STUMP » Articles » A Week of Bad Pension Ideas: Just Make the Full Payments! » 11 November 2015, 05:37

Where Stu & MP spout off about everything.

A Week of Bad Pension Ideas: Just Make the Full Payments!  

by

11 November 2015, 05:37

This idea is not particularly bad or stupid. (Ah, the tyranny of having a theme week)

Just extremely unrealistic:

NJEA members want to elect legislators who are willing to fund their pensions.

That fact seems to confound legislators like Jon Bramnick, the Assembly Republican leader and a potential gubernatorial candidate, and Declan O’Scanlon, another Republican assemblyman, both of whom say the state can’t afford to fund public pensions and are calling NJEA and other unions to “negotiate” further pension reform.

Here’s why that’s not going to happen:

We’ve been “reformed” to death. In 2011, a pension and benefits reform law drastically cut pension benefits for all public employees — retired, currently active and future hires. The law also increased active employees’ pension contributions by more than 36 percent and forced every employee to pay up to 35 percent of their health insurance premium. However, the law also required the state to live up to its obligation, and fully fund the pensions after a seven-year phase–in.

Every provision of this law has been followed, except the last one — the state got two years into the phase-in and quit. No public employee has ever missed a single payment. Yet Assemblymen Bramnick, O’Scanlon and others — who voted for the law — condone allowing the state to shirk its responsibility while public employees have shouldered every burden.

Pension benefits are affordable and less costly to the state than a typical 401k. Public pension benefits are affordable when funded responsibly. Using the Teachers Pension and Annuity Fund (TPAF) as an example, employees are this year paying in 7.2 percent of salary out of every paycheck and will begin paying 7.5 percent next year and beyond. The current employer contribution is 3.5 percent and will decline next year to 3.3 percent. This is well below the typical employer match to a private-sector 401k plan.

The pension plans were underfunded by the state, and the state can and should make up the shortfall. Again, using TPAF as an example, over the last 20 years, employees have paid a total of $10 billion into the pension, while the state has funded only $3 billion. In most of those years, the state paid in nothing, and in only three years did the state pay what was required. As a result, the plan currently has assets to pay only about half of its promised benefits, with an unfunded liability of about $24 billion. Other state-employee plans are in equally rough shape. Critics correctly assert that the state cannot come up with such a huge sum. But it doesn’t have to. It does have to start with reasonable amounts each year, growing over time, and invested over time.

There’s so much in here that’s wrong (like 401(k)s being more expensive…but I’ll leave that for another time).

That last bit sounds very reasonable, don’t you think?

The above piece from the president of the NJEA ran before election day.

So let’s see what happened after the election:

TEACHERS UNIONAND ITS MONEYHELPED SHAPE OUTCOME OF ASSEMBLY RACES
JOHN MOONEY | NOVEMBER 6, 2015

NJEA poured millions into Democratic candidates’ campaigns, didn’t back even one Republican

…..
“We had a terrific week,” said Wendell Steinhauer, president of the New Jersey Education Association, as his union gathered yesterday for its annual convention in Atlantic City. “Nobody can ruin this week for me.”

Steinhauer was referring to the NJEA’s little-noticed but quite successful campaign push in Tuesday’s election. With all 80 state Assembly seats on the ballot, New Jersey’s Democrats – helped considerably by $4 million the NJEA spent on behalf of their campaigns – added four seats to the majority they already had in the lower house.

The NJEA was all in for the Democrats this year. For the first time in recent memory, the union did not endorse a single Republican. But the union also insisted that it wasn’t party affiliation that mattered. “We would have liked to endorse a Republican,” said Ginger Gold Schnitzer, the NJEA’s head of government relations and director of the NJEA’s PAC.

“The reason the Republicans weren’t endorsed was that none of them stood up and voted for the five-seventh pension payment,” she said, referring to the proposed $3.1 billion payment of five-seventh of the state’s obligation. “The rubber met the road on the pension payment. This election for the NJEA was very much about one thing: It was about candidates keeping promises.”

This is what John Bury has to say in response:

There might be one thing that could ruin this week for union leaders:

The realization that there is no money to make the type of pension payments that would sustain the current benefit structure and electing (or re-electing) a bunch of innumerate panderers won’t make that $160 billion+ magically appear.

WHAT HAS BEEN PAID

The reason neither I nor Bury think the newly-elected Democrats are not going to fix the big pension hole on behalf of their NJEA funders is this history:

I do agree with the NJEA re: Chris Christie. The man got the law changed on the NJ pensions which involved a promise to increase contributions.

They got a blip instead.

To be sure, it’s better than nothing being contributed, but it falls very short of what is needed.

WOULDA, COULDA, SHOULDA

Here is former governor Jim Florio commenting on the pension situation:

After a huge anti-tax campaign against Gov. James J. Florio, New Jersey became Florio free in ’93 as he was denied a second term. More than 20 years after Florio left office, is New Jersey in any better shape?

