This seems like a pretty big budget item, especially since most CA government pension funds haven't achieved their expected 7.5% return consistently for years if not decades. Eventually the money to pay for these large pensions comes from money that would have been spent on other things.
To add insult to injury, Senate Bill 400 under Gray Davis (who was later recalled in a special election) retroactively increased pension payments for people who had already retired and started drawing pensions. And CALPERS keeps two sets of books, dramatically overstating the actual performance of their investments. [1]
It's a horrible mess - nobody wants to strip the earned retirement away from retirees, but the math just doesn't work out. When the market provides better-than-predicted returns, employee contributions are reduced and benefits are increased. When all of those extra returns are wiped out by a bubble popping, everything stays the same and the difference is made up by taxpayers. And it's incredibly attractive for politicians to buy the support of unions and their membership, when the cost won't be paid until long after they're termed out of office.
[1] https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-...
As you've stated, actuarial calculations + short term politics don't mix.
If people like public pensions let them have it, but let only people in their sector pay for it. It is absolutely immoral for someone to pay a tax to fulfill the promise of a decade old decision on someone else. Few things show how clearly people forget the State doesnt have money of its own than thinking that the state can fulfill an obligation without taking more from the innocent bystanders.
Defined benefit plans should have a defined tax scope, and if they fail, they go bankrupt and thats it.
"Davis, who was elected in 1998 with more than $5 million in campaign contributions from public employee unions, says that if he had it to do over, he would not support the pension improvements."
http://www.latimes.com/projects/la-me-pension-crisis-davis-d...
"... how in 1999 the California Public Employees’ Retirement System orchestrated the approval of a 50 percent retroactive pension increase for state employees amounts to an autopsy of a public-policy crime. It is literally incredible that CalPERS told the Legislature that such a huge gift of money would have little or no long-term cost to state taxpayers because the dot-com boom then driving the stock market sky-high would never end."
http://www.sandiegouniontribune.com/opinion/sd-calpers-menda...
[2009] Californians questioning why their state budget is in perpetual red ink need look no further than the California Public Employees’ Retirement System’s (CalPERS) implicit forecast in 1999 that the Dow Jones Industrial Average would reach 25,000 by 2009, 595,000 by 2049 and 28 million by 2099 and that its investment earnings would rise alongside.
http://www.sandiegouniontribune.com/sdut-pensions-and-partyi...
They made nowhere close to that and now state and local governments in California contribute over $50bn annually to CalPERS alone.
That seems like the big story: making plans assuming such a high average is simply malpractice. There are employee behaviors worth changing (e.g. the common problem of juicing final salary using overtime) but most of the blame should go to the people who signed off on that plan.
At least in the U.S. we don't have parties which are funded by unions. The unions contribute, and get out the vote, but that's rarely uniformly going to one party which gets a veto-proof majority everywhere. You see divides — e.g. the teachers unions lean Democratic but the police, firefighters, and prison guards lean Republican — and a lot of local politics showing counterexamples for any of those trends.
It's also not really the point I was interested in, namely that several generations of officials choose to cook the books so they could make politically popular moves without raising taxes or even cutting them. This is not a problem specific to pensions and it's definitely not limited to a single party as e.g. three decades of Republican magical thinking about tax cuts paying for themselves should demonstrate.
Because the pension formula is an age-based benefit factor times years of service; for the “2% at 55” plan, the benefit factor ranges from 1.426% at age 50 to 2% at 55 (hence the name) to 2.418% at 63+.
So someone retiring at 63+ with 37¼ years of service will get just over 90%.
But that's a plan that is common to run of the mill civil service. Public safety pensions tend to have higher benefit factors at the same age (but top out, in benefit factor terms, sooner), so that level can be reached earlier.
> It seems that it's based off of years of service instead of quality of service...
Job type will effect which plan you are in.
Some are promoted into management, but most org charts are naturally pyramids, so there aren't enough of those jobs for everyone. So what to do with someone who is now too disabled for another blue collar job and is not a "competitive candidate" for a white collar job?
