Americans’ inability to think about pension costs on display in the Boston Globe

The Boston Globe took the trouble to publish “64 City of Boston workers earn more than $250,000” yet the word “pension” does not occur in the article.

It is slightly interesting that “Police Lieutenant Timothy M. Kervin was paid $348,000, which included $163,000 in overtime.” What is a lot more interesting is that, according to the city’s official site, his pension will be paid out at 80 percent of $348,000 (assuming that he can keep up the overtime for three consecutive years), not 80 percent of what would seem to be his base salary of $185,000 per year. If he retires at 55 and lives to 90, that’s an extra $130,400 per year or roughly $5.9 million total (pension payments of $12.5 million rather than $6.66 million; inflation adjustments would make the nominal payments higher).

That one of America’s most lavishly funded newspapers can’t put this kind of arithmetic together is to me an indication that as long as we give politicians the ability to hand out pensions we are virtually guaranteed to bankrupt ourselves.

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7 thoughts on “Americans’ inability to think about pension costs on display in the Boston Globe

  1. In 1991 I prepared and delivered seminars on “Numeracy” to the reporters and editors of the Boston Globe, after a long succession of howlingly incompetent articles (almost all of which happened to be wrong in the same political direction, not because they were making errors on purpose, but because errors which were wrong in the other direction were more likely to seem suspiciously implausible to them). Their coverage improved for a while.

    They have apparently forgotten what I taught them, although in this particular case I suspect deliberate omission.

  2. I sat through an hour or so presentation by a local school board about their current financial state. Most of the presentation was pretty reasonable, except for the very last line (which they wouldn’t even put on a slide): “Oh, and there’s also a $5M pension liability we don’t have any provision for.”

    The can is easily kicked down the road, leaving plenty of time for the current bureaucrats to leave office. And collect their pensions.

  3. In 2011, the State of Florida enacted some decent pension reform for its state worker pension plan (which also includes all counties and school districts and hundreds of cities). The reforms: a) raised the vesting period from six to ten years; b) raised the full-retirement age from 62 to 65; c) eliminated the pension COLA; and d) required each worker to contribute 3% of his annual salary to the plan. Florida’s pension plan is always among the best funded in the country, historically running, even during recessions, at 75% to 100% funded.

    On the other hand, most (I think all) Florida cities’ police & fire departments have their own “local” pension plans; and those are way overly generous and underfunded. But those problems are entirely due to weak elected local officials wanting to curry favor with, and not wanting to offend, the bully police and fire unions. Every police & fire pension benefit was negotiated by city management and approved by city elected officials.

  4. We need more people like Joe Shipman around. Innumeracy is running rampant in modern society, very likely the result of forcing a generation of citizens to use electronic calculators throughout their formal education.

  5. Larry Littlefiield on the Room Eight group blog (which is mainly about New York politics) has been banging the drum on excessive pensions for years.

    My take is that the problem has too components. The first part of the problem, which also applies to many private sector plans, are negotiations with unions being settled by management promising pensions which they know the organization will not be able to afford, and union officials agreeing to this, often knowing the organization won’t be able to pay. Both sides do this because the individuals involved will be long time by the time the pensions actually have to be paid. In these cases the pensions are a combination of deferred salary and debt (sort of a loan by the workers to the organization), and in the case of private companies, it is treated exactly as subordinate debt by analysts.

    The second part of the problem are pensions that are enacted by legislation, without any negotiation or promises being made, though in many cases they “enhance” negotiated agreements.

    Pensions in the second category are pretty simple to deal with. The legislature just rescinds the pensions. There will be alot of hollering, and its a problem for workers who made decisions on the assumption that they would actually be paid out, but there are many better uses for that money for the public interest.

    Pensions in the first group are more problematical, because they are after all debt, and non-payment is a default. As in the case of normal bonds, what will wind up happening are new negotiations with the unions and some sort of restructuring.

    Supporting this view is that these pensions are usually promised to a specific group of workers, hired at a specific time. Workers hired in recent years almost never get in on this stuff.

  6. “Police Lieutenant Timothy M. Kervin was paid $348,000, which included $163,000 in overtime.”…his pension will be paid out at 80 percent of $348,000 (assuming that he can keep up the overtime for three consecutive years), not 80 percent of what would seem to be his base salary of $185,000 per year. If he retires at 55 and lives to 90, that’s an extra $130,400 per year or roughly $5.9 million total (pension payments of $12.5 million rather than $6.66 million; inflation adjustments would make the nominal payments higher).

    What about if Lt. Kervin’s 19-year old mail order bride lives to 90. She’ll collect a growing pension for, what, thirty years after his death! So, 25 or 30 years of service, followed by 65 years of increasing pension payments! The City of Boston has been, and will continue to be, very, very good to the Kervin family.

  7. If Lt. Kervin’s wife dies early he can use gay marriage laws to marry his grand-nephew or grandson and add another 65 years of payments.

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