When city retirement pays better than the job
latimes.com
latimes.com
One problem with government that is usually true is that it can grow, but it can't shrink. This applies to cost, workforce size, and benefits.
We're at a strange turning point right now. Pensions in the private sector have all but disappeared. Pensions in the public sector are alive and well because it doesn't need to be self sustaining, and by running huge deficits it can steal the money it needs today from future generations.
It's pretty obvious that cities and states should start eliminating pensions, but the beneficiaries of those same pensions are the people that need to do that. I'm not holding my breath for the right thing to happen here.
[1] Sorry if you're not in California. Your state/country may have similar open information.
Furthermore these pensions are gold plate: linked to inflation and guaranteed for life. We have 100s of thousands of middle tier public sector workers like teachers and council workers retiring every yesr with a guaranteed income stream that would cost millions if you were to buy the equivalent annuity.
How anyone thought this was sustainable or sensible blows my mind. It needs to stop.
you might think that the people responsible for providing the pensions would have taken the contributions that the workers made during their working life and invested that money for the future!
Unfortunately, that didn't happen. The UK government (who was the responsible party) made the decision to pay pensions out of future income rather than saving anything. It looked great on the balance sheet, since they could reduce taxes today and let somebody else look bad in the future.
Deciding on the breakdown of what percentage to allocate to each bucket and how many stocks from each category to use in your index would be an interesting debate to have though.
> Invested the money in what exactly?
One is the number of years people live after retirement. Another is that pensions (due to their terms) have outpaced wage growth significantly so current contributors can't fund them. Finally, a pension relative to final salary is difficult to fund from a percentage of mostly from early-mid career wages.
In the UK, many public sector organizations have been privatized. Early privatizations often took the pension liabilities with them. As the employees who were members of such schemes leave the scene and current organizations must choose between meeting obligations and making a profit, I expect to see the companies look to duck out of obligations perhaps by packaging obligations into a spinoff company and then watching it go bankrupt.
A lot of retirees I know are pulling money out of these schemes using the new option to take the money as cash. They then put the money into buy to let as a kind of annuity on the basis that even if they'd get more money from the scheme in the long run, they aren't a position to take that kind of a risk. Hope they have insurance.
But I agree, "defined benefit" pensions are a thing of the past. There is a good BBC Radio Money Box show about it: http://www.bbc.co.uk/programmes/b0713p7s
> There are police forces in the UK where 50%
> of their annual budgets is going to people
> who no longer work there
> Pensions should be funded from savings
> / investments made during working life
> these pensions are gold plate: linked
> to inflation and guaranteed for life
> teachers and council workers retiring
> every yesr with a guaranteed income
> stream that would cost millions if you
> were to buy the equivalent annuity
I for one welcome our post-truth overlords...
[0] https://www.moneymarketing.co.uk/lib-dems-reveal-police-pens...
[1] https://www.moneymarketing.co.uk/issues/29-october-2015/case...
There is the problem. I've had a 8% pension in the programming sector since I was 20, my projections are for £300,000 by age 67 and £10,000 retirement income.
Teachers get 12 weeks off a year and to retire 7 years earlier on double the pension.
Personally, I'm retraining to be a teacher.
Pension calculators from the likes of legal and general show that you need vast pension contributions to match public sector employees. To match a teacher it recommended I made a 15% contribution, is any private sector company offering that?
http://www.legalandgeneral.com/calculators/contributionCalc-...
There are very, very few people retiring from the private sector with pension pots worth this. And those that are probably fall into the "fat cat 1% elite" so derided by the left.
CA basic rate is 7.5%, with many local add-ons (making San Jose 9% and San Leandro 10%, for two Bay Area examples)
'folly asked how Washington state raises revenue without income tax. 'redx00 and I answered. Do you disagree that sales (and real estate, and other taxes and fees other than income taxes) are how Washington state raises revenue?
Washington does levy sales tax on clothing, but apparently so do most states.
So the sales tax is a bit above median, but doesn't seem any more regressive than other states per se. And is lower than California's.
Property taxes have more to do with it, I suspect, especially given the mess in California with those.
Do you mean the tax rate on new properties? Or the effective rate actually collected, given the restrictions on how much property taxes can rise, etc? I thought one problem in California was that the latter figure, which is the more relevant one, was very low as a result of Prop 13.