I know because in europe we have an unrealistic retirement age and my father like many other lost his job in the 2008-2012 crisis. Been unemployed ever since.
What happens is that in the 50-65 braket you’re a huge liability with severe productivity drops and companies tries to fire you at the first chance they get.
The european system at least has some protections against unreasonable terminations, so we aren’t fully appreciating the maddnes it would be a free job market, but company closing or figuring out how to fire the old employees in masse drops huge chunks of unemployed for life into the society.
This is becoming a serious issue and it is going to peak in 20 years when all the people like me that don’t enjoy full time national contracts and their protection will get past their productivity prime.
Of course not, as you probably wouldn't have this weird "retirement age" thing in the free-market absent government intervention. It's almost unheard of, and I'm not surprised. Reading through this thread of all the little "abuses" and "loopholes" that people are figuring out to game the Government-decreed system of retirement is very worrying and eye-opening.
The vast majority of blue collar jobs are in the private sector and they don't get pensions with COLA and free medical when they turn 50 or 55. It doesn't seem fair that government workers are treated differently.
If someone is disabled there are government programs to help them, but I see little evidence that the many of those government workers retiring at 50 are actually disabled or incapable of work since many go on to have another career.
Our 'productivity' has gone up by at least 2% per year. If you understand compounding you realize how significant that impact is. We're in front of a next generation work automation tsunami. The notion that 'working longer' is 'needed' as a consequence of anything besides a completely failed and derailed socio-economic model is absurd.
So, presumably there is a surplus.
Except no.
When people ask "where is the money?" the 1% respond "not enough money. Not enough surplus. You need to work until you are 68 now".
This contradiction is, oddly enough, rarely addressed.
Perhaps the problem isn't not enough work or not enough money. Perhaps they are both scapegoats for the real problem: wealth inequality driven by (among other things), tax evasion.
Yes and no. I used to have this same intuition but think that people today, even on the low bracket, have a better life than the previous generations mid-wealthy had. Think how much an iphone would be worth in 1950, and think how many people have it today. It is definitely a great measure of wealth. Look at the internet that has made entertainment virtually free: if you have an internet connection there is no shortage of content ever. And we still produce more content! Who works to produce more content if you could not watch all of youtube right now!
We will turn to idleness only when the benefits we get by further work are less than the value of it. When auto-piloted airplanes with auto-drilled oil and auto-cooks and auto-hotels will make everyone travel a lot more and work less, but maybe at that point we will want to work to get our seat to go to Mars, or the latest art exhibition, or the greatest meal, or better life for your kids.
that said the benefits in some states are ludicrous, cops spike their payout the last few years and retire with $200k pensions and healthcare for life at 50, then move on to your 2nd careers. In the private sector even if you max out your 401k you'd never come close to that sort of retirement.
Folks that could and would provide for their future selves like this via 401k programs cannot, as you point out, on account of contribution limits. Saving outside tax-advantaged accounts is certainly doable but hardly seems fair vs the pensioner's tax treatment mentioned in the article.
https://fee.org/articles/by-the-numbers-how-dangerous-is-it-...
My dad retired from a manufacturing job at 55 because it was putting too much of a strain on his body
My mom retired because she could and they wanted to enjoy their life together while they were still relatively young.
A good reason department heads in education shuffle every three years
Most pensions historically.
People entering the job market today (or even most of the millennial generation) were never offered these final salary pensions. Instead we get defined contribution plans, 401Ks, or nothing at all.
The key difference being that defined contribution plans (and 401Ks) are always only worth what was contributed (and investment performance profits). Things like your final salary, final position, or year of retirement (except for IRS rules that give significant tax advantages) don't mean very much except contributing more to these funds.
It is a better system from a larger society perspective (nothing is "loaned") but may result in few actually being able to afford retirement.
We'll see how this plays out with baby boomers retiring to give some indication as to what the younger generations may be up against.
