PROVIDING TRUSTEE EDUCATION AND INDUSTRY INFORMATION IN AN EFFORT TO PROTECT DEFINED BENEFIT PLANS. FPPTA Florida Public Pension Trustees Association June 2010 Message from the CEO Raymond T. Edmondson, Jr. The FPPTA office remodeling is completed except for a few minor items. We had our first Education Committee meeting in our new conference room. The meeting was very positive and creative. I think you will like the changes. The name of the game is communicating information. In today’s world this needs to be almost instantaneous. The state of Florida has delegated all FPPTA e-mails to junk, thus cutting off information to its employees. Some people may ask why are we communicating with state employees, they’re not members? I think if the state goes defined contribution and cuts out benefits to its retirees, passes legislation that segregates retirees health care benefits from the active pool, creating a pool of high risk people due to age, the Florida League of Cities will back this for the cities who still listen to them. That will impact FPPTA members. We must nip these radical ideas in the bud. The legislation proposed this past session was the most harmful to public employees that I have seen in the past thirty-five years. This year, due to being an election year and the massive response from FPPTA members and other organizations, the Legislature vacated the efforts. The next two years will shape the future of public employees in the state of Florida. We need personal e-mails, not city or state e-mails, so we are not delegated to junk. We will be discussing many important issues at our June conference in Naples. The FPPTA is committed to combat all issues that impact public employees and retirees in an attempt to preserve the American way of life and its economy. We need to start right now! Raymond T. Edmondson, Jr FPPTA Chief Executive Officer 26th ANNUAL CONFERENCE Defined Benefit Plans: Setting the Record Straight June 27 - 30, 2010 Naples Grande Resort Naples, FL 1
Transcript
Providing trustee education and industry information in an effort to Protect
defined benefit Plans.
FPPTA Florida Public Pension Trustees Association
June 2010
message from the ceoraymond t. edmondson, Jr.
The FPPTA office remodeling is completed except for a few minor items. We had our first Education Committee meeting in our new conference room. The meeting was very positive and creative. I think you will like the changes.
The name of the game is communicating information. In today’s world this needs to be almost instantaneous. The state of Florida has delegated all FPPTA e-mails to junk, thus cutting off
information to its employees. Some people may ask why are we communicating with state employees, they’re not members? I think if the state goes defined contribution and cuts out benefits to its retirees, passes legislation that segregates retirees health care benefits from the active pool, creating a pool of high risk people due to age, the Florida League of Cities will back this for the cities who still listen to them. That will impact FPPTA members. We must nip these radical ideas in the bud. The legislation proposed this past session was the most harmful to public employees that I have seen in the past thirty-five years. This year, due to being an election year and the massive response from FPPTA members and other organizations, the Legislature vacated the efforts. The next two years will shape the future of public employees in the state of Florida. We need personal e-mails, not city or state e-mails, so we are not delegated to junk.
We will be discussing many important issues at our June conference in Naples. The FPPTA is committed to combat all issues that impact public employees and retirees in an attempt to preserve the American way of life and its economy.
We need to start right now!
Raymond T. Edmondson, JrFPPTA Chief Executive Officer
26th annual conferenceDefined Benefit Plans: Setting the Record Straight
June 27 - 30, 2010Naples Grande Resort
Naples, FL
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Our 26th Annual Conference is just around the corner and the FPPTA office is in full swing preparing for another successful conference. If you haven’t registered with us yet, please do as soon as possible. It is much easier for everyone if you do so in advance. We will be having a Board of Directors Election at the upcoming conference. We have two seats open and the following three peo-
ple running: Ann Thompson, CPPT, FPPTA Secretary, Gary Clark, CPPT, FPPTA Vice-Chair, and Tim Olsen, CPPT, Melbourne Firefighters Pension Fund. Please make sure you have submitted a current trustees list with the FPPTA office. You can do this by fax, e-mail or very easily by logging onto the FPPTA site, www.FPPTA.ORG and “Certify” that your list is current. Unfortunately not all pension boards submit their trustee list with their membership. This is a requirement to be eligible to vote in the Board of Directors Election.
