding in on a white horse," Valletta said.

Raimondo, a Democrat, insists that rising pension costs could cripple governments and force tax hikes or budget cuts. The state's unfunded pension liability stands at $7 billion and the state's pension costs are set to double next year to over $600 million. The state retirement system covers 66,000 public teachers, state and municipal workers, police, firefighters and judges.

The proposal would save $3 billion over a decade by raising retirement ages for most workers and halting annual cost-of-living pension increases for most retirees. The legislation would also create a new system that combines traditional pensions with 401(k)-style retirement accounts."

******
We now have a specific problem to study - pension funds for 66,000 people is under-funded by $7 Billion (roughly 47.3% of the $14.8 Billion total?) - about $106,000 per retiree or $6,650 per resident. The solution is simple - the people who are still working (and will later benefit) need to contribute more to the fund or the payouts from the fund will be less than expected. This should not be a taxpayer problem. The 66,000 people need to sue their incompetent plan administrators and/or throw them in jail.

In the real world - I know quite a few people who took big hits to their 401k plans over the past few years - accordingly, their personal pension plans are now under-funded by comparable amounts - to the 47%. This is why I was against the GM bailout - it's unfair to all of the rest of us that work, pay taxes and aren't in a union or protected by politicians.

 

[Locrian]

For other points of view on the topic, here's a thread from another forum:

http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=207956

The posts in this thread sometimes address issues that aren't typically discussed elsewhere; you may or may not find them interesting.

 

[rhody]

This is troubling because you can easily see that that situation has all the elements for class warfare, pitting the rich against the poor, its seniors against the population in general of all age groups and incomes.

From a radio commercial I heard while getting lunch, it appears that the Unions are attempting to paint the rich as the bad guys in the pension debacle, then issue a challenge for them to fund it. They are saying is that the rich should pay for the system as it exists (unsustainable, I might add) by being taxed to do so. It seems to me that they (the union's) have no trouble at all with starting class warfare.

Rhody...

 

[WhoWee]

From a radio commercial I heard while getting lunch, it appears that the Unions are attempting to paint the rich as the bad guys in the pension debacle, then issue a challenge for them to fund it. They are saying is that the rich should pay for the system as it exists (unsustainable, I might add) by being taxed to do so. It seems to me that they (the union's) have no trouble at all with starting class warfare.

Rhody...

At least one news organization is interested in the details of the problem.

http://www.wpri.com/dpp/news/target_12/local_wpri_probing_pensions_double_dipping_20081106

" Hidden in the pension database we spent five months compiling are some of the state's top double-dippers:

• State Lottery Director Gerald Aubin collects $122,000 a year in state salary, and a $36,000 yearly pension from Providence as a retired police officer.

• John Chartier nets a $101,000 salary as top dog at the state fire marshal's office, and an $86,400 yearly pension as former Warwick fire chief.

• Providence DPW Director John Nickelson gets a $100,000 salary, plus an $87,600 yearly state pension for his time working for the Department of Transportation.

• Providence Communications Director William Trinque has a $98,000 salary, plus a $79,200 yearly take from his state police pension.

Double-dipping often leads to multiple pensions. Here are some heavy hitters in that category:

• Vincent Pallozzi, former chief of staff to Providence Mayor Paolino, nets $58,500 a year from his city pension, and $87,000 a year as a retired state traffic judge.

• Gerald Leddy injured himself on the job as a Providence firefighter, then hurt himself again working at the state fire marshal's office, resulting in two tax-free pensions totaling $56,400 a year.

We also found a handful of triple-dippers:

• Charles Donovan has a state pension, a pension as a legislator, and one from when he was a city politician in Warwick.

It may sound outrageous, but it's not illegal.

"That’s what the statute says, basically," said Frank Karpinski, executive director of the Employees Retirement System of Rhode Island, the state pension system that includes state workers, teachers, and employees from many cities and towns."

 

[Locrian]

While double dipping and spiking are rightly upsetting, they can’t be blamed for the poor state of current pensions. After all, since they aren’t illegal and have been going on for some time, it should be straight forward enough to price their impact into the annual government contribution.

