Wednesday, March 10, 2010

Caveat Lectores on Pension Destruction

Below I have reprinted with permission something we received today. On short notice, I cannot vouch for all the numbers but will absolutely vouch for the intent.

The only way to defeat this Public Sector Pension Destruction insanity is to fight back with intelligent dissertation. Hysterically crying the sky is falling and accusing the opposition of dirty deeds is not enough. Accept what is factually correct and fight with all you have in you to debunk the lies. You political enemies do not hesitate to distort the truth.

Each state and local government has a slightly different level of a problem even though most do have funding problems. Accurate information is needed to defeat the right wing political rhetoric designed to put public employees in the back of the line.

And oh yes… Have a nice day?


March 9, 2010
Police and fire pensions have become the villains of the 21st century - welfare for fat cats. Let me ask you a question. Can you listen to a defense of public safety pensions without going into a cult like melt down? I did not ask you to agree, only to listen without going into a trance and speaking in tongues.

Okay, let's begin with that wicked 90% pension. What does a 90% pension mean to us? To me it means a pension equal to 90% of the last year of employment. Is that your definition? Did you know that most public safety pensions are based an average of the last three years of employment, not just the last year. If we assume a 5% growth rate in wages, a 90% pension using the last three years is only equal to 86% of the last year's pay. Did you know that the typical public safety employer is only paying 2/3 of the cost of the pension? The employee is paying 1/3. The only benefit to the employee is the amount that the employer is paying. The rest is the employee's money. Now, the 90% pension is only a 57% pension.

Okay, maybe it is not as obscene as you originally thought, but it is too expensive. Do you know what annual contribution is required to fund a "90% pension"? How about 25% of wages? That's right - 25%. That is the total contribution, employer and employee - 16.67% by the employer and 8.33%. I know, you have read about some city in California that is having to pay 40%. Trust me, 25% is the right number. I know what you are thinking - "You better have a really good explanation Mr. Wisenheimer." Hear me out.

In California, they have a modified "knee jerk" funding mechanism to determine the annual contribution rate. Did you know that many California cities paid nothing into their pension plans during the 1990's? Didn't know that did you? Wonder how they got away with it? Using the short sighted valuation methodology in California, many pension plan were showing to be over-funded - no contribution required. Then when the stock market took a plunge, the same pension plans were suddenly under-funded. The "calculations" showed that large contributions were needed. Cities began screaming like smashed cats. Another thing added to this confrontation with reality. Previously, most public safety employees were earning a 75% pension. Many cities increased the 30 year pension from 75% to 90% and grandfathered in all people currently employed. It does not require a PHD in mathematics to determine that a pension 100% funded is suddenly 83% funded. There is no free lunch.

That is not all. Currently, there is a political move to change the assumptions used by actuaries. It appears that the California Public Employees Retirement System (CALPERS) is going to surrender to this insanity.

So, what is the solution? Easy, make all contribution rates based on long-term assumptions, not year-to-year assumptions. 25% needs to be contributed every year, good or bad. If a city decides to grand-father in new benefits, it should be amortized over 15 years and shown as a separate payment. The sales for Rolaids should decline sharply.

Can't believe it all that simple? It is. Jump on here and blast me into orbit with your comments. I like 'em. I look forward to hearing from you, my friends.
Ron York
Police Contract Negotiations Consultant
Norman, Oklahoma
Cell phone (405) 535-1516

Caveat Lectores by Jeff Carnes
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