I am sure by now you have heard that we developed a new, state- of-the- art website. When you look at our site you see much of the information we had in the past. If you log into your personal user account you will find much more information such as, CPPT and CEU status, access to other pension systems and associate members. The associate members have the ability to list the associates from their firm with contact information, along with the product information the firm offers. For in-stance you can search for a Money Manager that offers Small Cap or Real Estate. The site will produce a list of all Money Managers that offer what you have searched for. We need the associate members to update their product offerings and we need the trustees and administrators to activate their user accounts. The new site offers so much that will be so beneficial for all members.
Instructions for activating your personal user account with FPPTA:
Go to www.fppta.org, on the right upper corner is a tab “Member Login” click on the tab and it will drop down. Click on “Not a Member Yet? Register Here”. This will prompt you through the process of activating your user account. This will not work if your pension board/associate company is not a current paid member.
See you at the Naples Grande Resort!
Kim RyalsFPPTA Chief Operating Officer
26th annual conference and the new Website
fPPta fisHing tournamentaugust 6-8, 2010tarpon lodge, Pine island, florida
Registration form: http://www.fppta.org/View_Event.aspx?EID=12Sponsorship is available, please call Kim Ryals 800-842-4064 ext 101 or [email protected] is a great event. Bring the kids, relax, fish and have some fun!
During the past year, the FPPTA has pursued a mission to speak out in the press about the strengths of defined benefit pension plans, and the inadequacy of just a 401(k) style account to satisfy the long-term needs of re-tirement. I’ve heard from many people over this time about how frustrating it is to read biased and negative commentaries about public pensions; and in some cases I’ve been able to help FPPTA members and trustees to craft an op-ed response that has been published in the newspaper.
In an effort to make our members feel more comfortable answering negative press, I would like to share some tips and suggestions about how to be more effective in responding to public commentary.
• First, remember that the newspaper has a job to do. Newspapers are supposed to report news and present com-mentary that will generate discussion, so don’t hate the messenger. Most editors will gladly consider printing your response letter or op-ed, provided you request an opportunity to answer the already published news story or opin-ion. Try to appeal to their sense of fair play, and their obligation to present a balanced view. The best approach is to send an e-mail to the editorial page editor requesting the opportunity to respond. Be brief!
• There are two ways to respond to a newspaper story or commentary: a letter-to-the-editor and an op-ed com-mentary. A letter–to-the-editor usually is used to let any citizen share his opinion about a news story covered in the paper. No professional expertise about the subject is required. Typically, an op-ed column is written by a profes-sional with specific knowledge of the subject being discussed, and it is written in response to a published editorial or commentary – not a news story. Don’t be afraid to write an op-ed commentary under the title of your position as a public pension trustee.
• A letter-to-the-editor can be submitted without first requesting permission. A letter-to-the-editor is likely to have strict space limitations, usually between 250-300 words. Your newspaper should have the rules and regula-tions for public response posted in the paper’s editorial section, so check there first.
• Responding to an editorial in an op-ed style allows you to present your view with more length, but also will require a very limited number of words – usually about 400-500 words. So, read the ‘offending’ opinion or com-mentary multiple times, making some notes about what specifically is wrong with the viewpoint being presented. Then, stick to only those specific points in your rebuttal.
• Don’t write with sarcasm, and don’t make personal or professional insults. Rather, consider this your oppor-tunity to right a wrong, to educate people about the deeper issues.
• Remember that you must sign your name to either a letter-to-the-editor or an op-ed.
• Make sure you respond as promptly as possible to the offending story or commentary. Newspaper editors like to generate public debate, but they are required to stay current.
• Finally, understand that the editorial page is a platform for discussion about many current events and public issues. The editor is not likely to print more than one or two responses to any given story, because there are always new topics waiting to be presented.
Please never hesitate to contact me through the FPPTA when you see a story or commentary in the paper that seems biased, negative, or without a full presentation of facts. It would be my pleasure to assist you in preparing a response.