But of course, those contributions routinely aren’t made, and no one seems to care when they aren’t. That’s the great thing about being a government run insurance product – you get to make (some of) the regulatory rules whatever you like and then oversee yourself.

 

[rhody]

WhoWee,

And the Unions have the nerve to say the "rich" are ripping the system off. Sounds like is is stacked in their favor to which I say: to the double dippers, and: to the triple dippers. The sad truth is that many who are uninformed and/or don't care keep "Drinking the Koolaid", those being the voting population, which as I stated before won't change until they pass away or move away.

If I were on the receiving end of such a lucrative deal, I would never want it to end. Long ago, it may have been a small portion of the budget because there were small numbers receiving these benefits. That is no longer the case.

Rhody...

 

[Locrian]

Well, in a properly funded pension plan expenses shouldn't be that sensitive to the number receiving benefits since you should be contributing every year.

Pay go and pretend funded plans are another issue entirely. I am pretty sure there are pay go plans that are better funded than Illinois funded plans...

 

[Locrian]

And that leads me to point out something I find a little irritating about much of the new nationwide conversation about pension plans – most of the people against them now weren’t before interest rates dipped.

Oltz claims conservatives were against “this” since the 90’s, but I’m not aware of any evidence that conservative administrators have actually run the system any differently; they’ve certainly maintained and sometimes expanded pension plans along with everyone else. Arguing for hiring fewer government workers is nice but it doesn’t result in a more honest plan – in fact, by keeping the numbers a little smaller it can hide wealth transfer distortions that aren’t any more acceptable than what we have now.

Were conservatives really complaining about public plan discount rates in the 90’s? What about 2005? Outside of the very small actuarial community this got very little attention. Were they ringing alarm bells about pension contribution holidays then?

And that’s part of the problem. When things are looking grand in the economy at large, using a low discount rate and making regular contributions can look an awful lot like overfunding, which to conservatives looks an awful lot like funneling taxpayer dollars to slush funds. So you declare some contribution holidays and look to lower taxes and next thing you know interest rates have sunk to 3% and you’re either stuck with a bill you can’t possibly pay or are still using discount rates that seem absurd.

The pension plan problems are rapidly turning into another political thumping stick for Democrats and Republicans to smack each other with, but what they really show isn’t a problem of ideology, but one of execution, and both sides share a lot of blame in that department.

 

[WhoWee]

And that leads me to point out something I find a little irritating about much of the new nationwide conversation about pension plans – most of the people against them now weren’t before interest rates dipped.

Oltz claims conservatives were against “this” since the 90’s, but I’m not aware of any evidence that conservative administrators have actually run the system any differently; they’ve certainly maintained and sometimes expanded pension plans along with everyone else. Arguing for hiring fewer government workers is nice but it doesn’t result in a more honest plan – in fact, by keeping the numbers a little smaller it can hide wealth transfer distortions that aren’t any more acceptable than what we have now.

Were conservatives really complaining about public plan discount rates in the 90’s? What about 2005? Outside of the very small actuarial community this got very little attention. Were they ringing alarm bells about pension contribution holidays then?

And that’s part of the problem. When things are looking grand in the economy at large, using a low discount rate and making regular contributions can look an awful lot like overfunding, which to conservatives looks an awful lot like funneling taxpayer dollars to slush funds. So you declare some contribution holidays and look to lower taxes and next thing you know interest rates have sunk to 3% and you’re either stuck with a bill you can’t possibly pay or are still using discount rates that seem absurd.

The pension plan problems are rapidly turning into another political thumping stick for Democrats and Republicans to smack each other with, but what they really show isn’t a problem of ideology, but one of execution, and both sides share a lot of blame in that department.

Has anyone found the guaranteed rate of return for these pension funds - or the actual rate of contributions )I haven't looked yet)?

 

[Oltz]

And that leads me to point out something I find a little irritating about much of the new nationwide conversation about pension plans – most of the people against them now weren’t before interest rates dipped.

Oltz claims conservatives were against “this” since the 90’s, but I’m not aware of any evidence that conservative administrators have actually run the system any differently; they’ve certainly maintained and sometimes expanded pension plans along with everyone else. Arguing for hiring fewer government workers is nice but it doesn’t result in a more honest plan – in fact, by keeping the numbers a little smaller it can hide wealth transfer distortions that aren’t any more acceptable than what we have now.

