You Thought Bailing Out AIG Was Bad....

[Tim Liston]

Wait 'til public employee pensioners (fed/state/muni, teachers, etc.) come hat in hand. To date AIG has been about $180 billion dollars. My understanding is that public employee pensions nationwide are underfunded by about $2 trillion dollars, over 10 times what has been spent on AIG.

Ohio STRS all by itself is underfunded somewhere around $40 to $50 billion. That's something like $15,000 for every Ohio taxpayer. How anxious are you to come up with that dough, given what has happened to your retirement in the last little while? And given the sad state of Social Security, the government's retirement plan for The Rest of Us....

I thought so. And so does Susan Mangiero, president of Pension Governance Inc., a consulting and research firm in Trumbull, CT, who said....

It's going to be huge showdown between taxpayers and public employees. The anger is more acute today when people are feeling economic hardship.

And another one....

In Pennsylvania, the state employees and public teachers pension funds both have warned that employer contribution rates could surge seven-fold from about 4% of payroll to 28%, starting in 2012. The Detroit police and fire pension plan might have to double employer contribution rates to 50% of payroll by 2011, according to the fund's outside actuary.

50% of payroll? WOW! And I just love when they say “employer contributionâ€

[Gary Rice]

Tim,

Ordinarily, I do not personally and publically reply to a post, but in this case, I do confess to feeling such intense outrage that I can barely express myself.

Not towards you personally, of course.

But towards the notion that public employee retirement systems are in some way not serving the public interest in a credible manner.

For at least 2/3rds of my teaching career, my take-home salary was abysmal in comparason to those people having similar credentials in the private sector. The one bright light was having the pension at the end of the career. That there were contributions made to that pension by the school is a matter of course. Remember too that this offset the virtually starvation-often-food-stamp-eligible wages collected at the beginning of a teaching career.

So many of the relatively few pecunary benefits that teachers ever got were attained through collective bargaining, on the picket lines, and through the courts. They will be defended, I am certain, in much the same manner, and now fortunately, we have teacher-friendly administrations in office on both State and Federal levels.

...and that's no accident, either.

In the not-too distant past, many of those in the private sector blew their dough on the luxury rides and the big houses and the trips and the jewelry, or invested in those stocks that never seemed to go down. Our banks and financial institutions are in shambles, and the big guys can't seem to wait to reward each other for it, either.

We teachers lived hand-to-mouth taking care of their kids.

And now, the private-sector and the bean-counters look greedily at our retirement stash, and see... what, exactly?

True, there were unprotected private-sector pensions that went kerfluey for a variety of reasons. That's a sad thing indeed.

But these generally were with well-paid companies that people had all kinds of options in dealing with.

This is not your first post on this topic, and you do allude to your mother, as you have before...

Do you want to take her pension away that she earned all of those years while raising you?

To take food from her mouth for...what? Principles? Building BRIDGES?

I honestly have to shake my head in wonderment....

[Bill Call]

Ohio STRS all by itself is underfunded somewhere around $40 to $50 billion. That's something like $15,000 for every Ohio taxpayer. How anxious are you to come up with that dough, given what has happened to your retirement in the last little while? And given the sad state of Social Security, the government's retirement plan for The Rest of Us....

Public employee pensions are grossly underfunded.

The affect of those pensions on local and state budgets are devastating. Cites are forced to halt development and general maintenance just to maintain the current expenditures for pensions and benefits. California is facing bankruptcy under the burden of those expenditures.

Public employees have not earned those pensions. They are only earned if they are paid for and they never paid for the level of pension benefit they are receiving.

It's only going to get worse.

The real outrage at AIG is not the bonuses but the government engineered money laundering. Billions to foreign banks, foreign governments, hedge funds, state and local governments and Goldman Sachs, that's the real outrage.

[Stan Austin]

This seems to be the crux of the argument:

Bill Call said
Public employees have not earned those pensions. They are only earned if they are paid for and they never paid for the level of pension benefit they are receiving.

