KRUGMAN: The Great Pension Scare---So, why is it being hyped? Do I even need to ask?

[kpete]

The war against public pensions reminds me of the Iraq War. Even if one accepts that there is/was a big pre-existing problem in either case, the constant stream of lies is troubling.
http://www.balloon-juice.com/2013/07/21/dont-forget-the-motor-city/


July 21, 2013, 5:18 am 24 Comments
The Great Pension Scare

OK, this is quite amazing: Dean Baker catches the WaPo editorial page claiming that we have $3.8 trillion in unfunded state and local pension liabilities. Say it in your best Dr. Evil voice: THREE POINT EIGHT TRILLION DOLLARS. Except the study the WaPo cites very carefully says that it’s $3.8 trillion in total liabilities, not unfunded; unfunded liabilities are only $1 trillion.

I’ll be curious to see how the paper’s correction policy works here.

But how big is that $1 trillion anyway? It still sounds like a big number, doesn’t it? Dean tries to compare it with projected GDP, which is one way to scale it. Here’s another.

............
According to the survey, the ARC is currently about 15 percent of payroll; in reality, state and local governments are making only about 80 percent of the required contributions, so there’s a shortfall of 3 percent of payroll. Total state and local payroll, in turn, is about $70 billion per month, or $850 billion per year. So, nationwide, governments are underfunding their pensions by around 3 percent of $850 billion, or around $25 billion a year.

A $25 billion shortfall in a $16 trillion economy. We’re doomed!

OK, there are some questions about the accounting, mainly coming down to whether pension funds are assuming too high a rate of return on their investments. But even if the shortfall is several times as big as the initial estimate, which seems unlikely, this is just not a major national issue.

http://krugman.blogs.nytimes.com/2013/07/21/the-great-pension-scare/?smid=tw-NytimesKrugman&seid=auto

[ArcticFox]

1. We are living in the age of lies

[Enthusiast]

35. It has been the greatest propaganda effort in history.

And it continues.

[ancianita]

2. And when pension commitments trump investment liabilities per state constitutions,

the answer is for politicians to steward their state tax incomes better. They have to get off their collective ALEC cushions and do the jobs they were elected to do, which is not to hand out subsidies to the wealthy, but to work out how to invest in better sustainable energy and infrastructure projects -- or build better investment portfolios -- in order to meet the deferred compensation contracts that they offered years earlier to qualified employees.

[mick063]

4. Outstanding assesment

Everyone on DU should read and understand your post.

[Scuba]

5. Excellent. Thanks for posting.

[abelenkpe]

9. Thank you!

If only everyone would understand and see that.

[Aviation Pro]

14. The problem is that most of these pissants....

....have not a clue on how to do this so they rely on 'buddies' to fill them in on the details. In my business, I deal with these kind of fuckwit CEOs on a daily basis, they've got great hair and the right credentials, but let's just say they didn't exactly retain any of their knowledge that went into their credentials.

So they hire me and I charge them a premium for doing their jobs.

[Baitball Blogger]

3. State and local government pension plans at stake?

I am very sad for the good government employees out there that will be hurt by this, but during the nineties when my local government went down a dark path and was engaged in acts of malfeasance, they used pension plans as inducements to get everyone to go along.

I think some of those plans were overinflated because they were bribes. Maybe the answer is to go over these pension plans and reduce those which seemed ridiculously high?

[ancianita]

6. Slippery slope thinking here. Who gets to decide on 'ridiculously high'? The contract negotiators?

When? At the time of negotiation or 'down the road.'? Isn't a contract supposed to be a public commitment that both parties are equally liable to honor? Should government workers not get to negotiate a salary package that defers their compensations like those of any other worker in the private sector? Are not the services that the public receives often from college-educated skilled professionals? Based on past negotiated pension qualification formulas, is a $48,000 a year pension ridiculously high?