Were conservatives really complaining about public plan discount rates in the 90’s? What about 2005? Outside of the very small actuarial community this got very little attention. Were they ringing alarm bells about pension contribution holidays then?

And that’s part of the problem. When things are looking grand in the economy at large, using a low discount rate and making regular contributions can look an awful lot like overfunding, which to conservatives looks an awful lot like funneling taxpayer dollars to slush funds. So you declare some contribution holidays and look to lower taxes and next thing you know interest rates have sunk to 3% and you’re either stuck with a bill you can’t possibly pay or are still using discount rates that seem absurd.

The pension plan problems are rapidly turning into another political thumping stick for Democrats and Republicans to smack each other with, but what they really show isn’t a problem of ideology, but one of execution, and both sides share a lot of blame in that department.

I think the issue is more with the Pension contracts and the negotiated compensation than the administration of the pensions.
Over powered public unions have been a concern for many since the Mid 90's if not before IMO.
The point is the contributions can not match the outlays and it is a desing flaw. The gap is far larger then merely the Holidays and changes in rates.

 

[Locrian]

I think the issue is more with the Pension contracts and the negotiated compensation than the administration of the pensions.

That's nice that you think that.

The point is the contributions can not match the outlays and it is a desing flaw. The gap is far larger then merely the Holidays and changes in rates.

Prove it.

The simple fact is that if enough funds had been set aside, there wouldn't be a problem. Now, if, before there's a problem you try to set aside funds and can see an issue far in the future, then yes, that's a problem with product design.

That's not what's happening.

 

[Locrian]

Has anyone found the guaranteed rate of return for these pension funds - or the actual rate of contributions )I haven't looked yet)?

Well, there's a lot of them. I know some of the biggest are sporting 8%+ discount rates.

And really, there are actuaries and economists who will tell us that this is reasonable. We don't believe them now because interest rates are so depressed. The question is, would we have batted an eye at them when they did this in 1999 or 2006? And did we?

 

[Locrian]

I think the issue is more with the Pension contracts and the negotiated compensation than the administration of the pensions.

When people say things like this, what they’re saying is ”It’s okay to mismanage a pension plan so long as it’s on small enough a scale that it doesn’t break the bank”. By reducing their pension benefits and/or lowering their pay and/or hiring fewer of them, you reduce your overall liability, but you don’t change the basic structure of the problem. You just make it small enough to swallow.

And to be fair there are people who would agree with them.

I’m just not one of them.

 

[WhoWee]

Well, there's a lot of them. I know some of the biggest are sporting 8%+ discount rates.

And really, there are actuaries and economists who will tell us that this is reasonable. We don't believe them now because interest rates are so depressed. The question is, would we have batted an eye at them when they did this in 1999 or 2006? And did we?

I found this.
http://blogs.wpri.com/2011/04/13/ris-unfunded-pension-liability-soars-by-nearly-2b/

 

[Locrian]

Good find. If memory serves me Jeremy Gold has interesting things to say on the topic as well.

 

[Locrian]

Pardon the soap box but. . .

The US public is really this way about all capital requirements, loss reserves and other such funding. If you’d made me king in 2005 and I’d have regulated CDS similar to the same way traditional insurance was regulated – thereby pulling the plug on the housing boom that was powering the recovery after 2001 – I’d have been the bad guy for shutting the economy down. But then everything goes bust and 100% of our problems are the fault of Wall Street CEOs.

Ultimately loss reserves and pension funding just don’t register with the public as an expense that has to be paid, and the pressure to do something else with it is tremendous. It isn’t like the actuaries are allowed to choose a reasonable discount rate; that would require too much taxpayer money to be tied up where politicians can’t spend it. So the politicians pass laws that set the discount rate and then either lower taxes or increase benefits, depending on their political persuasion. You can’t stop them because you’d be taking away someone’s goody and locking it up in the cabinet where they can still see it. It’s just too much temptation and there’s too little to gain being the bad guy.

The US public is like that alcoholic college buddy. At the big party they’re their own person and you have no right to tell them what to do . Then the next day they’re all dude, why didn’t you stop me??