The other problem in California is that it just seems to not spend money very well, as far as I can tell...
Paying for roads, teachers, police, freeways...
Mostly spend it on Social Security, Medicare, and Medicaid.
The usual scheme is that you are not punished for not showing up to work, but are paid overtime for taking someone else's shift. As a result, swapping shifts with someone results in a 50% pay increase for both of you. Together with other scams, the result may be even greater.
There's an easy way around that. "All existing pension-holders will continue receiving benefits as defined. All new public employees will receive investment-based retirement plans funded during their employment." Then existing pension-holders have no reason to vote against it. This also seems far more ethical, as it retains the guarantees given to existing recipients.
The company I worked for phased out its guaranteed-minimum-benefit retirement program, in favor of its standard investment-based retirement program, by doing exactly this: limiting eligibility based on initial hire date.
I agree though - cancelling plum benefits while grandfathering existing recipients is the only politically tractable approach.
How about the approach that was used in the 80s ? 20% year-on-year inflation for a while with the government lying about it saying it's 5% ? That "reduces" liabilities by 15% per year.
Also, many state pensions aren't that great compared to California, etc. Employees only get 40 to 50 percent of their former salaries under a lot of pensions. I've never understood how California can do 80% pensions. The Federal pensions have some very high percentage too (not sure what it is).
States that don't steal from the future (New York, Wisconsin, Oregon, the dakotas, Idaho, Tennessee) fund their pensions. States like Illinois, California and Massachusetts do not.
Pensions aren't a problem, bad governance is. It's easy to say that it is "obvious". But the obvious solutions come with non-obvious blowback.
What do you do when a 50 year old fireman throws out his back dragging a hose and ends up on disability for 15 years?
What do you do when a burned out policeman shoots someone accidentally or has a heart attack and gets a fellow Officer killed.
Alternatively if there are too many physically demanding posts make it more like the armed forces and get rid of most people between the 10-20 year mark with a smaller pension and assistance with finding new work. 50 is a terrible time to push people into a new career.
Furthermore, this would only address current employees and not the prior employees who never paid into social security and have nothing but their local pension to fund their elder years.
You might think this sounds reasonable, because historically equity markets do return something like 6-8% a year over the very long term, but the pension benefit is fixed and riskless in the sense that the city must always pay it out, so the investment should also be similarly risk free.
Otherwise, if investments fail to perform, then taxpayers are always left holding the bag, as we see every time a market downturn occurs. Heads I win, tails you lose...
The supplemental pension thing for bigshots is another matter. That's pure greed, and a city shouldn't be able to do such a thing if the are part of the state system.
I'm not saying that they should be paid a good wage plus money for their high risk occupation. It is just that pensions are pyramid schemes and not sustainable. And anyone who says just raises taxes to make them sustainable is proving that they aren't sustainable.
We need to get rid of pensions and switch to fixed contribution. If people run out of money, then use taxes to fund social programs to help them.
If Johansen is unrepresentative of the average, it would be nice to give some stats on what the average actually is.
Working 40 hours per week is a generous benefit?
most people who work under 40hr/w want to work more
The US overall averages only 34.4 hours worked per week
Forbes (in 2014) says the average is 47 hours per week [1].
Wikipedia (data from 2015) says it's 8.4 hours per day for a man, 7.7 for a woman (although there doesn't appear to be data on number of days per week). [2]
OECD lists 1,790 hours per annum [3], which is 34.4 per week assuming no holiday is taken. The same OECD dataset gives the figure of 38.6 hours per week.
[1] http://www.forbes.com/sites/niallmccarthy/2014/09/01/a-40-ho...
[2] https://en.wikipedia.org/wiki/Working_time#United_States
Pretty much everyone I know, including the white-collar six-figures professionals, would consider that a pretty great perk. With the possible exception of other people in tech, for whom flexibility is more common.
Most competitive company white collar staff probably put in a little over 9 anyhow.
This 4 X 10 schedule or something similar (9/80) is useful to attract and retain engineering talent.
We did 4x10 in the summer (we're public though). We did MTWH then TWHF and repeat giving a 4 day weekend then a 2 day weekend.
the problem starts when the tax income shrinks
Everyone here complains people haven't saved enough, yet wages have been stagnant for decades.
