Comments on: Felix Salmon smackdown watch, pensions edition http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: TFF17 http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49357 Fri, 28 Feb 2014 14:38:56 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49357 @BenWheeler, you have that very confused. The interest rate on munis is only relevant if the local government borrows the money to fund the pensions. If they FAIL to fund the pensions, then they are in essence borrowing from the pension fund at a rate equal to the assumed investment returns (typically 8%+). They are promising to cover a gap that is growing at that rate.

That exceptionally high implied interest rate is the reason why towns are floundering under this burden. What may originally have been a manageable obligation has doubled every 9 years (with continuing underfunding exacerbating the problem further). Carry that out over a few decades and you have a “debt” that is impossible to meet.

What they SHOULD do is float bonds to fund the pensions in full. The borrowing costs, as you observe, are much cheaper. And if the rating agencies complain about that, then perhaps they need to tighten their belt a bit? Hiding the obligations in underfunded pensions doesn’t make them any easier to afford.

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By: BenWheeler http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49342 Wed, 26 Feb 2014 17:34:27 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49342 As Henning Bohn makes clear here, it is suboptimal to fully fund pensions. Local governments can fund pensions by raising taxes, by cutting other services, or some combination of the two. The cuts and taxes are imposed mainly on owner occupants of homes who typically carry debt with much higheriinterest rates than the local government can secure.

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By: TFF http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49338 Wed, 26 Feb 2014 12:20:23 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49338 Different jobs, separate issues. But I agree, the pension system for teachers is closer to reality.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49335 Wed, 26 Feb 2014 05:52:11 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49335 http://www.latimes.com/local/lanow/la-me -firefighter-overtime-20140225,0,5653449 .story#axzz2uP8N4GP4

The average firefighter in Los Angeles was paid more than $142,000 last year.

Wonder what that will do to their pensions. Not too many public school teachers making that much,let alone the average teacher.

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By: TFF http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49328 Tue, 25 Feb 2014 21:30:42 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49328 “But how do they compare with prison guards and policemen retiring at $100K/yr when they are 50 years old?”

Bet the prison guards and policemen do better. Even under the enhanced benefit (which is the legislative change which truly soured me on the system), a teacher hired at the age of 20 wouldn’t qualify for a full 80% pension until the age of 56. A teacher hired at the age of 25 wouldn’t reach an 80% pension until the age of 59.

Apparently they changed the system again in 2012? I’m curious about the new rules.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49326 Tue, 25 Feb 2014 19:04:37 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49326 QCIC, so for public employees, who gets to make that call? A political appointee, so pensions and salaries become dependent on pleasing politicians. Like Chris Christie.

So let’s say we do away with pensions for government workers. What do we do when they are too old to work and can’t afford to live? Wait for them to get homeless and then die? Is that what a great nation in 2014 should do?

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By: QCIC http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49325 Tue, 25 Feb 2014 17:39:47 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49325 Ken-

If you are in your mid 30s on and cannot tell how good an employee someone is after working with them on a few projects then you are an idiot. I work with both private sector and public sector employees all the time in my job. There is not a noticeable difference in ability. There is totally a noticeable difference in benefits packages for the unionized workers.

They have much better benefits and are generally stuck in their jobs because seniority is the be-all end-all of union jobs. This hurts new entrants and rewards coasting. It is a terrible system in this modern era when generic office workers are probably most valuable from 35-45 and start losing value quickly after that.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49324 Tue, 25 Feb 2014 15:29:30 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49324 TFF, I realize you are far more knowledgeable about the teaching profession than I am; my exposure is being a student four decades ago and having a sibling and in-law who are teachers. And I’m aware of the deals you mention. But how do they compare with prison guards and policemen retiring at $100K/yr when they are 50 years old?

I’m a little amused at all of the anger focused on unions, public and private. They do just what management of big corporations do – negotiate the best possible deal for themselves. Unions are just capitalists at their core, no different than industry associations lobbying for tax breaks or reduced regulations, or defense contractors being awarded no-bid contracts at absurdly high prices. Everybody is working for the best deal possible. Instead of blaming unions, the anger should be directed at the corporate management and politicians who negotiate those deals.

But, yeah, I’ll go along with your executive summary.

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By: TFF17 http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49323 Tue, 25 Feb 2014 14:37:51 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49323 @KenG, you are very knowledgeable, but on some matters I have more experience than you do. At the school where I taught, teachers regularly (with support from the negotiated contract) used special provisions to boost their three-year average by $20k or more. Sick day accrual buyback is huge — paying up to 150 days of unused sick time in a lump sum upon retirement. Also $5k or $10k longevity bonuses designed to kick in immediately prior to retirement. And that is even without any additional duties (typically $1k for being the advisor to a club or leading a curriculum committee, many times that for coaching).

I’m not 100% positive, but I don’t believe the town signing the contract bears the cost of the pension in MA. They might make a contribution to the MTRB based on payroll, or that might be wholly covered by the state, but there is a strong incentive for the town and employee to negotiate a benefit that costs the town little but results in a huge payout from the pension fund to the employee.

Executive summary: the system is screwed.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2014/02/23/felix-salmon-smackdown-watch-pensions-edition/comment-page-1/#comment-49319 Tue, 25 Feb 2014 05:32:13 +0000 https://blogs.reuters.com/felix-salmon/?p=23158#comment-49319 QCIC, how do you measure the quality of a teacher? Is it based on how well they teach creationism? What candidates they supported for Board of Education? Test scores, do you want them to teach to the test?

What about the quality of a firefighter? Is it based on how many fires they put out? Property saved?

It’s really difficult to come up with metrics for determining how much of a pension, or even a salary people in these positions should earn.

The retirement benefits for people in the private sector isn’t tied directly to merit, only to salary, which is supposed to have some correlation with performance, but is usually not the case, union or not.

Regardless of whether there are unions involved, I would think we want everyone to have a good retirement plan, otherwise we would have a bunch of old people dying in the streets that we would have to scrape off the ground and bury, but only after we spend hundreds of thousands of dollars on their medical expenses.

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