Does anybody understand the Public Employees Pension situation? (home, unemployment)

[wehotex]

Much is made about the outsized pensions and salaries of public employees these days when it comes to discussing the State budget. Do these employees have contracts that state that they are to be paid their pensions upon retirement? If so, how can the State "break" those requirements? Or is it something that is negotiated at intervals with the State officials?

[yeahthatguy]

google.com
The agreements generally can only be nullified in bankruptcy ...
Else, they can only be modified under agreed bargaining w/ the pension holders (fat chance those greedy bastards take less)

[mysticaltyger]

Originally Posted by wehotex

Much is made about the outsized pensions and salaries of public employees these days when it comes to discussing the State budget. Do these employees have contracts that state that they are to be paid their pensions upon retirement? If so, how can the State "break" those requirements? Or is it something that is negotiated at intervals with the State officials?

You had it right the first time. Employees do have union contracts that they are to be paid pensions, once they're vested (normally after 5 years). And in general, the courts have ruled those benefits can't be taken away. However, it may be possible that state employees might have to pay a larger share of their salaries into them. It's also possible for the state to reduce the pension benefits for new employees.

Several issues have hit pension funds hard:

1. Increased benefit levels over the years. E.G. It used to be that pensions were based on the average of your highest 3 years of salary before you retired. But that changed in the late 1990s & early 2000s so that they're based on your highest year.

2. Unrealistic return assumptions combined with poor retunrs: Most pension funds assume they're going to get an 8% return. Over the last decade, that just hasn't happened. If you were to buy up the entire stock and bond markets, a portfolio of 60% stocks and 40% bonds has returned about 4.3% over the last 10 years, and about 7.25% over the last 15 years. Some pension funds have done worse than that, some better...if they've done better, it's not by much. Most people can't wrap their brains around how important the power of compounding is. The difference between a return of 4.3% and 8% over a decade is HUGE.

3. Health care costs. Health care benefits are part of the pension benefits, and we all know health care costs keep skyrocketing.

4. A large age cohort (Baby Boomers) is now retiring, which means more people are collecting pensions, and fewer people are putting money in, as the state & local governments have reduced the number of employees.

5. Stricter accounting rules for the health care portions of pensions are also paying a role. They used to be able to pay as they went along for the health care benefits, but now they have to account for the future health care liabilites as they do for the pension payouts. That means more money needs to go into the funds.

[Lovehound]

What happens if the pension fund goes broke? Is the state on the hook to ante up more money to the fund if the fund becomes insolvent? Or is the fund simply part of the state, maintained and operated by the state? I could be wrong but I believe that many private pension funds are in danger of going broke and I understand the beneficiaries might even have their pension payments terminated. Could that happen to public retirees?

[Curmudgeon]

Originally Posted by wehotex

Much is made about the outsized pensions and salaries of public employees these days when it comes to discussing the State budget. Do these employees have contracts that state that they are to be paid their pensions upon retirement? If so, how can the State "break" those requirements? Or is it something that is negotiated at intervals with the State officials?

I understand it to a fair extent. I retired from the state a little over two years ago so I try to stay current since I do have a dog in this fight. Read on.

Originally Posted by Lovehound

What happens if the pension fund goes broke? Is the state on the hook to ante up more money to the fund if the fund becomes insolvent? Or is the fund simply part of the state, maintained and operated by the state? I could be wrong but I believe that many private pension funds are in danger of going broke and I understand the beneficiaries might even have their pension payments terminated. Could that happen to public retirees?

This might help explain some of it.

Daniel Borenstein: Ballot measure would reduce future public employee pension benefits - ContraCostaTimes.com

Originally Posted by yeahthatguy

google.com
The agreements generally can only be nullified in bankruptcy ...
Else, they can only be modified under agreed bargaining w/ the pension holders (fat chance those greedy bastards take less)

Hi, Guy. Thanks for the vote of confidence. I'm one of those "greedy bastards" who's already retired and receiving a pension from the state after 25 years of service. My bad!

Guess you missed the part about the employees and their bargaining units agreeing to increases in retirement withholdings.