This is a situation where the group of people who make the rules are the people who will benefit from the rules, and someone else foots the bill.
Except that will cause a tax increase now rather than a tax increase twenty years from now, and is political suicide.
Underpay during working years and promise an outsized pension to make up for it (since that passes the buck of having to fund it to some other sucker who's in office much later on) is a common pattern in the public sector. If you want to end it, you can simply pay competitive wages up-front (and no, pointing to a handful of outliers does not indicate that the average public-sector salary is competitive with private sector).
Government would be so much cheaper if they didn't pay the workers and instead just made them straight up slaves! Also, they need to find workers that don't need food or energy, since those cost money.
Citizens and their representatives aren't paying attention, don't care about pension issues, or don't understand them/aren't having the costs explained. Investors are buying bonds from the state either without performing due diligence or assuming that the state will get bailed out if they do run out of money.
"In fact, the size and amenities of the average middle-class family home have increased only modestly. The median owner-occupied home grew from 5.7 rooms in 1975 to 6.1 rooms in the late 1990s—an increase of less than half of a room in more than two decades. What was this half a room used for? Was it an “exercise room,” a “media room,” or any of the other exotic uses of space that critics have so widely mocked? Nope. The data show that most often that extra room was a second bathroom or a third bedroom.
The wealthy may be living in spacious new digs, but middle-class families are not. The proportion of families living in older homes has increased by nearly 50 percent over the past generation, leaving a growing number of homeowners grappling with deteriorating roofs, peeling paint, and old wiring. Today, nearly six out of ten families own a home that is more than 25 years old, and nearly a quarter own a home that is more than 50 years old."
Dowwie: Let's all just get paid more!
apsec112: Just paying everyone more when everyone buys things in inelastic markets like housing doesn't make anyone richer. This can be observed empirically with two-income households in 1975 vs today; people pay more today for the same thing they had in 1975.
alasdair_: Houses are bigger today (perhaps he meant to imply that actually we all are richer today because we're actually paying more for something better)
apsec112: A small number of houses today are bigger, but most people live in old houses that aren't any bigger; IOW we are paying more for the same as what we had in 1975.
blackguard: Old houses are ok too! (yes they are, but that's not germane...)
While some houses are built to last and worth saving (e.g. most houses you see still standing 150 years later) - most are definitely not. Trying to maintain a typical poorly constructed wood frame McMansion for 100 years probably doesn't make a lot of sense.
Plus I've lived in old crappy houses. Old wiring definitely sucks - you may be limited in a room you want to do something else in, and then realize you can't do much due to the plaster walls to fix it short of gutting the entire area. Most plumbing is only really rated at 20-30 years, but it's rare to ever see anyone replace it wholesale.
I've lived in crappy yet well maintained (but not updated) houses and it's not that much fun.
In relative terms it's effectively the same thing.
-> Public sector employees are generally paid too much for the value that they produce.
It's a function of power: their unions are the most powerful organizations on the planet.
They will pay themselves whatever they want.
http://www.fin.gov.on.ca/en/publications/salarydisclosure/ps...
Police Officers in places like Cornwall, Ontario, pretty far out there, where the average home price is probably just above $100K ... often earn well over $100K.
Nurses, Teachers, a plethora of questionable Directors (the Director for 'Clergy Services' the hospital earns a lot. How many staff? And how big is that responsibility?) all earning well north of $100K, esp. in rural areas where cost of living is low. Private sector salaries will be lower to reflect lower cost of living, but public sector wages are not.
Average wage in Canada is just above $40K.
See the groupings by trade:
http://www.livingin-canada.com/work-salaries-wages-canada.ht...
Note that 'public sector' employees are near the top.
The group earning more is 'utilities' - which in Canada are 'Crown Corporations' (or de-facto), meaning essentially public sector.
Where I live in Quebec, the 'best career path' for most people is 'Government', as it turns out, we have almost the lowest wages in North America, just ahead of the other Canadian Maritime provinces.
One of the most overlooked factors in government work is the 'riskless' nature of it. In finance, we learn that 'consistent payments' have quite a lot of value, which is why companies that pay very consistent dividends are worth more. That you have 'a zero chance of layoff, and a very low chance of being fired' is actually a benefit, and it's economically measurable. It's a premium and it's worth a lot.
