Govt Pension Cutbacks Spread Across Country
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  • Anthony

    Attempting to rein in excessive pension promises and balancing local/municipal budgets are stalwart economic objectives; yet accomplishing such objectives on backs of average pensioners (low and middle income workers) can begin to resemble class warfare WRM – economic downturn largely brought on by malfeasance beyond pension promises.

  • Hubbub

    “…politicians will tell you things are perfectly fine for as long as possible. Don’t believe them. They are lying through their teeth.”

    If we can’t trust those who ‘lead’ us, then – pray tell – who can we trust?

  • Jim.

    This same logic applies to Social Security COLAs as well.

    Medicare, too, needs its increases halted, if cuts are not tenable.

  • Gerald

    I have pension income from two Fortune 500 companies. Neither has any form of “cost of living increase”. In my opinion, Social Security should also not have a “cost of living increase” except as necessary to maintain less fortunate recipients above the “poverty threshold”.

  • thibaud

    Ah, that ol’ “blue social model” again.

    Is New York a “blue state”? NY’s funding ratio is over 90% – far above the national average which is about 75%.

    Ah, but if only these slackers had followed the prudent “red state” model, they’d have >100% funding ratios, right?

    Here’s a look at some red states’ funding ratios (source is Fitch using 2009 actuarial valuations; all funding ratios shown here assume a 7% return):

    Oklahoma’s Teachers Retirement System has a funding ratio of 44%.

    Kentucky’s Teachers Retirement System has a funding ratio of about 47%.

    Alaska’s major pension funds average about 53%.

    Arkansas’s major pensions are around 40%.

    Now let’s look overseas. Is the Netherlands “blue”?
    Anyone care to guess what deep “blue” Holland’s average public pension plan funding ratio is?

    (Hint: it’s almost 3x those of Arkansas or Oklahoma).

    Mead’s conclusion: smaller state government / less intervention => pension solvency. Giggle.

  • SteveMG

    I’ve been reading Via Media since Dr. Mead started blogging and I’ve yet to read (as best as I can recall) where he says the “Red State” model has solved the pension problem.

    The Blue model is worse re pensions; but that doesn’t mean that the Red staters are in the clear.

    Economic growth in many states – indeed, many nations – is simply too low (or not high enough), populations are aging and demands on pension and health care systems are too high.

    Yes, math can be hard.

    • Walter Russell Mead

      @SteveMG: correct. A number of readers seem to think that because I criticize the blue model I must therefore believe that the red model is excellent in every way and needs only to be applied for the world to flourish. A deeper reading of these posts, I think, would lead to the observation that I think we need something new that is neither red nor blue. I’ve done some writing about what this might look like and will be doing more.

  • SteveMG

    “I’ve done some writing about what this might look like and will be doing more.”

    I look forward to it. The evidence, for me, indicates that the red staters (or most of them) wish to go too far and too fast. They view the crisis as more of an opportunity to defang a political adversary and less as a fiscal problem to be addressed.

  • thibaud

    What, exactly, does Mr Mead’s “blue model” refer to?

    Does he have in mind a) a broad platform of state intervention across a wide range of economic areas?

    Or b) a very specific problem of funding pensions and healthcare for any aging, advanced industrial population, be it located in a “blue” or a “red” state, in more interventionist nations in Europe or in the less interventionist US?

    If Mead is referring more narrowly to b), then the “blue model” is a meaningless term: it’s not associated with the “blue” party, and it’s too narrow and specific to pensions to merit the grandiose term, “social model.”

    As applied narrowly to the actuarial challenges we and every other advanced industrial nation face, the term adds nothing to the discussion that intelligent, well-informed people on both sides of the Atlantic have been having for years.

    For example, any of Mead’s readers and Mr Mead himself would certainly consider Sweden and Holland, among others, to be “blue” nations – in the broad-brush sense of the term as implied by definition a), above.

    But is Mead aware that Sweden’s well-managed, “blue” pension plans shifted from defined benefit to defined contribution many years ago?

    Does Mead know that Holland’s pensions, by law, maintain solvency ratios that are far higher than what any US state mandates?