 

[rhody]

I found this.
http://blogs.wpri.com/2011/04/13/ris-unfunded-pension-liability-soars-by-nearly-2b/

WhoWee,

From the link you provided, at the bottom, on right under Ted Nesi:

People wonder why RI's pension fund can't match earnings of Harvard, Yale endowments; NYC's now aiming to emulate them: http://t.co/rgZaaGTA"

After reading my story about the Rhode Island pension fund’s “lofty” 7.5%-a-year investment goal, commenter Jake asked a good question:

Why have Harvard, Brown and Yale’s endowments performed so much better than Rhode Island’s pension fund investments? Is there anything to be learned from them that would help us?

Jake’s right: the universities have schooled us on the investment front over the last decade.

Yale’s endowment grew an average of 10.1% a year over the past 10 years, while Harvard’s earned 9.4% and Brown’s rose 7.7%. Rhode Island’s $7 billion pension fund increased a relatively paltry 5.7%, according to the treasurer’s office.

Rhode Island isn’t alone in lagging behind the Ivies: New York City’s far larger $120 billion pension fund averaged 2.7% a year over the last decade. Now Mayor Michael Bloomberg is taking steps to make the sort of changes Jake would like to see here, The New York Times reports:

I haven't looked into the reasons why RI's Funds are not performing as well, but I am sure it would take an actuary, CPA, or State Treasurer, Gina M. Raimondo to explain it.

http://www.bloomberg.com/news/2011-10-19/brown-investments-gained-19-in-past-year-lagging-behind-harvard-yale.html"

Brown, the last of the Ivy League schools to report, generated an average annual return of 7.7 percent over the past decade, compared with Yale’s 10 percent increase and the 9.4 percent gain of Harvard, in Cambridge, Massachusetts.

The Ivy League consists of eight private schools in the northeastern U.S. Columbia University’s $7.8 billion endowment was the best performer this year, with a 24 percent investment gain. Dartmouth College, in Hanover, New Hampshire, was the worst, with an increase of 18 percent.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net

It seems little Rhody is very optimistic when it comes to projecting assumed return on investment. The last link I provided showed that other Universities returns were all over the map. Pretty hard to side with a winner, based on past performance. From the outside looking in, it appears a crap shoot at best.

Rhody...

P.S. Here is a map of RI by city with http://www.wpri.com/generic/target_12/pensions_probe/pension-liability-interactive-map?2" contribution changes, obtained from the first link above.

 

[WhoWee]

It seems little Rhody is very optimistic when it comes to projecting assumed return on investment. The last link I provided showed that other Universities returns were all over the map. Pretty hard to side with a winner, based on past performance. From the outside looking in, it appears a crap shoot at best.

The bottom line is this - investments have risk. When you consider the fluctuations in the stock market and near zero interest rates - why should an 8% return be guaranteed by taxpayers?

I recently filed a final expense life insurance claim on my Aunt. The policy was paid in full in 1986 and accumulated interest for 25 years. It returned the minimum interest payable of 2.25% (big surprise).

 

[rhody]

Thought I would pass this along from Kiplinger: http://portal.kiplinger.com/tools/retiree_map/"

Funny, RI did not make the top 10 of the most tax unfriendly states to retire in.

Here they are according to http://www.kiplinger.com/slideshow/TaxUnfriendlyStatesRetirees/2.html#top":

1. Vermont
2. Minnesota
3. Nebraska
4. Oregon
5. California
6. Maine
7. Iowa
8. Wiscousin
9. New Jersey
10. Connecticut

Rhody...

 

[BobG]

WhoWee,

And the Unions have the nerve to say the "rich" are ripping the system off. Sounds like is is stacked in their favor to which I say: to the double dippers, and: to the triple dippers.

What's the problem with double dippers, triple dippers, etc? They worked, earned the retirement their employer promised them as part of their compensation package, and then kept working even after earning a retirement, and then earned the retirement their employer promised them as part of their compensation package.

Setting up multiple sources of income for a retirement just sounds like smart planning to me.

What would your solution be? A person could only earn retirement from one source? And would that include social security? After all, any retiree collecting money from both social security and their own retirement plan is a double dipper.

In fact, I guess I'm pretty much guaranteed of being a triple dipper. I'll have a military pension, social security, plus 401(k) from a post military career in civilian jobs.