Presumably some hard decisions will need to be made in the coming years. Given that "El Monte has more than twice as many [municipal civil servant] retirees drawing pensions as it does active employees" any attempts to legislate changes will be met with fierce political opposition until it's too late.
Just because you don't like how the current system is set up, doesn't make it not so.
But if you take a job and work it for two decades with the expectation of getting a pension, that pension is part of your salary. Clawing it back after the fact is complete bullshit.
On the other hand, they can go long (rarely!) with great results, as they did with the self-dealing of politicians in the small city of Bell (in LA County) -- (http://www.latimes.com/local/la-watchdog-me-bell-sg-storygal...).
I'd call it Tribune more than just LA Times, and I'd note that the single example they use is generally an outlier. If they used an example from the median it'd be a lot harder to get people worked up.
I'm definitely not an 'anti government' type of person, but this kind of dysfunction is systematic.
They have the power to pay themselves a lot, and they do it, it's not even a public/private issue, it's just measure of power.
If progressives want to make actual progress, they need to tackle this issue.
It's also a lot easier to blame the people still around hoping to collect the pensions they were promised (and for which they took lower wages) than to blame others who screwed things up. I kind of feel that it's perfectly legitimate for legislatures to cut pensions as long as they also come to a retroactive agreement with the people affected to compensate them for the lowered pay that they took all those years ago, plus interest, and if it's going to be a lump sum cover any increased tax burden due to the size as well. Basically if you want to cut the pension, you have to retroactively fund the 401k or IRA that would make up for it.
Or of course they could work out a formula that attempts to cover part of the shortfall from the pensions of those who created the problem by chronically underfunding - legislators, governors, mayors, council members, superintendents, etc. for public pensions, the retired CEOs and board members and their estates for private pensions. I can't imagine that there'd be any screaming about that. It wouldn't make much difference in the amount of cuts, but it might be a deterrent to prevent similar issues in the future.
Consider Illinois, which has massive pension problems at the state and local levels. The state and towns/cities negotiated contracts that included pensions at a known level and had a pretty good idea of how much they needed to be funding in advance to cover those obligations, but instead of actually doing so they spent the money elsewhere on things more likely to get them reelected. It's like putting 1% in a 401k so you can spend the rest on parties every weekend, then screaming at retirement time that there's not enough in there to support you.
There are absolutely abuses and outliers - abuses where the senior decision makers implement policies that dramatically increase payouts, then retire to take advantage of those increases as I believe was the case in this article. Abuses like that happen in the corporate world as well, where they're often called "golden parachutes." Anyone else here remember reading about companies paying senior executives tens or hundreds of millions in compensation just to get rid of them?
There are also folks who've worked several different jobs, each of them with a pension that vests fully after 15 or 20 years, so once they actually retire they're able to collect separate full pensions from several different bodies or even occasionally from the same one - consider someone who was a police officer or fireman for 20 years, then "retired" and moved to another job in the same municipality. That person may well have a police/fire pension plus another civil service pension. I'm pretty sure Illinois and probably other places are working on reducing those with rules that limit the number of full pensions from one entity that people can get, but that won't make a huge difference.
What happens regularly is that you'll see stories like this that highlight the outliers - particularly outliers that were previously in the most senior positions - and use them as an argument for how the whole system is broken and needs to be scrapped. Expect to see those most often from the Tribune companies (multiple papers, headlined by the Chicago Tribune and LA Times) and Wall Street Journal (News Corp).
This. It's common in CA for posts like Chiefs of Police to "retire" as soon as they are fully vested and split for another jurisdiction and a fresh pension hunt.
1. Most people make less money than people such as government officials, research professors, and the like, because most people are unskilled laborers. So it always looks like the salaries that we read about are exceptionally generous.
2. There's a cultural belief that government workers are lazy and incompetent, and their jobs are "easy" in a physical sense compared to unskilled labor and the construction trades, so we assume they're overpaid.
The result is a natural political pressure to reduce salaries and benefits for public workers.
Instant facial recognition will present pensioners (& others) to everyone.
I can see where citizens charge them more or demand they pay for public services - or spend their money on the tax region from which it was sourced.
Legislation wont bring change but people will.