    Note that Sweden’s pension shift occurred about the same time that Sweden cleaned up its banking sector and improved its fiscal situation – two huge factors that help explain why Sweden has been kicking our tail in the growth department for nearly a decade now. Canada’s pensions – again, Canada certainly qualifies as “blue” in the eyes of VM’s readers – are far better-managed than US pensions; like Sweden and Holland, Canada has a generous and broad safety net, and still manages to outdistance us when it comes to growth, fiscal prudence and financial sector reform.

    All of these thriving, successful nations are heavily interventionist.

    And yet Mr Mead’s excitable readers, including Ms Noonan and Prof. Hanson, would tell you, if asked, that Sweden has a “blue social model” which, Via Meadia tells us, is a Bad Thing and the root of most of our problems.

    Far from clarifying anything, Mr Mead is muddying the waters.

    To the extent that this vacuous term gets picked up and amplified by the right-wing punditariat – and I see that both Peggy Noonan in the WSJ and Victor Hanson at NRO have both used the term in recent weeks – it just dumbs down our national discussion even further, telling Americans that up is down and reinforcing the myth that national health insurance cannot co-exist easily, as it does in Canada, Sweden, Holland and Germany, with a robust capitalist economy and well-managed public sector budgets.

    I don’t know who backs this website, but the fact that its authors include serious thinkers and analysts such as Francis Fukuyama and Jagdish Bhagwati suggests that they’d be none too happy to see one of their authors spreading so much misinformation with this meaningless and cheap partisan taunt.

  • Walter Sobchak

    3. Jim. The FP refers to a fixed 3% COLA whether or not the CPI has gone up, and regardless of whether it has gone up. Federal SS is based on actual CPI and in a couple of recent years ha not increased.

  • Walter Sobchak

    I think one of the real challenges the States will face is finding mechanism to adjust between pension promises, pension assets on hand, and taxpayers willingness to fund.

    At the Federal level PBGC takes over insolvent private pension plans and pays out amounts that are capped (currently $49,500/yr. at age 65).

    We read a lot about abuses of State plans (guys who retire at 55 on $200,000/yr., double dippers, etc.). I do not know how prevalent these are, but they do erode public support for State plans. Some system has to be put in place to prevent abuses, and correct existing abuses, even ones of long standing. State plans are public trusts, they cannot be run under the standard of those who can fiddle the rules get away with it. The fiddlers must be put back in their proper places, even if they have been getting away with it for years.

    Some State plans keep their members outside of Social Security. In some cases, basic benefits should be transferred to Social Security together with the funds to pay them.

    The States need to create mechanisms like PBGC under their own constitutions to deal with plans that have over promised and under funded. These may involve capping existing or vested benefits. But, tax increases must be presented to the citizens for democratic approval.

    We really need much better information about the status of all state and local pension plans. We need detailed honest actuarial reports with out fantasy rates of return or cooked asset valuations.

  • Walter Sobchak

    SteveMG: Go ask the city fathers of Vallejo CA or Stockton CA. There isn’t a Republican with miles of either of those places.

  • Walter Sobchak

    #7. WRM. You must admit that Defined Contribution Plans (e.g. 401K) do not create the types of problems we see in CA cities today.

  • Josher

    Holland is very liberal when it comes to social policy, but speaking as an bond trader and observer of European fiscal and monetary policy for the last 20 years, Holland is one of the most fiscally conservative tough-minded states there is when it comes to realistic and conservative budgetary principles. If they vote for it, then they fund it. No fudges.

  • cubanbob

    The hell with civil servants and their pensions. Reset them so they start collecting at the same age as private sector taxpayers collect social security unless they are disabled. The private sector taxpayer has to work forty to forty five years to be able to collect social security which means testing isn’t off the table so there is no need to treat people who live off the taxpayer any better. Let civil service employess kick in 12.4% of their gross up the same level as social security maximum rate. Civil servants aren’t doing the taxpayers any favors with their money.Their pensions don’t provide any services to the taxpayers. If they made a bad career choice thats not the taxpayer’s problem. And as for COLA’s they should be tied to the the same increases in wages as the private sector. No increase in wages no COLA’s for the retired. The taxpayers don’t owe anything more than that to the public sector employees.

  • In Texas I believe that unless a pension fund is something like 80% funded retirees do not get COLAs. In Austin it has been years since retirees got a COLA. This is a good way of “spreading the pain” for funding these systems. Banning COLAs for would also be a good way to return social security to solvency. All this said I think it is crazy that governments are in the annuity business – a 401k balance can be used to purchase a life annuity if someone wants a check every month till they die.