Gary Rice has pointed out the history of public employees' contractual expectations which might be summarized as relatively modest pay as compared to the private sector with the assurance of an adequate pension.

Tim Liston has pointed out an apparent imbalance in assets needed to support promised payouts of various public pension funds. He has hinted at, but skirted the issue of the cause --- too much pension promised; actuarial error in calculating the needed contributions; the current crash as an accelerator of underlying inadequacies.

I merely point out these different approaches to one problem to point out how difficult the next couple of years will be in reconciling so many of our basic business and economic precepts.

Stan Austin

[ryan costa]

the good news is that most private pension funds also seem to be underfunded or nonexistent.

The 401(K) system appears to have been a system to subsidize the Knowledge-Economy careers of wall street super stars.

Are these pension funds trillions of dollars short per year, or over the lifetime of its pensioners?

There are two main paths:

1. become more like denmark or norway or sweden or greece or france or germany.

2. guarantee pension payouts for only 10 or 20 years. at the end of that pass out a coupon good for a syringe of a fatal dose of opium(to be used when retirees run out of money.

[Will Brown]

I've often wondered how teachers' (and other state employees') pensions worked. I know they all make contributions, which are invested, and their employer also makes contributions, which are also invested (although I can't help thinking that it would be very like the government to make its contributions in the form of an iou). And at the time of retirement, the pension rate is apparently set based on both parties' contributions, and the investment income. Now this seems like a sweet deal when there has been a lengthy period of, generally, good earnings from investments. Apparently, however, the employees get the benefit of the investment income, but don't have their pensions reduced when investments lose. So this looks like a very sweet version of a defined contribution plan. In most defined contribution plans, like and IRA or a 401K, then pension can go up or down, depending on the investment results.

Every teacher I have heard talk about their pension is happy that their pension is higher than they expected.

It seems incongrous to me that low paid employees (as teachers were for many years, unless you take into recognition the good feelings they have for doing an important job) receive such a high pension. I cannot think of another job where you see that.

In any event, the relatively high public pensions are what we contracted to pay, and if we have any integrity, we have to honor that contract.

I think the people who are in a snit about the decline in their private plans (IRAs, etc), are naive beyond belief. They apparently cannot conceive that investments go up and down. A person than uninformed should never have invested in stocks in the first place; there are many more conservative investments that, while they don't have much potential for big gain, have little potential for loss (although in our current circumstances, I wouldn't buy a government bond, supposedly the most certain of investments, with a government that is in panic mode). The only people who should have an immediate concern are those close to retirement; most people can wait out this storm and expect that their investments will recover, at least to some degree, within ten or twenty years.

[ryan costa]

it took 30 years for the Dow to hit the same levels it was at in 1929. Granted it was a small sampling of the stock market. It did not count for the stocks that merely disappeared.

The stock market took until the 1980s to really get rolling fast again. 50 years after 1929 was enough time for most of the people who knew better to be out of the picture. Reagan's tax cuts and de-regulation were like loosening up the slot machines in Vegas. the S & Ls got fooled into the Mortgage Backed Bond racket by wall street firms: a few years later most of them were broke. For some reason hundreds of thousands of farmers went out of business, and factories all over closed. but Reagan did use Springsteen's Born in the USA for his 1984 campaign: it has a nice melody and powerful Chorus. The stock market kept rolling up.

The 1990s widely introduced the internet and personal computer. This allowed a much greater portion of the population to play stocks on a day to day basis. The key to a rising stock market is to attract more players. The operation works like a Casino: you show up, give them your money, and leave without your money. The Casino gives just enough money away to draw more flies.

[Gary Rice]

To me, all of this comes down to two issues.

The first being, like the turtle and the hare, some investments had, and continue to have, a guaranteed safekeeping of one's principal in exchange for a relatively modest rate of return.

Other investments offered greater and greater returns, in exchange for greater risks, including loss of one's principal.

