The study I highlighted yesterday on New York pensions has hit the mainstream this morning, with a quite massive write up in the New York Times. There is a lot more detail in the story so I encourage a read through for anyone interested. (story here) Recall I was looking for the ages of these retirees so there are some eye openers in the piece! I am always fascinated by public opinion as well, so for a look through of the avalanche of comments already washing ashore go here.
As I've written for the past 3 years, I believe eventually (if trend lines continue without any fixes) we're going to see some social issues arise in the U.S. due to the growing inequity between the public v private sectors. Especially since it appears a massive bailout will eventually be needed to keep promises to this select class. Wherever you fall on this debate, any system that pays out MORE in pension than a person ever earned in a working year is beyond belief. But when you can game the system by adding a ton of overtime in your last year - it's all just 'dealing with the cards we were dealt'. ;)
(on a side note I did not realize pensions were FREE of state and local taxes - maybe it's only a New York thing, I do not know)
Much like the deficit stood in shadows for years as some vague 'issue' (I still doubt 8 in 10 Americans could tell you the total debt within $2 trillion), I just don't think most Americans have a clue yet about the growing problem - hence this sort of transparency we saw in the study is going to be an eye opener for those who don't troll in certain financial blogs.
- In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year.
- It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. Despite a pension investigation by the New York attorney general, an audit concluding that some police officers in the city broke overtime rules to increase their payouts and the mayor’s statements that future pensions should be based on regular pay, not overtime, these practices persist in Yonkers.
- The city has even arranged for its police to put in overtime as flagmen on Consolidated Edison construction sites. Though a company is paying the bill, the city is actually reporting the work as city overtime to the New York State pension fund, padding future payouts — an arrangement at odds with the spirit of public employment, if not the law.
- “The system encourages police to take as much overtime as they can in the last year before retirement. That’s the way the system is structured,” he said. “There’s nothing illegal or unethical about this.” (illegal? no. unethical? I guess in Cramerica it's a no as well.)
And it's not just Yonkers who do this; other city's public workers are in on the scheme.
- ....a Con Edison spokesman, Robert McGee, said a number of other towns also require the company to use their police officers as flagmen, raising its labor costs.
- And the problem is not just in New York. Public pension costs are ballooning everywhere, throwing budgets out of whack and raising the question of whether venerable state pension systems are viable. In fact, the cost of public pensions has been systemically underestimated nationwide for more than two decades, say some analysts. By these estimates, state and local officials have promised $5 trillion worth of benefits while thinking they were committing taxpayers to roughly half that amount.
- David Simpson, a spokesman for the mayor of Yonkers, said pension cost projections were “often lowballs,” so the city could get stuck. “Once you give something, you can’t take it away,” he said.
- The use of public money for outsize retirement pay really stings when budgets don’t balance, teachers are being laid off, furloughs are being planned and everything from poison-control centers to Alzheimer’s day care is being cut, as is happening in New York.
Now the average payout is lower because it includes part time workers, those who have worked just a few years, as well as surviving spouses getting partial benefits.
- The data belie official reports that the average state pension is a modest $18,000, or $38,000 for retired police officers and firefighters. (The average is low, in part, because it includes people who worked in government only part time, or just a few years, as well as surviving spouses getting partial benefits.)
- ...that group (of 6 figure pension) is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.
Now for the data I was seeking yesterday - the age of some of these folks.
- Some will receive the big pensions for decades. Thirteen New York City police officers recently retired at age 40 with pensions above $100,000 a year; nine did so in their 30s. The plan’s public information officer said that the very young retirees had qualified for special disability pensions, which are 50 percent larger than ordinary police pensions.
Gosh darn even the socialists have (been forced to) see the light... but not the capitalists.
- Outside the United States, Greece and Spain have recently reduced government pensions to deal with burdensome debt that has impeded their ability to finance themselves. The new British coalition government has said it will review public pension costs there as well.
And it's not just police & fire, remember we have been quasi government entities where the pickings are just as good:
- Not all the people getting six-figure pensions are former police and firefighters from cities with liberal overtime and disability policies. Hundreds more worked at hospitals, power utilities, port authorities and other “public benefit corporations” — hybrid entities that compete with the private sector and pay their officials accordingly, but allow them, at the same time, to participate in the state pension fund.
Finally we have data nationally for the state & local worker, I've been seeking this for a long time. Remember the excuse talking point for the pensions, other benefits, and far higher job security is lower pay.
- By tradition, public employees have said they accepted lower salaries in exchange for better benefits, but the Census data show this has not been true for a number of years. In 2008 the median pay for a worker in the private sector was $39,877, compared with $45,124 for a state or local employee. (contrast this to the average federal worker @ $71,206)
But frankly there appears no solution for those grandfathered.
- Municipalities in this country cannot easily follow suit even as financial problems mount, though, because reducing benefits for their existing employees is considered impossible under the current laws of most states.
Two worlds... private v public.
- The New York State constitution bars public employers from slowing the rate at which workers build up their pensions over the course of their careers. That degree of protection contrasts sharply with the private sector, where companies can generally change the rate at which workers build their benefits at any time. Furthermore, as companies have reduced pensions substantially over the last two decades, states and cities have embellished theirs with sweeteners like inflation adjustments and lower retirement ages that appealed to unions and their members, who vote.
- Police and other safety workers are in many cases allowed to retire with full pensions after 20 years. Other workers can often do so after 30 years, even as young as 55.
- And, while companies must adhere to uniform federal guidelines about setting aside money to pay pensions, states do not. Some, like New Jersey, have failed to fund their pensions for years and have fallen so far behind they may never catch up again. (Who wants to start the website Fund My Pension Fund!)
Once more ... two parallel worlds, which is why a bailout by your grandchildren is inevitable. The rules of the private sector simply do not apply... if your company implodes due to pension costs you get sent to a rescue fund and your benefits slashed. In the public sector... you have no worries.
- Companies that find they have overpromised have a way out. They can declare bankruptcy, and if a judge approves, they can send their pension plans to the federal agency that insures corporate pensions. That agency limits its coverage to what is considered a basic pension, currently $54,000 for a 65-year-old retiree, much less for younger people.
- If Yonkers could send its police plan to the federal guarantor, for instance, Mr. Tassone, at 47, would have his benefit cut from $101,333 to just $15,660. But state plans don’t have such an insurance program, much less any definition of a basic, guaranteed benefit.
Summary: There is no reason to work in the private sector anymore in Cramerica. Lack of job security, weaker pay, poor benefits - who needs it? All of us who do ply trades in the private sector - much like those who still pay their mortgages - are the sucker class. Out future nirvana as a nation is a time when every worker in America works in the public sector (ex investment bankers of course) - and China gladly buys our bonds (or the Fed can) so the Ponzi can continue forever. Because under that scenario paying $450 so your kid can play high school sports will be no problemo.