How to respond to negative Presssusan marden, Public relations consultant
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news clipsfred nesbitt, fPPta media consultant
Public pensions not root of financial crisisRaymond Edmondson, Response to Commentary, Sun-Sentinel, May 19, 2010In a May 12 commentary disparaging public pensions, John R. Smith stated his case with alarming — and alarmingly vague — statistics, along with a dubious lack of factual sources. He claimed that public em-ployees earn more than private-sector workers, but a recent joint study by the Center for State and Local Government Excellence and the National Institute on Retirement Security show public employees still earn 11 to 12 percent less than private-sector workers. However, abolishing defined benefit pension plans will
only put more people at risk when they are financially most vulnerable
Public vs. private employeesRichard Nadler, Letter to the Editor in Response to Commentary, Sun-Sentinel, May 17, 2010John R. Smith says public pensions cost taxpayers too much. Is this the same John R. Smith who a few months ago said schools should go back to the glorious days of the ‘50s? You know, when beating children was OK and the dropout rate was over 50 percent? This man obviously never worked for the big bucks we public servants get. Instead, he slaves away, probably earning six figures in financial services. You know, these are the guys who are ruining our country so the mu-nicipalities can’t pay the pensions. They created this recession, and now they want the municipal employees to pay for it.
Palm Beach County priorities, child-related bills among the 60 Crist signs WednesdayBy Dara Kam, Palm Beach Post, May 26, 2010The pension bills (HB 859, 937), signed by Gov. Crist, put into statute certain aspects of recent collective bargaining agreements between the city and West Palm Beach police and firefighters, with the key part being credit they will get in their city pension for differential wages received while absent from city duty while serving in the military. It also makes them eligible for city disability benefits for injuries and diseases they sustain in the military.
Despite economy, city happy with its pension performanceBy Chad Smith, Gainesville Sun, May 6, 2010Mark Benton, the city’s budget and finance director, said Wednesday that the pension fund for city workers has grown 18 percent since Oct. 1, the start of the fiscal year. Between 2003 and 2007, the plan grew by more than 77 percent before dipping more than 18 percent over 2008 and 2009. Benton said even with those two years in the red, Gainesville’s fund has done well.
Christ vetoes cut to DROP interest earningsBy Bill Cotterell, Fort Myers News Press, May 28, 2010Gov. Charlie Crist refused Friday to slash interest earnings on government-employee pensions in the FRS Deferred Retirement Option Program, saying lawmakers unfairly popped the change into the budget late in the session. Crist said the change was inserted in a joint committee report on the budget “with little or no opportunity for discussion or debate. Changes to employee retirement accounts should be vetted through the normal committee process to avoid unintended consequences that may occur when rushed through the process.”
featured storyThe Machines that Ate the Market by nina mehta, lynn thomasson and Paul m. barrett
Once upon a time, human beings oversaw the trading of stocks. They’ve been replaced by a complex system of computers that can produce a scary new kind of mechanized panic. An investigation into the crash of May 6
Read the article: http://www.businessweek.com/magazine/content/10_22/b4180048321511.htm
Palm Bay troubles are not uniqueBy Susanne Cervenka, Florida Today, May 16, 2010Governments across Brevard County and all over the country are struggling to find ways to pay for escalating retire-ment benefits, particularly for public safety workers, who’ve traditionally received the most generous pension benefits because of the risks they take. In Titusville, for instance, city leaders held a special pension workshop this month to try to contain costs. Some of the ideas so far include creating a “second-tier pension plan” with reduced benefits for future hires or asking more employees to contribute part of their salary to the pension fund. A review panel is set to report back to the city council this summer. Cocoa also is wrestling with the growing cost of pensions for its public-safety workers, including firefighters. The city’s unfunded pension liability is projected to $13.5 million, a number likely to grow if the city doesn’t make changes.