[Lovehound]

The article was interesting although doesn't quite answer my question, except perhaps reading between the lines that evidently the pension fund can't go broke because the state is responsible for it and a US state cannot declare bankruptcy. I don't have any argument, I've said all along that a contract is a contract and cannot be arbitrarily backed out of just because one of the parties doesn't like it anymore. If the pension fund was a separate entity and went bankrupt then that would open the possibility of the retirees losing their benefits, but evidently that's not the case. I believe such has either happened or is likely to happen in some private pension funds, raising the specter of the government being asked to fund them (bail them out) from Social Security.

I quarrel with the characterization of public employees being "greedy bastards." They took the best deal they were offered. I would have taken it myself, and in fact in just the last couple years I've lamented that I didn't work in the public sector instead of having my career in private industry. I've made maximum contributions to my IRA/401k every year I was able (was unemployed in other recessions and couldn't contribute anything) and my friends who worked in the public sector now have retirements about quadruple what I have. (And that doesn't even include their generous health plans.) I wish I had realized this years ago. I thought I had a good plan but evidently not. Too bad, there's no going back.

The real blame goes to the politicians and political parties who made overly generous contracts with public employees and their unions, and to stupid voters who allowed their elected politicians to do that. Voters, these are your chickens coming home to roost. Likewise to those who didn't vote at all.

I don't see how California and the cities and counties can afford to pay out these benefits. Furthermore I don't see how the federal government can continue to pay out Social Security benefits. It's like a speeding train and trouble on the tracks ahead, too late to slow down and no place to turn. We're headed for a train wreck!

[Curmudgeon]

Love hound, I think the most interesting "claim" is that the federal law protecting the pensions for existing employees under ERISA, the Employee Retirement Income and Security Act, may not be absolute. The federal constitutional protections can be overridden when they are "necessary and reasonable." While that would not likely apply to existing retirees, it could to current employees. Sounds like the premise may be getting tested soon.

[Vascodagama]

The state will have to break the contracts, there is no other choice. The state can't pay what it does not have. Even if times were good the state could not afford these contracts. The feds have made it very clear that it has no intentions of getting involved with state budget problems. If they did then they would have to bail out every state and they can't. The feds are on the verge of financial collapse. The feds have already started talks on allowing states to go bankrupt, it's the only solution.

[Phil306]

There is an awful lot of misinformation regarding the pension system. Much of it, out right lies. The fact is, the average employee receives around 22K a year in retirement. Yes, there are people, who have received more, alot more. And that is the contract they negotiated and the PEOPLE of this state, agreed too. The people of Kalifornia wanted to hold this state up, as a state which supports the "workers." We are the forward thinking, progressive liberals, and the rest of you people should take note, on how well we support our workers. By the way, your lovely Governer Jerry Brown, started all this and, if you notice, he didn't take on the Correctional Guard's in his latest budget proposal, however, I digress.

Now that its time to pay the piper and times are bad, the liberals of this state who brought all this on, are crying "foul." Remember, these public employees have, for 20, 30, 40 years + paid MASSIVE taxes on their incomes, to this state, for EVERYTHING. But the liberals of this state, want to cut their retirements, yet say nothing of people on unemployment and welfare, who haven't spent one dime to make this state better.

You want to take a person, who has worked all those years, and was promised a retirement and cancel it, because there is no money. How would YOU feel? Police officers and fireman, who have been shot, wounded, thrown out of windows, et al and say, "Sorry. Too bad. I want your money to go to the welfare recipient who threw you out of that window years ago." Yes, they should just roll over and give it all up.

Don't you think they've sacrificed enough? The divorce rates? Alcoholism? Physical and emotional abuse? Do their jobs for 30 years and see how you would feel. Many got into the job, because of the pension system. Now you cheapo's want to pull the rug out from underneath them; a rug YOU put into place.

[Phil306]

Originally Posted by Don9

The state will have to break the contracts, there is no other choice. The state can't pay what it does not have. Even if times were good the state could not afford these contracts. The feds have made it very clear that it has no intentions of getting involved with state budget problems. If they did then they would have to bail out every state and they can't. The feds are on the verge of financial collapse. The feds have already started talks on allowing states to go bankrupt, it's the only solution.

Don't bet your bottom dollar on this. Remember, the state legislature, govenor, lieutenant govenor, judges, prosecutors, et al are in the same retirement system. For the assembly to vote to get rid of the retirement systems, they are voting to get rid of their OWN retirement. Many of these people have been in state government for 30+ years and are counting on that money.

Not too many people are going to shoot themselves in their own foots.