If one's constitution states that workers can NOT receive Social Security if they get pensions, is that fair? Because from what I see, in the states where people who worked in fica tax jobs because their full-time jobs didn't keep up a middle class living for their families get screwed. In most states in this country people receive not only a pension but also Social Security. Why shouldn't all pensioners get Social Security. State "leaders" say they're "double dipping," (a US Chamber of Commerce rhetorical invention, by the way) but those very same leaders do exactly that when they retire. They receive a state pension AND Social Security. Legal double standards exist for those who can finagle them in this country.

There's also a lot of creeping 'pension envy' eating away at this country, which is exactly what the Koch crowd would love to see acted upon.

[duffyduff]

8. The "pension envy" is a deliberate tactic to undermine the whole concept of pensions

so they can be STOLEN to enrich the few. Then Social Security will be next. So many people are just so stupid--there is no other word to describe it--they can't even see what it is.

It's not government employees' fault private sector workers sat back and allowed the 401(k) scams to take hold and their pensions canceled.

Yes, many state and local employees do NOT pay into Social Security, and even if they qualify for SS in other jobs, much or all of the money is STOLEN from them because of WEP/GPO.

When I take my early SS in about 3 1/2 years, I will have 50-60 bucks taken away each month, money that I need, because I get a dinky-assed pension of 300 a month from Nevada PERS.

It's Bonnie and Clyde economics here at work.

[Baitball Blogger]

10. It was a crime what Republicans were doing with the pensions back in the stock hey-day.

In Florida they used the teacher's fund to pay for Enron stock. Whose idea what that?

http://articles.sun-sentinel.com/2002-05-17/news/0205161107_1_trent-webster-enron-stock-alliance-capital-management

[senseandsensibility]

11. Agreed. As the article shows, pensions are not the

problem. But it is easy to convince others that they are.

[Enthusiast]

36. Yes. But, those 'So many people' are victims of the greatest propaganda effort in all of history.

Private sector employees didn't sit back and ALLOW 401 scams to take hold. Private sector employee never suspected 401 would be such a scam in the face of this massive propaganda effort. Who could expect their government would conspire with private corporations to defraud them?

"It's Bonnie and Clyde economics here at work." This is absolutely right on.

[duffyduff]

12. Tell me which state constitution says that? Never heard of that and I don't think that's true.

States CAN voluntarily pay into Social Security for their employees, but they cannot be REQUIRED to because of the U.S. Constitution's prohibition on taxing state and local governments, since FICA is a tax. That is why state and local workers in 14-15 states do not pay into Social Security. The states opted out of it.

There is NO bar to receiving Social Security benefits if you have worked in a non-SS-covered job and paid into the SS system--I don't even see how that would be legal otherwise. However, the Social Security system has WEP/GPO to reduce or eliminate benefits for those people, depending on how long they paid into SS. It's outright theft.

[ancianita]

15. Illinois, for one. I know for a fact that it's in the state constitution that District 299 -- Chica

go -- teachers are explicitly forbidden by law from receiving Social Security. I don't know of other states, and I hope there are none.

A visit to my local Social Security office a couple of years ago reminded me of that. The word "offset" came up and I'm not sure which benefit is disqualified as an "offset. " The SS rep said that there's an 'offset' law. I see nothing here about it. http://en.wikipedia.org/wiki/Defined_benefit_pension_plan

Here's a clearer source. http://www.afscme.org/union/retirees/resources/retiree-tools-and-information/q-a-social-securitys-government-pension-offset-for-members-in-jobs-not-covered-by-social-security

"...Nearly half a million retired federal, state and local government employees have already been affected by the GPO[Government Pension Offset]. For the great majority, the GPO totally eliminates the Social Security spouse/widow benefit. The rest experience a dramatic benefit reduction. Thousands more will be affected in the future..."

Also, "...in the private sector, most pension plans require no employee contribution. The employer underwrites the entire plan. As a result, workers covered by Social Security and a private pension can claim both benefits, with no offset, at a lower contribution rate than public employees, who must also endure the GPO."