  • Susan

    “reinforcing the myth that national health insurance cannot co-exist easily, as it does in Canada, Sweden, Holland and Germany, with a robust capitalist economy and well-managed public sector budgets. ”

    Canadian national health insurance is so great, Canadians travel across their southren boarder to receive advanced and timely medical care.

    I have friends in Holland-after paying 50% in tax to receive their government benefits-they must come to America a couple of times a year to earn extra money to live back home in apt no better than than the worst of the Bronx, NYC.

    The Blue Model Euro is dead-Germany no longer can afford to bailout Europe; the continent is collasping.

    Here in America, the Blue Model just spent $5 trillion in tax dollars to stimulate nothing.

    As for our Affordable Care? Though the Blue Model promised that my rates would NOT increase, over the last two years my rate increased almost 220%.

    Not only have my health insurance rates increase dramatically, my taxes this year wiped all my savings and all the while I am watching those whom I pay with my tax dollars- State and Federal union members- demand MORE from little ole me, and retain their benefits which are significantly greater than mine.

    thibaud have you ever considered what it is like to be the person bearing all the burden of providing for your glorious Blue Moedel?

  • Susan

    Correction of typo error: the insurance increase is 20% not 220%

  • M. Report

    You may talk o’ gin and beer
    When you’re quartered safe out ‘ere,
    An’ you’re sent to penny-fights an’ Aldershot it;
    But when it comes to slaughter
    You will do your work on water,
    An’ you’ll lick the bloomin’ boots
    of ‘im that’s got it.

    The time for talk and penny-fights is over;
    The country is bankrupt, the politicians
    are desperate, and no one’s life or pension
    plan will be safe while the legislature
    is in session. The Recall slaughter in Wisconsin is an encouraging exemplar of
    future reform, of an end to States having
    to lick the boots of the Federal Government.

  • Andy Freeman

    International comparisons miss one crucial point.

    US “blue state” politicians are not as capable of running a blue state as Canadians, Swedes, etc.

  • Andy Freeman

    > yet accomplishing such objectives on backs of average pensioners (low and middle income workers) can begin to resemble class warfare

    It’s class warfare alright, but it’s the govt class demanding benefits paid for by folks who don’t have anything comparable.

    Why should someone living on a 401(k) pay so govt employees can have a defined benefit plan?

    > economic downturn largely brought on by malfeasance beyond pension promises.

    Do you really think that the pension problem comes from the economic downturn? Hint – it doesn’t. It was going to happen eventally no matter what the economy did.

  • Eric Blair

    thibaud: “…as it does in Canada, Sweden, Holland and Germany, with a robust capitalist economy and well-managed public sector budgets.”

    But none of those countries have Democrats.

    And all of them are essentially white-bread, middle class, Northern European countries, each of which has a homogeneous culture (and yes, I even include Canada in that). All of them combined don’t have half the population of the USA.

    Dragging numbers out of the CIA fact book (which was the only place I could find the numbers)

    Canada: 34 million population
    budget: $744 billion
    external debt: $1.181 trillion.

    Germany: 81 million population
    budget: $1.6 trillion
    external debt: $5.6 trillion

    Netherlands: 16 million population
    budget: $424 billion
    external debt: $2.655 trillion

    Sweden: 9 million population
    budget: $293 billion
    external debt: $1.16 trillion

    USA: 313 million population
    budget: $3.6 trillion.
    external debt: $14.7 trillion.

    Nobody’s budget is well managed here.

  • thibaud

    @ Susan – indeed. As the Tea Partiers say, we need to get the government out of your medicare.

    @ Andy Freeman – did you bother to look at the funding ratios (above) for pensions in Oklahoma, Alaska, Kentucky and Arkansas? They’re 50-60% underfunded, as opposed to New York’s <10% underfunded rate.

    But you're right: up is down, black is white.

  • thibaud

    @ #14 Josher – “Holland is one of the most fiscally conservative tough-minded states there is when it comes to realistic and conservative budgetary principles. If they vote for it, then they fund it. ”

    Bingo. The Dutch, like the frugal Canadians and Swedes and Germans, rejected America’s bread and circus policy in which prosperity depends on serial asset bubbles stoked by artificially cheap consumer credit.

