PBS aired this program about public sector pensions a few weeks ago. I waited to post it until after the election, when you would have more time to watch it.
It is a vivid explanation of how the politicians of Kentucky dipped into the pension funds of public employees and used it to fund public projects instead of raising taxes. It shows how the politicians and the state pension board got ripped off by Wall Street again and again.
States make a promise to pay their public workers a pension. That promise induces people to accept lower-paying jobs as teachers, firefighters, and police officers because they consider the pension to be a solemn promise.
However, many states have failed to fund pensions as promised. Kentucky was the worst violator of its promise. Watching this program will give you insight into “the Pension gamble” and “the Pension crisis.”
The pension system is in danger in Kentucky and other states because people—and the politicians they elect—want low taxes and are not willing to pay for high-quality public services.
Although it is not mentioned in the documentary, Governor Matt Bevin of Kentucky is pushing to introduce charter schools (which have been authorized but not funded) as a substitute for fully funding the public schools. Bevin is a Tea Party Republican who wants to shrink government.
How do you get rid of a GOP Tea-Bag Person? You throw out the tea bag with the trash.
Any community that votes in a “small government” candidate can expect the common good to be diminished, exploited or ignored. Kentucky’s mismanagement of pension funds is a perfect example. Trusting hedge funds with pension funds that like refer to as “dumb money” is reckless and irresponsible. The state may as well go to Las Vegas with money that public workers are depending on for a dignified retirement. Christie in New Jersey likewise mismanaged and lied to public employees about paying into pension funds. As a result NJ has a pension crisis as well with the state changing the rules for retirees. We now have conservatives playing Russian roulette with social security funds as well. The tax cut for billionaires will deliberately cause a deficit that will cause the desired crisis that the proponents of small government want to create. All of these actions will result in creating a less secure future for veterans and retirees across the nation.
I saw this program. Illinois isn’t doing much to fund retirement pensions. I feel sorry for teachers who are beginning their careers now. Their pensions probably will be enough to live on a poverty level. Will the Democrats in Congress in Illinois and Pritzker do anything to fund pensions?
How long will the state of Illinois subsidize retirees healthcare? It is a continual battle.
Fortunately it was written in the Illinois constitution that the state cannot diminish our pensions. Those of us who are already retired won’t see a diminishment unless there is no longer any money. Illinois is one of the worst pension funded states in the nation.
Illinois underfunded our pensions and borrowed money to pay state bills.
“How long will the state of Illinois subsidize retirees healthcare?” Maybe until they are old enough to qualify for Medicare.
Most of the school district in California do not offer health care when teachers retire. The law, of course, requires district to offer COBRA so teachers that are not eligible for Medicare when they retire and pay to continue their healthcare. The only district in California that I know of that offers health care to its retired teachers is LA Unified.
In the district (not LA Unified) where I worked for thirty years, COBRA cost about $1600 a month if I wanted to continue my heath care until I could get on Medicare. When I retired at 60, I also took a 40-percent pay cut and after taxes, the cost of COBRA was close to half of my income.
Needless to say, I left teaching without health care and the only reason I ended up with quality health care, better than any private health care I ever had before, was the fact that I was qualified as a combat vet for VA medical. When I retired, I didn’t know I was qualified for the VA and found out about a year later and signed up.
What I like the most about the VA is that there are no profit mongering insurance companies calling the shots. In the VA, the doctors make the decisions, not an insurance agent. Nothing is perfect, but once you get rid of the insurance companies that let people die by denying medical care so they can make more money, it gets a lot better.
Of course, the VA is at risk because Trump is doing all he can to destroy it so the medical care of vets can be turned over to profit hungry insurance companies in the private sector.
Lloyd Lofthouse: I worked overseas and came down with a rare neurological disease and wasn’t able to continue working.
I came home when my insurance provided by the International School of Kuala Lumpur ended. I was able to get insurance at age 62 from the Teachers Retirement System of Illinois. I chose an HMO that was also a PPO. I went for a cyberknife treatment at Stanford and paid $10. [It involved a tremendous amount of paperwork to get this approved.] I stayed on the teachers’ insurance until I qualified for Medicare.
llinois has a UnitedHealthcare Medicare Solutions that is Medicare for only those who have retired from a pension plan in Illinois. It is, at the current time, partially subsidized by the state of Illinois.
What happens to people who need health insurance and can’t get it? The wealthy get the best healthcare in the world but the US can’t afford to provide healthcare for the rest of us. Tax breaks for the wealthy and corporations is what really matters.
CT teachers watch this news program about Kentucky’s collapsing pension to learn what could happen to CT teachers if our legislators don’t adequately fund your pension & maybe do away with pension for new teachers.