[duffyduff]

21. No state can deny you Social Security benefits. That is a myth.

What if you have paid into Social Security for years and years and go into teaching mid-career? You are telling me a bunch of horsepucky that that person cannot get Social Security at all?

Not true.

WEP and GPO are federal laws or regulations, not state.

Congress is sitting on its collective butt and doing nothing about it, even though the push to repeal WEP/GPO has bipartisan support and the president supports its repeal.

[ancianita]

23. You're right. You can get it at all. But this offset existed at the state level the 70's when I was

hired. I entered my pensioned job knowing about it. The feds passed the GPO law for other states later.

Sure, you can get it at all, if you earned 40+ quarter hours in another job, which for me would be another four years in another job. Before I got into teaching at age 27, I'd paid six-plus years of fica payments into Social Security and because of the GPO offset, will won't get it. If I go to work for another four years, I can qualify to get an 'offset' amount, which amounts to little or nothing, given my current pension earnings. This is according to the Social Security representative I spoke to. Social Security has gotten a lot of fica tax monies from people this way, and they won't get it back.

I'll get Medicare, but I'll be paying into it a negligible amount less than what I pay for Blue Cross Blue Shield now.

[byeya]

16. The federal pension offset law: If you've completed a career in the federal sector and are getting

your pension and go to work in the private sector and get your 40 quarters of covered Social Security time in, your SS benefits will be reduced by about two/thirds.
In other words, if person A works 40 quarters and pays in $X dollars his/her pension will be $Y/month
If one receiving his/her federal pension works 40 quarters and pays in $X dollars, his/her pension will be approx one/third of person A.

[duffyduff]

22. It depends on how many years you worked in SS-covered employment

If you worked 30 years plus, you get your full benefit.

The key word here is "substantial employment," by the way, to avoid the offsets.

I will get screwed out of 50-60 a month for have a piddling 300 a month pension in Nevada PERS.

I will be lucky if I get 1,000 a month total.

[byeya]

27. I specified 40 quarters.

[WinkyDink]

28. Oh, really?? Maybe the tax rate on BILLIONaires should be "gone over".

[Enthusiast]

37. Good suggestion............nt

[dixiegrrrrl]

7. Wonder what Krugman would say to this guy:

http://www.democraticunderground.com/10023307047

[duffyduff]

13. Re WEP/GPO

Proposals have been introduced in both houses of Congress to eliminate WEP/GPO, but so far there have gone nowhere:

http://www.ssfairness.com/

[ancianita]

17. So you do allow that there's a legal basis for pensioners not getting Social Security.

I put 28 quarter hours into Social Security in the 60's and 70's and won't see a dime of it, unless it's somehow folded into the Medicare budgeting.

For others to claim that I make 'too much' at this late date is what Krugman says it is -- hype.

[duffyduff]

20. You were claiming some state constitutions barred it. Don't twist my words. You were wrong.

You were proven wrong there because it is the federal government during the Reagan years that decided to shaft public employees who don't pay into Social Security if they didn't pay into it for at least 30 years. There are reductions in the benefit between 20-30 years, and yes, some people, those who have fewer than 20 years paid into SS, may be completely screwed out of it. That is the FEDERAL government that did that, not any state.

For SS survivors' benefits, it's called the Government Pension Offset, and many retirees from states that don't pay into SS don't get this benefit AT ALL. WEP is the Windfall Elimination Provision which reduces the SS monthly benefit for workers in states that don't pay into the system.

It should be illegal to do this because it is theft of benefits that were EARNED.

[ancianita]

24. You're right. I'm wrong. I can't find it. I'm continuing to look, though.

Last edited Sun Jul 21, 2013, 04:18 PM - Edit history (2)

Edit: There's nothing in the IL Constitution about federal benefits. There is a section of IL law on pensions, however, from 1953, I think.

http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=004000050HArt.+21&ActID=638&ChapterID=9&SeqStart=218000000&SeqEnd=222400000

Apparently, the "governing body" provision allowed the Chicago Board of Ed to decide to join with Social Security. It decided not to because its benefit funding would have been more expensive than if it simply contributed to a pension plan. The union set up the plan, governs it and contracts for its funding from the CPS Board of Ed. In the law here, if you look a few paragraphs about the one I've quoted here, you'll see that only school teachers fall under this provision, not firemen or police.