Pensions: Look out for mythsLetter to Editor by John Keane, Florida Times Union, May 15, 2010The impressive returns posted by the stock market over the past 14 months reassure us that long-standing economic principles are operative. Long-term investors, such as public pension plans, are rewarded by “staying the course” and harvesting the excessive returns that naturally follow periods of excessive losses.The city’s pension plans have delivered returns in excess of 9 percent, on average, over 30 years. We should not expect the past three years to be the norm for the next 30. Similarly, we should not adopt long-term policies and programs in knee-jerk reaction to short-term market events. Much of the blame for Jacksonville’s economic woes is being unfairly directed by some elected officials toward city employees and retirees. One of the most commonly repeated myths is that employee salaries and retirement benefits are excessive. Assertions of an “overly generous” benefit structure are blamed for the recent rise in pension costs and level of unfunded pension liabilities.
Hialeah unions irate over proposed layoffsBy Laura Isensee, Miami Herald, May 21, 2010Mayor Robaina estimates the city’s income could drop at least $18 million next fiscal year. That includes a 15 percent decline in revenues from property taxes, or $9 million; an increase of $2 million in pension payments and a $6 million decline in revenues from the state. Hialeah police Chief Rolando Bolaños said the city underbudgeted pension payments by about $7 million when it approved its spending plan. The city still paid the full pension obligation in full in December -- $19 million. But it made up the difference on the books in several ways, including a $4.8 million asset transfer with the Water and Sewer Department in April, according to Bolaños. In April, the City Council also approved various line-item budget transfers that boosted retirement accounts by more than $6 million. ̀ `State law requires you to publish a balanced budget,’’ Bolaños said. ``The difference between the budget today and the budget Oct. 1 is today the budget is true. The budget in October was a fraud.’’
House Bill 5607, which was a product of the 2010 Joint Legislative Conference Commit-tee, was presented to the Governor and vetoed on 5/28/2010. The legislation would have set the Florida Employer Retirement Contribu-tion Rates for the next fiscal year and also in-cluded the reduction in the annual guaranteed investment return from 6.5% to 3% on drop
accounts entered into on or after July 1, 2010.
Amongst all of the retirement issues/bills which were filed this past session, this is the only issue/bill relating to the Florida Retirement System which passed the Legislature. Al-though there are provisions in Chapter 121, Florida Statutes, which provide for a default using what is referred to as “pop-up rates“, there seems to be some concern as to whether those rates are adequate to properly fund the FRS. If this is deter-mined to be the case, there seems to be a strong “consensus” that the only resolve or solution would be the passage of a general piece of legislation resetting the contribution rates for the upcoming fiscal year which begins on July 1, 2010. The Governor has been very active in advocating for a Special Session to deal with a number of other issues (prohibiting oil drilling by a constitutional ban, elections reform, and a public official corruption issue), if the above “consensus” proves ac-curate, he may have succeeded in forcing the members back to Tallahassee. Just some speculation to think about.
The attention now turns to the current 2010 election cycle. This is the most active election in a number of years beginning with a U.S. Senate race, all of the U.S. House Congressional Districts, all of the Cabinet Posts (Governor & Lt. Governor, Chief Financial Officer, Attorney General, and Commissioner of Agriculture and Consumer Services), one half of the State Senate Districts, and all of the State House Districts.
The Qualifying Dates for Federal, Judicial, State Attor-neys, and Public Defenders concluded at noon on April 30th. For statewide positions, the qualifying dates begin at noon on June 14th and end at noon on June 18th. The dates for the primary and general elections are August 24th and November 2nd respectively. Early voting, which has become a very popular way of casting a vote, will be offered 15 days prior to an election date and con-clude 2 days prior to that election.
Hope everyone is registered to vote, if not, it is a pretty simple process that can be accomplished in just a few minutes.
state legislative updaterandy touchton, fPPta legislative consultant
To register to vote or for more information on how to register to vote please visit the Florida Division of Elections:
With health care reform now law, Demo-crats in May moved closer to enacting their No. 2 domestic priority – financial regulation reform. The Senate passed a bill that would overhaul the nation’s system of financial oversight, setting up a confer-ence committee to merge the legislation with the version passed by the House in December.