Or does it only anger you when someone earns two retirements from the state government? What if they retired from state government and earned a second retirement from a non-government employer?

And since someone had to perform those government jobs, would it be more acceptable if the state government had paid the same retirements to two completely separate individuals for two completely separate jobs than paying the same retirements to one individual that happened to have two completely separate jobs during his career?

I think the article just tossed the term "double-dipper" and "triple-dipper" into the article because their terms that sound nice as long as a person doesn't put much thought into how that person earned those retirements.

Colorado isn't such a bad state for retirees, either. The first $20,000 of my military retirement isn't taxable when it comes to state income tax - or at least wouldn't be if my ex didn't receive half of my retirement. Pleasantly, her half of my retirement is fully taxable by the state she lives in. (Oh, the stupid things one takes pleasure in for no reason except bitterness.)

 

[Oltz]

When people say things like this, what they’re saying is ”It’s okay to mismanage a pension plan so long as it’s on small enough a scale that it doesn’t break the bank”. By reducing their pension benefits and/or lowering their pay and/or hiring fewer of them, you reduce your overall liability, but you don’t change the basic structure of the problem. You just make it small enough to swallow.

And to be fair there are people who would agree with them.

I’m just not one of them.

That is not what I was saying at all.

I was saying that yes mismanagment is a problem.

But the BIGGER problem in my opinion was the structure and volume of Benefits. The Government is paying to much and the workers contribute to little. thus making the system unblanaced so any perturbance in the investments is felt long term by the state with no ill effects on those "paying" into the plan.

If my 401 K looses money I up my contribution to recoup. If the state pension plan looses money the tax payers need to kick in the extra.

The public unions took advantage of a good benefit and expanded the pay outs beyond what is reasonoable for a government to support with the limited contributions from the workers.

A pension plan that is 98% funded by your emloyer is asking to put that emloyer underwater eventually.

 

[rhody]

In fact, I guess I'm pretty much guaranteed of being a triple dipper. I'll have a military pension, social security, plus 401(k) from a post military career in civilian jobs.

Or does it only anger you when someone earns two retirements from the state government? What if they retired from state government and earned a second retirement from a non-government employer?

I am not angry at all, in fact you are more likely to NOT be a drain on the system, and have planned for retirement and taken every advantage you could to have a financially comfortable retirement. (if your retirement funding is sound, and I hope for your sake it IS).

The financial times we find ourselves in have broken all the rules in the past four or five years. Things that used to follow a plan of gradual increased growth in wealth have been thrown out the window. We are dealing with the chaos. How it will all shakeout is not certain. I predict little Rhody will be worse for wear (tax wise) by the end of 2013 based on their track record (state and local gov't financial decisions) over the past 27 years. It may hasten my decision to leave the state. The only choice left is to vote with my feet.

Rhody...

 

[WhoWee]

Or does it only anger you when someone earns two retirements from the state government?

To summarize with a single word - yes.

I have 2 friends that worked their way through 8 years of college at the post office - night shift - and retired (with a small pension). Upon graduation, they went to work for the IRS - one will retire from the IRS and the other is now a practicing Attorney.

 

[Locrian]

I haven't looked into the reasons why RI's Funds are not performing as well, but I am sure it would take an actuary, CPA, or State Treasurer, Gina M. Raimondo to explain it.

Well, most funds everywhere have performed poorly over the past decade or so, with few exceptions. I know my state is running only a few percent over that time. With a couple of stock market crashes and the fed pushing down interest rates, it's really to be expected.

But one thing people need to keep in mind is that pension funds shouldn't be getting the kind of returns lots of other investments should because they have cash flows to manage and dealing with liquidity risk appropriately brings your return down. That's actually part of the problem for some plans; they are heavily into investments with a lot of variance and while they may pay off well in the future, they're hurting now.

Private plans are typically using discount rates of 5.5%-6.5%.

 

[Locrian]

The bottom line is this - investments have risk. When you consider the fluctuations in the stock market and near zero interest rates - why should an 8% return be guaranteed by taxpayers?