Everyone with a pension should watch this special.
I cashed out my CT pension 2 years after I retired. So I got the money. Teachers today in many states with pension problems should consider this. I was in the pension field in NYS Dorcas decade.
I cashed out my CT pension 2 years after I retired. So I got the money. Teachers today in many states with pension problems should consider this. I was in the pension field in NYS For 7 years
Its incredible to actually observe people like the politicians in the bluegrass state of KY just recklessly dip into funds which they have no right what so ever. The balls on these dumb witted politicians is overwhelming.
The sad truth for our country is that many politicians are trashing our profession of teaching and replacing it with their dumb wit stating that they know how to educate our youth. Their thinking is that public schools are on the way out so pensions and alike won’t matter any longer as the new right to work for less states just keep taking away the funds from hard working people.
We have learned in this country now how important voting really is. Back in the day of the US people trusted politicians both sides to do the right thing for the working people of this country but that trust has evaporated.
No wonder many people thing the state of Kentucky is a backwards republican pick up truck rifles kind of place. The wild wild west here on the east coast disguised as a cowboy and hillbilly society but run by insane GOP trolls of the Koch bros.
xNYTimes Pulitizer winner Gary Rivlin also wrote an excellent piece on Kentucky stressing Wall St. https://theintercept.com/2018/10/21/kentucky-pensions-crisis-hedge-funds/
The hedge fund managers are not content to privatize public schools, destroy unions, and eliminate job security. They are also coming after teachers’ pension funds too.
As they stated in the video, putting pension funds into the hands of hedge funds is gambling with public money. Hedge funds charge outrageous fees which they often do not disclose and pay state legislatures from revealing to public pensioners. Hedge funds make risky investments that should not be made with money that public workers depend on in retirement.
They are coming to plunder ALL public sector pension funds.
The tactic Wall Street is using to get its hands on public employee pension plan money is to scare voters into thinking that states are deep in debt to public pensions with something called an “unfunded liability.” Only actuarial accountants really know what an “unfunded liability” is, but the clear impression that Wall Street and its media minions give to taxpayers is that it’s a huge amount of current debt that taxpayers owe to the pension plans. But it isn’t. Take California as an example:
Wall Street’s media minions are trying to scare California taxpayers by claiming that the state is in debt some $270 billion in “unfunded liability” to its public employee pension plans…but what is an “unfunded liability” anyway? One thing it is NOT is that it’s not a current debt.
To find out what a so-called “unfunded liability” really is, begin by looking at California’s state budget: For example, the 2016-2017 state spending budget was $171 billion. Of that, $4.8 billion, which is only 3% of the state’s $171 billion budget, goes to meet the “unfunded liability” difference between what CalPERS gets from active employee payroll deductions and interest on investments to pay out to retirees; the state contribution to meet the CalSTRS “unfunded liability” is $2.5 billion, which is only 1.5% of the budget. So, altogether the retirement plans’ cost is only 4.5% of the state budget. That less than 5 cents of the budget dollar, and that’s right in line with the non-political Boston College Center for Retirement Research report that the national average state annual contribution to public employee pension plans is only about 5% of the typical state budget.
Five cents on the dollar each year is not going to bankrupt California.
So, just how is an “unfunded liability” calculated? Well, in simple terms that a non-accountant can understand, you take your state’s current year 5-cents-of-the-budget-dollar contribution to the pension plan, then increase it for inflation and other factors each year for the next 30 years, then add up the sum of all those 30 years of 5-cents-on-the-dollar contributions, and the resulting sum is the “unfunded liability.” The sum of those 30 years is a large amount, which is great for scaring taxpayers who are led to think it’s a huge amount of debt they’re in right now instead of being merely the sum of 30 years of small future payments. It’s not a current huge debt.
Moreover, if you apply the same actuarial projection to your state’s budget for the next 30 years, you find that each year’s budget increases in line with the annual pension plan contribution increase, so that the annual cost remains right around 5 cents of the budget dollar for each of those coming 30 years.
And there’s something else you should know: Most of the “unfunded liability” amounts in these made-for-the-media scary headlines can be reduced by as much as 75% simply by changing the accounting method used to calculate the “unfunded liability.” Wall Street uses a method known as the “Historical Return” method for marketing stocks to investors, and that’s also the standard method that should be used for assessing pension fund stock assets — but the scary “unfunded liability” figures that show up in headlines are typically created using an accounting method known as the “Riskless Rate” method. You can slash those scary headline “unfunded liability” figures by 75% just by using the standard Historical Return accounting method. Poof! Three-fourths of the “unfunded liability” gone, just as it was created by the magic of a non-standard accounting method for the purpose of scaring voters.