Many fund managers seemed to relish the drama and allure of the high return carosel, somehow forgetting that the ride stops from time to time.

Loss of principal should never be an option with pension monies.

The big issue to me is how much latitude pension fund managers, whether public or private, are/were allowed to go? Isn't there a principal reserve that must be maintained by law with pensions? AREN'T there supposed to be laws to protect pension fund investors, public or private? If so, why then did so many apparently lose their pensions in the private sector?

And why now, are some going after pensions in the public sector?

Properly maintained, a pension fund should be a solvent and effective way for monies to be available in retirement to those who have worked so hard to achieve their goals.

Pension fund money should never be considered to be at-risk capital. At least that's the way I see it.

[Tim Liston]

Gary, let me say that I would generally agree with you about the sanctity of pension benefits paid by the STRS, except for one thing....

Years ago, for a period of many years, STRS was fully funded, sometimes even overfunded. Meaning it had more money than was needed to pay all anticipated benefits. STRS could and should have chosen to recognize that “the ride stops from time to timeâ€

[Bill Call]

But it didn't. Instead for many years it made 13 monthly payments per year to its beneficiaries, until the plan was no longer overfunded. For many years STRS beneficiaries unilaterally took way more in benefits than was ever promised.

Under the DROP program many government employees are allowed to collect their pension benefits while still working. Those benefits accumulate tax free with interest.

http://www.op-f.org/drop/

[Gary Rice]

Tim,

First of all, thank you for your response. After posting my own response to you, I think it could have been better said, but I was very upset obviously.

I realize that you know very well that your mother, my father, and I as teachers had very little or nothing to do with whatever decisions were made by STRS.

I also know that you have a great deal of love for your mother and pride in her chosen profession.

Hindsight being what it is- in my readings, not only about STRS, but the state of Ohio and other pension plans investment decisions, or lack thereof, I cannot help but wonder about the laws and the policies and the procedures and the people who brought us to this point.

I do seem to recall Dad getting a "13th" check retirement dividend type of thing on some good years, but I do not think it was ever very much money. Certainly these days, it's not something I recall seeing as a retiree, but this is now, of course.

The medical-vision-dental aspects have gone up for us too, and continue to do so, eating into that pension, so things are not as rosy as they may appear to the outside world.

It is true that buy-outs have transpired by districts, but those can be costly short-term because of the monies needed to be placed into those retirement accounts by the schools. All of those types of things were supposed to have been calculated carefully out by somebody...

As I say, I wonder about the custodianship of all of these pension plans whether they were privately or publically funded.

Oversight?

For me as a layperson in the world of finance, it looks as if there are real questions here about a lot of things...I do get reports on STRS from time to time as a retiree and they do seem to be trying to address many of these points.

The thing is, we probably can't have it both ways. Either we increase our regulation and oversight to the point until we dry up whatever imputus for investment creativity there might be, or we let the laisse-faire market continue the "Wild West" investment approach and keep rolling those dice (OK di, to be correct) and hope we get our money back...

Tim, you're the business person. Keep thinking!

Help your mom out here!

[Tim Liston]

Help your mom out here!

Nope. I want to help my kids. Mom is fine and can easily live on a reduced pension. So can you and your dad.

My kids will soon be navigating a world where all the cheap energy, cheap credit, cheap water, cheap topsoil, cheap healthcare and easy retirement has already been consumed. They'll be left with all the debt to repay, fiat money, greatly depleted natural resources, and scarce jobs.

The gravity of our public pension situation hasn't quite hit the mainstream media yet. But here's another very recent article: Next Big Bubble – Or, preparing for the $4 trillion pension shortfall

Our kids are really screwed.

Perhap this article sums it up best: TThe Brokest Generation: Our kids are the ultimate credit market, and the rest of us are all pre-approved!