Well, they aren't getting a guaranteed 8% return, exactly. It's just that 8% is what the plan is assuming they'll receive on investments, and they're setting their contribution based on that. If an individual retires and dies before they get a payment, they got a -100% return. Others will live past the pack and do better. Some individuals will do better and others worse depending on the way the plan is structured. The group as a whole may do better or worse depending on experience.

Assuming a higher discount rate results in less taxes being taken from current taxpayers. But if they don't actually meet it, someone's going to pay the difference in the future, either through cut benefits or higher taxes.

Which leads me to another issue I have with DB plans - you don't really know what people receiving them are getting, so you can't really calculate their pay very exactly. Where I live the teacher compensation has so many perks (early retiree medical, fat pension that starts at retirement instead of 65, etc.) that really nobody knows how much money they make, including the teachers and the state.

 

[WhoWee]

Well, they aren't getting a guaranteed 8% return, exactly. It's just that 8% is what the plan is assuming they'll receive on investments, and they're setting their contribution based on that.

It seems they are getting a guaranteed return - at taxpayer expense.

from the OP - my bold
"After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents."

 

[BobG]

Or does it only anger you when someone earns two retirements from the state government? What if they retired from state government and earned a second retirement from a non-government employer?

And since someone had to perform those government jobs, would it be more acceptable if the state government had paid the same retirements to two completely separate individuals for two completely separate jobs than paying the same retirements to one individual that happened to have two completely separate jobs during his career?

To summarize with a single word - yes.

I have 2 friends that worked their way through 8 years of college at the post office - night shift - and retired (with a small pension). Upon graduation, they went to work for the IRS - one will retire from the IRS and the other is now a practicing Attorney.

Whoever took those jobs was going to get those retirement benefits. The cost to the state is the same whether it's two completely different people that earned those retirements or if one person worked one of those jobs, then the other.

The issue is really the cost of those retirements, regardless of who earned those retirements.

Perhaps getting upset by one person earning two separate retirements from the same employer does touch on the real feelings about government employees. There's a feeling that employees working for the government are less qualified than employees working in private businesses and don't deserve to make as much money as we pay them.

Is there a reason all of the better qualified employees would go to work in private businesses instead of work for the government? Especially if the government is really setting up all of its employees for life regardless of whether they do their job or not?

Or are both a myth and governments pay out roughly the going rate for employees, whatever that might be, because they need qualified employees just as badly as private businesses do?

Regardless, waiting until after the fact - after the employee retires - and then saying, "You know what, I changed my mind and you weren't worth that much after all, so I'll just change our agreement to what I think is fair now" is criminal. Now it's too late for the employee to say, "The hell with that deal - I'll go get a better paying job with someone else."

However fair it might be, it is true that most state governments missed the boat when it came to retirement planning. The military's compensation plan is the best. They give a low base pay, but supplement it with tax free allowances - keeping in mind that the lower enlisted ranks will be among the 47% of the population that pay no federal taxes once deductions and earned income credit gets added in (oh, wait, those allowances and the value of military provided housing get added back in when it comes to earned income credit, but the lower ranks still pay little in federal income tax). When military members retire, their retirement is based only on their base pay; not their allowances. The result is that the effective percentage of retirement benefits are always lower than advertised.

Ironically, even with a very good retirement model, retirement benefits are too expensive - especially when you toss in the medical benefits for retirees. As with everyone else, those rising costs for medical benefits blow everyone's plans out of the water. The response is the same: "We promised retirees free medical insurance for life, but now that's too expensive, so you'll have to pay something for that insurance. But don't worry. The amount you have to pay is a lot, lot less than people working for private employers have to pay." (And it is, but it's not what was promised during the time those people were in the military.)

 

[Locrian]

It seems they are getting a guaranteed return - at taxpayer expense.[/I]

No, they are not, and the quote you have doesn't support the statement. I gave examples showing why they are not getting an 8% guarranteed return.

 

[WhoWee]

No, they are not, and the quote you have doesn't support the statement. I gave examples showing why they are not getting an 8% guarranteed return.

Good news rhody - according to Locrian (see above). On the other hand - if there's no guarantee (real or implied) - why are they prepared to double taxes and/or cut essential services?

 

[Locrian]

The issue is really the cost of those retirements, regardless of who earned those retirements.