Bust your ass with overtime for 3 years and you can reap the benefit for the rest of your life.
I also recall the NYCFD had a problem with that and with people claiming disability right before retirement. The rate was something like 90%.
As a result a fireman who made a base of $100K per year (just a guess), might end up with a full pension at 50 that pays him/her $150k per year until death.
I know that was a guess, but sounds crazy high for a fireman. In my rather well-off Western European country a fireman makes about $45k per year before European taxes and deductions.
In big cities, $100k is actually pretty typical. I found a link from 2014 suggesting you reach $100k after 5 years.[1]
[1]https://www.villagevoice.com/2014/02/12/the-fdny-is-a-force-...
The article links the lack of public services to high pensions. It´s painted as if there were no other options but to cut on pensions.
"In the meantime, mounting pension costs mean that a generation of schoolchildren is growing up in the area with no theater program, no orchestra, no wood shop and minimal sports, chorus and art."
Because pensions are the only reason. Maybe increased inequality, the lack of taxing of the top 1%, money wasted on lobbying, are also causes. But we are not offered any data.
Oregon population: 4,000,000
Pension deficit 2017: $25,000,000,000
Per-capita share: $6,250
Assuming a large portion of the pensions will get spent on goods, services, and donations in state, it doesn't seem like a huge disaster, depending on how it grows.
So maybe ~13K per tax paying person in outstanding pension obligations alone?
That is a big deal.
Then that would be an obligation of about $300 per tax paying worker per year over their working lifetime. The average yearly salary in Oregon is $50,000. The article makes it out through anecdote that this is why they didn't have gas to send trucks out for a road repair.
In the last 20 years Oregon has had near 1% per year population growth as well.
The article is focused on outlier pensions for a collegiate athletic director paid partly out of sports merchandising and a medical school head who was an eye surgeon.
In other words, this person now owes nearly 1% of their disposable income for life to cover _currently_ unfunded pensions with no corresponding increase in goods or service levels.
To put it another way, this person will work ~1/3 of a year out of their career to pay for unfunded pensions.
(Also, I made a mistake, that number was household income)
Otherwise now the government now has less money to spend. Aka the "no fuel for trucks" you mention.
State tax is deductible from federal taxes up to $10,000. So you can pay that $300 without it all coming out of after tax income.
Most people may not go over standard deduction, but dollar wise state tax is probably paid by high earners who will, since there is a graduated income tax in Oregon.
I don't see how the extra expense won't ultimately result in additional taxes.
Every new expense comes out of your savings rate (or your rate in paying off principal if you're in debt). To understand "kitchen table economics", you're always better looking at the wealth growth rates (or lack thereof) when trying to weigh how much of a burden something is.
That and a large portion of pensioners flee to states without an income tax or at least states with a better climate and lower cost of living. The statistics of state employees leaving my home state for such states alone are shocking.
The government paying its debts and not committing wage theft is a public good. It's a pivotal decision point in whether we are a functioning civilization with a rule of law or a third-world regime on its way down. It may be convenient in this one isolated instance to renege, but the knock-on effects of the message it sends - that public servants will be paid only when convenient - will be huge. Although that may be just as well, if you hope to minimize the role of government going forward.
If you want to reduce the role of government to only a narrow core of tasks for which there is no alternative, you probably still don't want to send the message that workers in government will be arbitrarily deprived of the compensation for which they've agreed to labor, since presumably in that case it's even more essential that the set of tasks to which government is reduced is done by people who are competent and motivated.
Raising a tax on someone to pay the public benefit of another is also wage theft. Please remember the State doesnt have assets of its own, everything it has it takes from someone else. So if you find it reasonable to pay a special tax on minimum wage jobs to pay a 55-old retired man 70 grand a month of a benefit, you can volunteer your wage and your salary to achieve such a nice ideal.
The bigger issue, from what I've read, is that governments agreed to huge pensions in contracts with public employee unions. In exchange for lower salaries. Because pensions were deferred costs.
Problem is with the human wetware. People want to read a story.