"...(40 ILCS 5/21-103) (from Ch. 108 1/2, par. 21-103)
Sec. 21-103. Political subdivision - election of coverage.
(a) Any political subdivision other than a school district and other than a political subdivision which is participating in the Illinois Municipal Retirement Fund under Article 7 of this Code may, by resolution of the governing body (in the case of a township, at an annual town meeting or at a special town meeting called for that purpose), or by referendum, elect to have its employees covered by the Social Security Act..."

[SheilaT]

18. I can recall reading many years ago,

possibly as long ago as the mid-70's, that underfunded state and municipal pensions were eventually going to come back to haunt states and municipalities. Then, while large corporations underfunded their employee pensions and then declared bankruptcy to get out of that obligation, government employees felt secure in their retirement.

Unfortunately, they may wind up totally screwed also.

As someone else has pointed out, pension envy is a very bad retirement model. It doesn't matter if I or someone else personally thinks that some state or municipal workers are overpaid and get too much pension. What does matter is that those people were made promises that are now seen as easily broken.

Although the very most important point of the piece is that the underfunding, while real, is a trivial percentage of total obligations. Just like the perception that Social Security and Medicare are in immediate danger of running out of money. Genuine fixes exist for both situations. Yeah, they might require higher taxes somewhere, but there are fixes.

[xtraxritical]

19. What about Detroit?

[ancianita]

26. Everyone's watching Detroit. So far, a judge is halting the bankruptcy.

http://www.huffingtonpost.com/2013/07/19/detroit-bankruptcy-unconstitutional_n_3624518.html

But the bondholders and politicians might fight the ruling to the Supreme Court. Interesting. Ending defined benefit pensions nationwide would pretty much dissolve contract value for working people.

[WinkyDink]

30. My husband and I are retired teachers in PA. If our "defined benefit pensions" were eliminated, I

would contemplate some serious actions before we were thrown onto the streets.

[ancianita]

31. The lawyers in the Detroit case might set precedents for your state. Keep them on your radar. I know

I am. And I'm sure other payors are. The issue lies with bankruptcy, which seems to be the only claim being made against defined benefit plans. And I'm pretty sure that Chicago and IL aren't going bankrupt. Rahm Emanuel is shuffling around schools and personnel in a high drama attempt to make it seem that his board can't afford pensions, but so far no one's buying it.

[WinkyDink]

32. Except the state has recourse to taxation, which private enterprises do not.

Last edited Sun Jul 21, 2013, 07:18 PM - Edit history (1)

[ancianita]

33. Right. Which is why they don't offer defined benefit plans, just 401(k)'s, stock options, etc.

And also, states can re-arrange their spending priorities to properly fund their pension commitments.

[gulliver]

25. All pension plans are vulnerable to Republicans

Social Security is the best thing we have. It needs to be written into the Constitution to take it out of the range of Republican lie bombings.

Backing pensions with "assets" strikes me as unstable. Back them with current value and law. If gold is up, tax it and pay the pensions. If real estate is up, tax it and pay the pensions. Putting state or federal money in equities (public or private) is asking for chicanery from Republican types.

[reformist2]

29. Any shortfalls should be filled in by higher taxes on the hoarding class.

[Enthusiast]

34. You will never hear Krugman's position in the MSM where the message is strictly controlled.

It is a matter of propaganda. TPTB want "our" money. Mostly they have gotten what they want. The Democratic Party allows the righties to frame most every argument. This is the bullshit that angers me about "my" party.

[6000eliot]

38. More starving poor people seems to be the answer to all of our economic problems anymore.

[xtraxritical]

39. Make war.