A reader sent me an article from the Boston Globe concerning a proposal to tweak pensions for government workers in Massachusetts. First, the article notes that taxpayers are currently on the hook for $20 billion in “unfunded costs”. That’s over $12,000 for a family of four and will grow if the pension fund does not obtain the 8 percent annual investment returns forecasted or if medical technology improves and retired workers live longer (an MBTA worker can retire at age 41 with a full pension, fire, police, and prison workers at 45, so our biotech crystal ball has to be accurate out to approximately the year 2070).
The new system preserves the ability of government workers to boost their pension by working overtime towards the end of their career: “pension benefits would be calculated based on their highest earnings over a five-year period, instead of three years.” (i.e., they’ll have to do a lot of overtime during for five years rather than three if they want their pension to be higher than their old base salary)
My personal favorite part of the proposal:
Another, known as “spiking,’’ involves employees nearing retirement who are suddenly given a new job title with a dramatic boost in salary. Under Patrick’s plan, they would have to prove that their promotions were warranted.
As there are no productivity or achievement standards for government workers, how would it ever be established that a promotion was “unwarranted”?
More: press release from the politicians (notably does not contain information on the existing underfunding and how much taxpayers will have to cough up); also check out http://www.nytimes.com/interactive/2011/01/23/magazine/rockford.html, which has portraits and audio interviews of people in Rockford, Illinois. They are trying to figure out how $10/hour ($20,000/year) private sector workers can support the $52-80,000/year public sector workers (whose total compensation is almost certainly over $100,000/year when the value of pension promises and other benefits are considered).
Reminder: this video of a firefighter talking about his lifestyle and compensation is always worth watching just before paying a tax bill.
This post has me musing on the nature of representative vs. direct democracy. Is it possible that Massachusetts voters would ever directly vote to give such lavish retirement benefits to public employees? Is the theoretical danger of the majority imposing their will on the minority through direct referenda so much worse than the actual danger we have of small interested minorities forming coalitions to impose their will on the majority?
The best calculation of all of this is from the press release, where lucky Massachusettsians(?) will receive a grand total of $32 dollars a year for 30 years (if we go by census data and pick everyone over 18).
These kind of releases always talk about data saved *in the future* but never what is owed in the present, nor the percentage saved compared to what. You could save 5 billion a year over 30 years, but still pay into a 250 billion dollar pot.
My friend always likes to complain teachers never make enough money, but what he nevers seems to figure out, is that him and his wife own two cars, a house, have a kid, have enough spending cash to comfortably make it through the year, have 3 months vacation, can afford grad school classes, work in one of the most incredibly stable professions, can retire 15 years before I can, and has a large and pretty much guaranteed pension. They’re been working 3 years.
Do public employees feel as if they’re somehow in the oppressed minority? Technically, I guess they are in minority, as opposed to Christians who always complain Muslims and atheists are overrunning the country; but I always get the same feeling from public employees that they somehow have it worse or people or officials are purposefully holding them back.
There are a lot more pensioners (and future pensioners) than there are swing voters. The politicians have no choice but to keep that group happy.
Every municipality and authority has to put together a CAFR, comprehensive annual financial report. Only there will you find the true (or close to true) numbers, which are audited.
For example, according to press releases and what the state government wants you to believe, the Pennsylvania Turnpike loses $100 million per year; but if you read the CAFR you find their gross margins (80%) are higher than Google or Microsoft’s and the reason they are losing money is that the state forces the turnpike to “rent” the land for $750 million per year, as a way of getting the money into the general fund without a corresponding liability being generated.
I bet there are lots of hidden gems in various MA state agencies, commissions, authorities, etc. where the yearly budget that is claimed is very far out of whack with the CAFR.
@ Phil, if this were a private company flipping the bill they would lower accruals for both new hires and current hires (the most expensive to fund). Also, I really didn’t see anything to drastic. An adjustment like this would be laugable to a private pension in that much of a whole and in most cases the fund would have to resolve the deficiency in three years.
But cake topper is the 8%. What oil shoots through the roof in 15 years due to peak oil? Stock market will dive, then how you do fund a pension plan with an 8% return that doesn’t exit. I think the advisors need to start incorporating declining energy resources and growing populations in Asia into their projections.