One problem New Jersey didn’t have before then was the pension crisis.

“I was the last governor to fully fund the pension plan,” said Florio, on the latest edition of The Backgrounder podcast. “After me, they stopped paying it and now we have this problem of $80 billion that we owe in the pension system.”

Looking at that graph, that sounds accurate to me. Note that this is neither a Democratic nor Republican problem — in the above graph we see that governors from both parties short-changed the pensions.

Here’s another version of the graph, over a different time period, which has numbers underneath so you can compare that way:

Yes, they should have been fully funding the pension for the past two decades.

No, Gov. Whitman shouldn’t have had pension obligation bonds issued in lieu of real pension contributions.

No, there never should have been any years with zero contributions from the state.

Yes, this could have been manageable if the “required” contributions were actually required.

Yes, if that had happened, people would have noticed how expensive the pensions were earlier and tried reform well before Christie came on the scene.

But shoulda, coulda, woulda doesn’t help New Jersey now.

And saying “Just make the contributions already!” isn’t really helpful in dealing with the problem.

GOOD LUCK WITH THAT

Now that the state employee unions feel they bought the election, they want their agenda followed:

TRENTON — The new and bigger Democratic majority in New Jersey, expanded with financial help from the state’s largest teachers union, must pay more toward the public pension in 2016 than Gov. Chris Christie has this year, the labor group says.

The New Jersey Education Association’s message comes after Assembly Democrats picked up at least three seats in last week’s general election. It comes after a political group connected with the union contributed nearly $4 million to a super PAC that ran television ads in southern New Jersey highlighting the plight of Atlantic City casinos and the economy, not the pension issue.

Wait, they spent $4 million to pick up 4 seats? What? The wiki article looks old, but if there was a 4-seat pickup, then it went from 48/32 to 52/28…okay, I guess that’s reasonable.

Separately — note that they didn’t boost campaign messages regarding the pensions getting screwed but other unrelated topics.

But hey, we paid for it, so our unspoken agenda must be the one that rules:

The union wants Christie and lawmakers to follow a 2011 law that called for higher state payments into the pension annually. In return, union members agreed to pay more into the system and to absorb other costs. Last fiscal year the payment would have been nearly $3 billion but Christie fought — and won — a legal battle to make a lower payment of $1.3 billion.

“Follow the state’s commitment to achieve full funding and to the honor the commitment made by every public employee who’s been making their contribution in every paycheck,” said NJEA executive director Ed Richardson.

Democratic leaders say they hear the message loud and clear, and one Republicans say demonstrates the influence of special interests in the election. Assembly Speaker Vincent Prieto and Majority Leader Louis Greenwald say making the pension payment is a top priority for lawmakers. In the past, Democrats have proposed financing the larger pension payment through tax increases on income over $1 million, but Christie has vetoed those efforts.

I really doubt their precious tax would have netted enough to cover the extra pension payments.

(Pssst: rich people are the most mobile when it comes to domicile, ya idiots)

(Also: if you’re gonna tax like New York or Connecticut, rich people will just move to these much nicer states.)

Back to the piece:

The union says the election sent a message to Republicans that they should support making a larger pension payment.

In a campaign that never mentioned having to make larger pension payments, but rather highlighted the state’s moribund economy, the end message is: pay for state employee pensions.

Yeah, good luck with that.

I do have a question for the NJEA: what do you propose being cut?

I am sure new taxes will bring in a little extra $$, but it won’t cover the huge pension payments needed, even if you do ramp them in. NJ is going to be in a real pickle in terms of pension cashflow very soon. Check out Bury’s posts on drop dead dates for NJ pensions – they can’t even cover current retirees with current assets, btw.

By the way, it seems both Republicans and Democrats agree on this: the public unions bought their result and must be listened to

The union’s pension message took a back seat during the campaign even though it is the labor group’s biggest issue.

It’s a common tactic in political advertising, experts say.

“The public is getting a sense that the group is concerned about ‘A,’ when that’s not what its concern is at all. Its concern is ‘B,’” said Fred Wertheimer, president of the nonpartisan, nonprofit Democracy 21 organization.

….
“This is a special interest election,” Republican Assemblyman Scott Rumana said. “Make no bones about it, it’s the money that drove the election and now Democrats have to answer to folks that funded their campaign.”

I think the NJEA is going to find itself frustrated, because there’s only so much money to go around. If more goes into the pensions, that means something else will have to be cut.

The bottomless money fund of “let’s tax the rich people” is not so bottomless after all.

So what will be cut to fund your pensions? If you can come up with that, then this idea is not necessarily a bad one after all.

Full contributions should be made.

Whether they can be made, or will be made…. that’s entirely different.


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