I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Friday, August 13, 2010

Pension Tension

Here it comes:
Colorado, Minnesota and South Dakota have already taken the unprecedented step of reducing promised cost-of-living increases for their government retirees. In New Jersey State Treasurer Andrew Sidamon-Eristoff recently said that changes in pension or medical benefits for retired state workers could be included in the recommendations he is making to Christie.
Any decision by Christie and the Democratic-controlled legislature to reduce pension benefits, cost-of-living adjustments or retiree medical benefits would certainly end up in court, as the Colorado, Minnesota and South Dakota cases have.
But the sheer magnitude of the nation’s public employee pension shortfall -- which the Pew Center on the States recently estimated at $1 trillion -- has state governments crying “actuarial necessity” and “fiscal emergency” as they weigh benefit cuts that run counter to decades of court decisions establishing pension promises as irrevocable property rights.
How anyone can claim "actuarial necessity" when we've turned our states into tax havens for the wealthy is beyond me. But I guess keeping promises to retirees who worked hard their whole lives and paid into their pension systems is not as important as giving out corporate tax gifts and slashing rates for the rich. I'm sure Taco Bell can use the extra help; seniors, get off your duffs if you want to keep getting those pills!

But don't worry, wealthy folks; this issue continues to be framed to your liking:
To put New Jersey’s outstanding pension obligation in perspective, the most recent $45.6 billion estimated shortfall represents an average personal debt of $5,200 for each New Jersey resident, or $20,800 for a family of four. With New Jersey already facing a large projected budget deficit next year, raising an additional $3.5 billion a year in revenue to fully cover pension costs would require a 30 percent increase in the state income tax or a hike in the state sales tax from 8 percent to 11 percent.
Um, who said anything about dividing this up evenly throughout the state? Who said anything about raising the income tax evenly? Or the sales tax?

This state gives up $4 billion a year by not taxing corporate dividends. Can we make that comparison instead of dividing $3.5 billion by the state population?
Raising taxes to cover public employee pension costs or to fill any other gap in the structural budget deficit is not only anathema to Christie, who campaigned on a no-new-taxes pledge...
Here's another of Christie's pledges, made directly to teachers:
I will protect your pensions. Nothing about your pension is going to change when I am governor. In fact, in order to ensure your retirement savings are safe, I believe we must prioritize the protection of pension fund dollars and investigate the cause of Jon Corzine’s large investment losses to our pension system. Currently there is a $34 billion deficit in the State’s pension fund, which threatens the retirement and lifeline of so many teachers. We must do better for our teachers, future teachers and retirees. As Governor, I will work to close unfunded liabilities and make sure our state lives up to its promises, unlike Jon Corzine. I will not raid your pension fund to cover budgetary shortfalls like previous governors of both parties have done. One of the changes I will bring to Trenton is responsible management, investment, and oversight of state pension dollars.

By the way: NJ Spotlight points to one of the sources of our current woes as; "a demographic shift caused by medical advances that has most retirees living not into their 70s, but into their 80s and even 90s."

I will refer you to this very important post by digby
The most important thing about it is that the designers of social security built all these expectations into the system, nothing has "gone wrong" and technology hasn't rendered the system ever more expensive because we are all living so much longer.
I can't speak with authority on the actuarial calculations used for NJ's pensions when they were set up. Logic, however, suggests that if NY, a much larger state than NJ, doesn't have half of our unfunded liabilities, it may very well be that unexpected gains in life expectancy don't factor much into this; after all, would NY have had some deep insight into human life span that NJ did not?

The pension woes of NJ are due directly to the fact that even as workers paid into their funds, towns and the state did not. Screwing the retirees and workers of this state because of political ineptitude is simply immoral.

One more thing:
Nevertheless, public opinion is clearly on Christie’s side, especially as New Jersey’s poor economy drags into its third year. Private sector workers who have lost jobs, pay or hours, and whose home equity value and 401K portfolio have melted away...
I keep seeing this same meme in various forms: everyone else has 401Ks, so public workers should have them as well.

But if current workers stop paying into the system and move to a 401K-like defined contribution plan, no one is going to be funding the pensions. And Christie is ruling out new taxes. So where is the money to pay current retirees going to come from, even if you slash their benefits?

The only way these "reforms" work is to keep forcing public workers to pay into the pensions but take away their benefits, and there's no court in the nation that will allow that; you can't force people to give something and have them get nothing in return.

I'm almost tempted to start advocating for a defined contribution plan just to make this point. Imagine if every worker in the state who wasn't vested moved to a 401K, and got to put their 5.5% to 8.5% right into their own accounts. The shock to the system would be enormous.

The fact is, those worker contributions are the only thing holding up the pensions. Take those away, and the state will be in real trouble.


thinker said...

Hello, my name is New Jersey. I have this bank account that I use to pay bils. The only thing is, I kind of "forgot" to put any money into it for the past decade or so. Now my bankers are calling me and telling me that the fund is getting low and I'd better replenish it or I won't be able to pay my bills. Naturally, the solution is to stop paying or reduce those bills, right? Hey, I wonder if my credit cards will let me stop paying/reduce too! Ha! Who says balancing a budget is hard? This is easy!

Ok, I realize that is not a perfect analogy, but it's pretty close in my view. This entire pension controversy makes me cringe every time it is brought up. This is nothing more than yet another one of the tools in the real toolkit-the political toolkit where politicians gin up dissent between classes of people...in this case private sector v. public sector.

First, I don't believe the lie that pensions don't exist outside the public sector, although they are rarer these days. A few short years ago, when I still worked as a paralegal, I had a pension (and company paid medical as well as some other nice perks) and most of my family members who works in the private sector (various industries) still receive these benefits, and more, as well. To think I left my good job to pursue a dream of teaching, these days I wonder what I was thinking!

For all those who are taking part in the public v. private debate and screaming "yeah, cut those pensions!" all I can say is that I hope you are ideologically honest enough to scream the same thing when the United States proposes this same solution to "save" social security.

Duke said...

Actually, I think the bank analogy is pretty good.

As Digby has pointed out again and again, SS doesn't need "saving." Cuts there are given for the same reason we want to cut NJ pensions - to keep taxes on the wealthy low.