Well I would argue there are two issues. First, the cost of the retirements. But secondly, the management of the plans. The reason why I dwell on the discount rate used so much is because using a high discount rate can effectively hide the actual cost of the retirements being promised. Politicians have used the discount rates and other funding schemes to give out benefits when times are good, and then someone else pays the cost when things don't pan out.

Ironically, even with a very good retirement model, retirement benefits are too expensive - especially when you toss in the medical benefits for retirees. As with everyone else, those rising costs for medical benefits blow everyone's plans out of the water.

Medical benefit cost inflation is definitely an issue. But note that a lot of pension plans are sunk without including medical benefits. A defined benefit (DB) pension plan is basically an annuity and there's just no excuse to be as behind as some states are in their funding (IL, NJ, RH).

But overall I agree with you. Double dipping and spiking may or may not be reasonable things to allow in a plan, but they can both be planned for, and don't explain the funding problems plans are in right now.

 

[WhoWee]

Whoever took those jobs was going to get those retirement benefits. The cost to the state is the same whether it's two completely different people that earned those retirements or if one person worked one of those jobs, then the other.

The issue is really the cost of those retirements, regardless of who earned those retirements.

Perhaps getting upset by one person earning two separate retirements from the same employer does touch on the real feelings about government employees. There's a feeling that employees working for the government are less qualified than employees working in private businesses and don't deserve to make as much money as we pay them.

Is there a reason all of the better qualified employees would go to work in private businesses instead of work for the government? Especially if the government is really setting up all of its employees for life regardless of whether they do their job or not?

I have no problem with the examples I cited where the individuals grew in their positions/career.

The teacher who retires on a pension - then rehired to teach in the same classroom (instead of hiring a new person) are very troubling to me.

 

[Locrian]

Good news rhody - according to Locrian (see above). On the other hand - if there's no guarantee (real or implied) - why are they prepared to double taxes and/or cut essential services?

False. I said there is not an 8% guaranteed return, not that there's no guarantee. There's a guaranteed cash stream. The return for both the individual and the group will depend on mortality, plan design, return on investment and actual salary levels (versus forecasted).

Either you don't understand how to calculate the return on an annuity with a variable number of payments or you're being dishonest. Either way consider cutting back the snark.

 

[WhoWee]

False. I said there is not an 8% guaranteed return, not that there's no guarantee. There's a guaranteed cash stream. The return for both the individual and the group will depend on mortality, plan design, return on investment and actual salary levels (versus forecasted).

Either you don't understand how to calculate the return on an annuity with a variable number of payments or you're being dishonest. Either way consider cutting back the snark.

When I posted this:
"It seems they are getting a guaranteed return - at taxpayer expense.

from the OP - my bold
"After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents.""

I was not making a specific interest rate claim - was I? The word "seems" implies opinion. Your response:

"No, they are not, and the quote you have doesn't support the statement. I gave examples showing why they are not getting an 8% guarranteed return."

My post supported itself - they are considering a 100% tax increase to meet (or guarantee) the under-funded pensions.

Your personal attack
"Either you don't understand how to calculate the return on an annuity with a variable number of payments or you're being dishonest. Either way consider cutting back the snark."
is quite unappreciated. Please save us both time and energy next time by not over-reacting to the word "seems".

 

[BobG]

Returns on investments are never guaranteed. The issue is who assumes the risk - the state or the employees. With 401(k), etc, it's the employee that assumes the risk of a bad economy reducing the growth of their funds. With definied benefits, the employer agreed to assume that risk.

That's not a position about whether the employer should have offered to assume the risk in the first place. It's a position about making an agreement and then modifying it after the fact when it didn't turn out as well as you hoped.

 

[WhoWee]

Returns on investments are never guaranteed. The issue is who assumes the risk - the state or the employees. With 401(k), etc, it's the employee that assumes the risk of a bad economy reducing the growth of their funds. With definied benefits, the employer agreed to assume that risk.

That's not a position about whether the employer should have offered to assume the risk in the first place. It's a position about making an agreement and then modifying it after the fact when it didn't turn out as well as you hoped.

Again - it "seems" they are getting a guaranteed return - at taxpayer expense. The taxpayers need to replace their management team - IMO - with problem solver/reformer types.