This is the biggest generational transfer of wealth in the history of the world. If you’re an 18-year old middle-class hopeychanger, look at the way your parents and grandparents live: It’s not going to be like that for you. You’re going to have a smaller house, and a smaller car — if not a basement flat and a bus ticket. You didn’t get us into this catastrophe. But you’re going to be stuck with the tab.

Barack screwed our children. He seduced them with all his hope/change rhetoric then he stuck them with repaying for the biggest spending bills in the history of the world, including the most recent and thinly disguised $800 billion bailout of public employee jobs and pensions. He used the threat of "economic catastrophe" to get that bill passed and now says that 4% annual growth is just around the corner so we can cut the deficit in half.

I believe it is incumbent on all of us to make sacrifices so that out children can enjoy a standard of living at least within earshot of what we adults now enjoy. I don't want to be a party to the fleecing of my children. Do you?

[Gary Rice]

I wish when quotes are "quoted", that their attribution would be clear.

The quotes posted above, pertaining to kids, and to wealth distribution, are emphatically NOT mine. Nor would I agree with them in the least. Nor would I agree that Dad and I should have a reduced pension.

We EARNED all of it. EVERY dime.

Add to that, the fact that Dad and I CONTINUE to help young people in the public schools where we see the high quality of instruction and the continued struggles of dedicated teachers in educating a population that brings more and more of the problems of contemporary life into the classrooms every single day.

Dad and I are ALL about helping children to this day.

I regard it as being disingenuous in the extreme, if anyone should harbor the thought that teachers, failing to sacrifice a portion of their pension, would in some way damage children's futures.

It is we teachers, on the other hand, who SACRIFICED perhaps 40% or MORE of our potential annual incomes as college graduates EVERY year so that we could teach those children.

And now, at the end of our careers, we were promised, and WILL RECEIVE a just compensation for our sacrifices.

It would sadly appear that this has now become an oil-and-water discussion.

This is one of those rare times when I will admit that I cannot find a kumbayah compromise to suggest.

[Tim Liston]

Gary I'm sorry about the quotes. I just can't figure out how to set them up to properly attribute them. PM me the syntax will you? I've tried.

And I know how hard you, your Dad and my mom worked for the kids. And my wife for that matter, who teaches in a private school.

I just wish all us adults could all just get together and everyone give up what we need to, to secure their future. It saddens me that we're gonna stick them with a $4 trillion dollar tab. I guess that's why I am so strident about it. They deserve better....

My apologies. I know you're a good man....

[Gary Rice]

Tim,

You're a fine man, and I am sure, an inspiration to all who know you.

I've honestly never met anyone who has deserved respect and admiration more than you do.

Thanks for the apology and I will offer my own as well for challenging your thoughts here.

They might be a kumbayah moment here yet.

By the way, having never box-quoted on the 'Deck myself, I do not know how to do it either.

As far as this "bail-out/stimulus" goes? Well, it seems to me that both parties got in on the act here. What Bush started, Obama seems to be finishing.

The truth, as I see it, was that way too much credit was extended, and so many stocks became so over-valued, that the house of cards was bound to topple anyway sooner or later.

Plus:

I'm sure Tim knows, but others might not- We once had our dollars backed by gold, and then silver. In the early 20th century, the Federal Reserve made their promissory notes legal tender, and after that, the dollar was only backed by full faith and credit, whatever that meant.

They could then issue as much money as they wanted to....

At times, the government wants us to save, and at other times, they want us to spend. When we do start accumulating stashes, there are plenty of places to "invest" it. What people forgot is that money was often lent out again and again to others or invested in just about anything that looked promising...

With the loss of American industry, and the pursuit of foreign wars, American dollars started flying out of the country until there is seemingly little venture capital at all left here.

That's probably why they are printing more dough, and that's what seems to be bothering Tim, and indeed myself....

The big players took it all, and those of us left are having to squabble over play-money table scraps....

At least that's how I see it.

In that, I agree with Tim...

Unless a better idea comes along, the only wealth that our children will see will be in the hands of others.