Senate Passes Financial Reform Bill; Proxy Access, ‘Say-on-Pay’ Included
The Senate on May 20 passed legislation to overhaul the nation’s financial regulations in the wake of the most severe economic crisis since the Great Depression.
Lawmakers must now merge the bill with the reform plan passed by the House in December. The compromise bill will then be put to a vote in both chambers. Negotiations were expected to begin in June, and congressional leaders say they hope to deliver a bill to President Obama by July 4.
Both the House and Senate bills contain “say-on-pay” and proxy access provisions.
“We have taken a major step towards creating a sound eco-nomic foundation for the American people we represent,” said Sen. Christopher Dodd, D-Conn., the sponsor of the Senate bill. “This is their victory. … The debate we have had, covering four weeks, considering close to 60 amend-ments from members of both parties, represents the Senate at its best. I look forward to working with my colleagues in the House to produce a strong bill that will protect consum-ers, protect our economy and hold Wall Street accountable.”
The bill passed 59-39, with three New England Republicans – Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine – joining all but two Democrats in voting for passage. Sens. Russ Feingold, D-Wisc., and Ma-ria Cantwell, D-Wash., argued that the bill did not go far enough to reform the financial system.
The major reforms in the bill are aimed at addressing “sys-temic risks” in the U.S. financial system and ending the no-tion that some firms are “too big to fail” and must be pre-
served, even at taxpayer expense, as was done for several companies with the 2009 financial bailout. More specifical-ly, the legislation would give the Federal Reserve oversight of the nation’s largest financial institutions and give it the authority to break up any of those institutions if they posed a threat to the U.S. financial system, while creating a council led by the Treasury Department to watch over entities and activities that pose a systemic risk to the nation’s economy.
In addition, it would impose rules intended to prevent exces-sive risk-taking by financial firms, overhaul the supervision of banks, reform the regulation of derivatives and establish an agency to oversee mortgages, credit cards and other con-sumer financial products.
The bill also would give shareholders the ability to cast ad-visory votes on executive pay packages and would clarify the authority of the SEC to issue rules that would enable shareholders to put director nominees on proxy ballots.
“These are critical tools investors need to hold directors ac-countable,” Council of Institutional Investors Executive Di-rector Ann Yerger said after the bill passed. “Boards are the first line of defense against the risks and excesses that led to the financial crisis. Majority voting and proxy access will help shareowners exercise market discipline to make sure directors keep a careful eye on management and, if neces-sary, rein in reckless executives.”
...Continued on next page...
notes from Washington, d.c.tom lussier, fPPta legislative consultant
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Quote of the Month
“Don’t tell me what your priorities are. Show me where you spend your money
and I’ll tell you what they are.”
-Richard Friedman
The House and Senate bills are generally similar – Dodd said that, “This is one of the rare occasions when the two bills really are very close to each other” – but some important differences must be worked out, including:
Iran Divestment Bill on Hold While United Nations Considers Sanctions
Congress has put on hold an Iran sanctions bill that would authorize public pension plans and other institutional investors to divest from companies doing energy-related business in that country.
Rep. Howard Berman, D-Calif., and Sen. Christopher Dodd, D-Conn., who are leading the panel appointed to merge the Iran bills passed by the House and Senate, announced on May 25 that they will wait until the United Nations has completed its work on a new Iran sanctions package before moving ahead with the legislation.
The five permanent members of the U.N. Security Council recently reached a tentative deal that would impose sanctions on Iran as punishment for its pursuit of nuclear weapons, though Iran claims its nuclear program is strictly for energy purposes.
Berman and Dodd said in a joint statement that “tough multilateral sanctions are the most effective means to persuade Iran to cease its efforts to develop a nuclear weapons capability” and that they will “use the coming weeks to ensure that our legisla-tion is crafted to complement and augment those other actions as effectively as possible.”
CMS Releases Rules Requiring 50% Drug Discount in Part D ‘Doughnut Hole’
The Centers for Medicare and Medicaid Services (CMS) has issued new rules to enact a 50 percent discount for beneficiaries in the Part D “doughnut hole” starting in 2011.