    Instead of encouraging their people to buy stuff they don’t need with money they don’t have, the frugal northerners intervene heavily in order to provide for each other: they rein in their banksters, tax their people appropriately, ensure good corporate governance, allow robust and in many cases world-class corporations to flourish.

    Oddly enough, this culture of frugality and mutual provision is what the Republican Party used to stand for, back in the says of Danforth and Lugar and Baker, before the unicorn-worshipping Tea Party nuts took over.

    Given the libertarians’ belief in open borders, there’s a weird logic in their support for policies that would junk the old yankee ethos and move us closer to a Latin American socio-economic structure.

  • Johnny

    @thibaud
    “…they’d be none too happy to see one of their authors spreading so much misinformation with this meaningless and cheap partisan taunt.”

    The readers here could do with a bit less from the commenters also.

    I noticed that you manged to find one state, NY, that has funded their pensions to 90% and then compared to several “red-state” states that are way underfunded as if this proves anything. Wonder why you left out Rhode Island, Connecticut, Illinois and California from the comparisons?

    Any “model” whether blue or red will crash and burn if sound financial principles are not followed. Sure a few Euro states are doing OK but they have found they could not deliver what was promised with the usual political tricks and rigged accounting….oh yes…one thing you forgot to mention….they also have to tax their citizens out the wazoo to deliver those pension and social welfare promises.

  • Doc Merlin

    @Hubbub:
    “If we can’t trust those who ‘lead’ us, then – pray tell – who can we trust?”
    Trust your family, trust your friends, etc.
    “Leaders” aren’t usually actual leaders, but are just those who the system has deposited coercive power to.

  • The US is more diverse and multicultural by absolute numbers and proportions than any of the other nations mentioned. That presents quite a management challenge at all levels of government from law enforcement to welfare and pensions.

    Swedes, Canadians, and Dutchmen who live in the US are doing much better than their compatriots back home, on average.

    The same is true of Africans and Latinos living in the US, on average.

    But the two groups — 1st worlders and 3rd worlders — have much different impacts on the US averages and public purse.

  • richard40

    Yes blue model countries like Canada, Sweden, Holland, and Germany have managed to impliment the blue model and still maintain some fiscal responsibility. Unfortunately for other blue model countries, like Greece, Spain, Italy, and France, the blue model has led to disaster. The key is you have to have citizens that are willing to pay really high tax rates, even for the middle class, and the programs have to be mostly free of corruption, public employee featherbedding, and program fraud. And even when it works, it usually leads to very low growth rates. The problem with the USA is our political class, public employee class, and citizens, with Obama being the worst example, are behaving much more like Greece than Germany. Until our political class can develop some degree of fiscal sanity, and can get rid of corruption and cronyism, I can never trust them with the huge gov spending of the blue model, and can never trust the blue model for the USA. If they cant run the blue model without running it like Greece, I would prefer not to have it at all, and go with the libertarian model that the US used when they became a world power.

  • thibaud

    “blue model countries like Canada, Sweden, Holland, and Germany have managed to impliment the blue model and still maintain some fiscal responsibility. Unfortunately for other blue model countries, like Greece, Spain, Italy, and France, the blue model has led to disaster.”

    In other words, this vague concept of a “blue model” is all but meaningless. It’s irrelevant to a country’s success or failure.

    “even when [the ‘blue model’] works, it usually leads to very low growth rates”

    Swedish and American GDP growth compared:

    GDP Growth, 1997-2007
    Sweden 3.57
    USA 2.84

    GDP Growth, 2008-2012
    Sweden 1.41
    USA 0.62

    US and Canadian GDP Growth compared, 2010-2012E:

    GDP Growth, 2010 (actual)
    USA 3.0
    Canada 3.2

    GDP Growth, 2011 (actual)
    USA 1.7
    Canada 2.4

    GDP Growth, 2012 (expected as of June-2012)
    USA 2.5
    Canada 2.6

    Oops.

    Again, this “blue model” concept is irrelevant.

    It’s culture that matters, especially the political culture, including cultural attitudes toward predatory and opportunistic banksters and piggish CEOs who aren’t satisfied with a 30:1 highest:lowest pay scale.

  • thibaud

    @ 22 “Eric Blair” – “But none of those countries have Democrats.”

    You’re right. They have social democrats. More importantly, their political spectrum doesn’t include the likes of Grover Norquist or Paul Ryan or the Pauls.