Moreover, the “Governmental Accounting Standards Board (GASB — pronounced “Gasbee”) that oversees which methods are used to calculate an unfunded liability sounds like some federal government agency. But it isn’t: GASB a private organization operated by state and local governments — governments which these days want to get rid of public pensions, so GASB is biased against public pensions.
Now, that you know what an “unfunded liability” is, let your lawmakers know that you know what an “unfunded liability” is and that they should keep your fixed-benefit retirement plans and not switch to Wall-Street-friendly and retiree-unfriendly 401(k) plans whose benefits aren’t fixed and reliable because they go up and down with the stock market.
Something else you should know and let lawmakers know that you know: Those small annual state contributions to our public employee pension plans are actually the best investment that your state makes: In our example state of California, even the anti-public pension Los Angeles Times reported that the California Public Employees’ Retirement System (CalPERS) brought $12 billion into the California economy and generated a collateral $26 billion in economic activity while supporting over 93,000 jobs.
CalSTRS makes a similar large positive contribution to California’s economy and is estimated to generate about $10 billion in economic activity and support more than 60,000 jobs with state and local governments reaping over $600,000,000 in annual revenues from the economic activity generated by consumers spending their CalSTRS benefit income.
That’s a combined economic contribution to the state of $36 billion. Not bad for the state’s investment of $7.5 billion in the pension plans; in fact, that’s a return of about 500%.
The dirty little secret that taxpayers aren’t told is that if the states cut public pensions, tens of thousands of private sector jobs will be lost and taxpayers will see their taxes raised to make up for the $36 billion in lost economic activity. Former Rockefeller Foundation head Peter Goldmark has warned that cutting off public employee pension plans is for states “the economic equivalent of having a stroke.”
Very informative, thanks. States get representatives that claim that the current pension system, ie, defined benefit, is unsustainable to repeatedly appear on the news with the same message. Any state that claims it needs to “modernize” its public pension should understand that they really want to cut their obligation to state employees. When they retooled veterans’ pensions, the official word was they were offering investment education to veterans, ie. a 401k instead of a defined benefit. You’re right; public pensioners pump a lot of money into the economy.
This information comes from Fred Klonsky’s blog. This shows what happens when Illinois refuses to fund the pension system and has borrowed money to pay state bills.
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The Teachers’ Retirement System of Illinois is 60% underfunded.
Due to state underfunding last year, the TRS unfunded liability grew by 2.8% from $71.4 billion to $73.4 billion.
Bob Lyons
State pension programs were also targeted by unethical and fraudulent Wall Street types (forgive the redundancy) peddling worthless fraudulent derivatives in the lead up to the financial meltdown of 07/08.
And now they are again being targeted by unethical fraudulent Wall Street types making hundreds of millions in fees to (supposedly) get states out of the mess that dishonest, unscrupulous Wall Street types and dishonest, unscrupulous politicians (forgive the redundancy) got them into. Actually, Wall Street never stopped targeting state pension funds.
Matt Taibbi did a piece on this in 2013
https://www.rollingstone.com/politics/politics-news/looting-the-pension-funds-172774/
It’s important that the NY teachers pension system is an independent entity.The funds in it can’t be used by politicians for other reasons.If that were the case for all public pension funds we wouldn’t be experiencing the problems we see. Much of the problems with public pensions are intentional. Politicians don’t properly fund the so they can use it as a reason to reduce or eliminate them.
And then there’s this column from 1995 describing Christy Todd Whitman’s sleight of hand when she “balanced” the NJ budget by shortchanging the pension system: https://www.nytimes.com/1995/02/22/opinion/in-america-whitman-steals-the-future.html
That was 23 years ago… and the 40 somethings who liked lower taxes should not complain about the pensions that NJ is committed to paying “greedy public employees” today….
Even in places like supposedly progressive Massachusetts, state officials have diverted state money that should have — by law — gone into the pension fund.
This is not just wrong and unethical but it is also likely fraud, as Matt Taibbi points out because a state’s bond rating is based on the fiscal health of the state and if that is “gamed” by diverting money that should have gone to pensions, the state officials are effectively engaging in securities fraud.
https://www.rollingstone.com/politics/politics-news/looting-the-pension-funds-172774/
Then again, fraud has been par for the course among officials in Massachusetts since the Pilgrams landed there, so that really comes as no surprise.
It’s kind of funny. My mother grew up in Boston in the 1930-1940 period and she used to just laugh when I complained about the corruption in Massachusetts while I was living there.