    Is that your real name, Eric? If not, kind of ironic that you grabbed your nickname from a famous lifelong socialist.

  • John Skookum

    If the paper-shuffling chair warmers don’t like it, they are welcome to join me in the private sector where every penny I earn is directly related to my performance, every penny of my retirement savings and health care premiums comes out of my own pocket, and there is no such thing as a paid vacation.

  • thibaud

    “The US is more diverse and multicultural by absolute numbers and proportions than any of the other nations mentioned. That presents quite a management challenge at all levels of government from law enforcement to welfare and pensions.”

    Alaska’s more diverse and multicultural than Canada? Really?

    Is Oklahoma more diverse than the province of Ontario? Do you really think that Arkansas and Kentucky are more diverse than Holland or Sweden?

    Try to avoid the conclusion all you like, but the US is really very badly governed.

    The solution is not to starve the government but to restore good government, in part by reforming the primary electoral process so as to reduce the influence of hacks and extremist nutters like the TPers.

  • Eric Blair

    @thibaud: You’ve never actually read Orwell, have you?

    And I see that you didn’t actually address the numbers at all.

    Nobody ever wants to do the math.

  • thibaud

    I don’t know why I bother to even respond to someone who thinks Eric Blair/George Orwell was not a socialist – hint: you can be against totalitarianism and still favor social spending and a generous welfare state – but it’s worth pointing out the ugly consequences of Via Meadia’s dumbing down of the discussion.

    The appeal of the Tea Party nutters is on full display in so many Via Meadia comment threads: know-nothing sneers, financial illiteracy, near-total ignorance of actual data re. funding and solvency ratios across different political entities, black-is-white denial of basic economic facts about growth rates and other indicators, unintentionally hilarious inversions of simple logic….

    Is this what Messrs. Fukuyama and Bhagwati signed up for when they lent their names to The American Interest?

  • Tough Love needed

    Not noticed in the first indented paragraphs is an inconsistency.

    It says that adding a 3% compounded COLA …. “can add 26% to a plan’s benefits cost”

    But it also says … “a previously automatic 3.1% COLA that had to be pre-funded accounted for 25% of present benefit costs”

    Let’s assume a retiree has a pension (WITH a 3% COLA) of $100K annually. Then per 2-nd sentence just above, the COLA accounted for 25% of the $100K or $25K. This means that an otherwise identical Plan WITHOUT the COLA would provide a $75K pension to this retiree and hence ADDING a COLA to it (valued at $25K) is a percentage increase of ($100K/$75K -1)= 33%, not the 26% as stated by Gabriel Roeder Smith & Co.

    Math’s a funny thing … the %s vary if your ADDING something vs REMOVING something.

    Bottom line …. adding a COLA to an otherwise identical Plan (without COLA) increases it’s value by 1/3.

    Think about that when evaluating Public vs Private Sector pension Plan costs, noting that almost ALL Public Sector Plans include COLAs and almost NO Private Sector Plans do. So that even BEFORE addressing the greater costs of the much richer formula and earlier retirement ages in Public Sector Plans, they START OUT costing 1/3 more just due to the inclusion of COLAs.

    When all the elements that make Public Sector Plan more expensive are included, the taxpayer paid-for share of Public Sector pensions are ROUTINELY 2-4 times (6 times for safety workers) greater than the pensions typically afforded Private Sector workers by their employers ….. and only 10-20% of the total cost of Public Sector pensions are paid for by the workers’ contributions (and the investment earnings thereon). The 80-90% balance is paid for by the Taxpayers’ contributions (and the investment earnings thereon).

    These grossly excessive Public Sector pensions, mostly funded by taxpayers need to end … pronto !

  • Entitlements are killing the U.S. economy, government vote-buying corruption, terrible schools that teach kids to sit on their butts and do nothing, welfare system that pays the stupidest, most irresponsible, violent prone people to have a lot of stupid kids, high taxes enslaving working people, communist propaganda demonizing those “greedy corporations of working people” trillions of dollars in money printing causing inflation…and yet, you people do nothing about it. In Russia, 10,000 people are marching in the streets. A war is brewing between the mafia like government and the private sector. Get safe, mountain cabin, solar panels, wood stove, greenhouse, think I’m kidding? mensunion org

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