• The House bill would create a free-standing agency to watch over consumer financial products, while the Senate bill would house such an agency within the Federal Reserve and make its rules subject to the veto of a council of regulators. Dodd drafted this measure after negotiations with Republican Sens. Richard Shelby of Alabama and Bob Corker of Tennessee. Neither man voted for the bill, so it is probably unlikely that Senate Democrats will defend the proposal during talks with the House.
• Both bills would require derivatives to be traded on exchanges and approved by a clearinghouse, but the Senate version would require banks to spin off derivatives activities in order to remain banks. There is some wariness, even outside of the GOP caucuses, about this last provision, leading some to suggest that it is not unlikely that it will be dropped or weakened during the House-Senate conference committee.
• The House bill includes a $150 billion fund to be used to wind down failing firms. Republicans successfully opposed the inclusion of a similar $80 billion fund in the Senate bill, arguing that it would, essentially, make the practice of the federal government bailing out firms permanent. The Obama administration does not support the fund and the sponsor of the House bill, Rep. Barney Frank, D-Mass., appears unlikely to push for it.
• Both bills would allow investors to sue credit rating agencies – who are blamed by many for contributing to the financial crisis by failing to sound the alarm on the deeply troubled mortgage-backed securities market – but the Senate bill would also empower the Securities and Exchange Commission to create a board that could assign credit rating agencies to rate specific asset-backed securities.
• Neither bill would immediately enact the White House-backed “Volcker rule” – which would prohibit banks from engaging in certain investment activities unless the activities directly benefited their custom ers – but the Senate legislation authorizes a study of the issue and gives regulators the power to address the issue after the study’s completion.
When a beneficiary’s annual spending on prescription drugs reaches $2,830, benefits stop until out-of-pocket spending for the year reaches $4,550. (The thresholds are adjusted each year.) The new health care reform law addresses this by, one, sending seniors who hit that gap in coverage $250 checks this year, and two, mandating a 50 percent price cut for them start-ing next year. The discount is to be increased to 75 percent by 2020.
Eligible beneficiaries will receive the discounts at the time of purchase.
“The documents we are releasing today facilitate the imple-mentation of the Affordable Care Act’s provisions to help Medicare beneficiaries with the high costs of their prescription medicines,” said CMS Deputy Administrator and Director of the Center for Medicare Jonathan Blum.
Insurance Companies to Cease Rescissions a Few Months Early
Several major insurance companies have agreed, after prod-ding by congressional Democrats, not to drop sick beneficia-ries even before a ban on the practice takes effect.
Seven House committee and subcommittee chairs and one for-mer chair wrote to seven insurers on April 27 to ask them to “immediately end its efforts to rescind health insurance cover-age except in cases of fraud or intentional misrepresentation of material fact.”
“These rescissions hurt patients who need coverage the most, such as women diagnosed with breast cancer,” the lawmakers stated in the letter. “We are writing to ask all of your companies to end any such abusive practices immediately.”
In response, BlueShield California, WellPoint, United Health-care and Humana said that they would end the practice. Kaiser Permanente said that it ended it several years ago.
“Republicans can take a cue from the insurance industry this week,” said Ways and Means Committee Health Subcommit-
tee Chairman Pete Stark, D-Calif. “Now that health reform is law, insurers appear to be working to help implement impor-tant consumer protections ahead of schedule. It’s time for Re-publicans to stop pandering to the Tea Party crowd with calls for repeal and work together to implement reforms that will improve Americans’ health care.”
“Now that health reform is law, insurers appear to be working to help implement important consumer
protections ahead of schedule.”
-Pete Stark, D-Calif
The health care reform plan that was signed into law in March will prohibit insurance companies from dropping sick benefi-ciaries, but that provision will not take effect until September. Several insurance companies previously agreed to allow peo-ple up to age 26 to obtain coverage through their parents before that requirement goes into effect, also in September
Report Notes Mandatory Coverage Option for Social Security
A new report on Social Security reform options from a Senate panel notes that mandatory coverage of all newly-hired state and local workers would reduce the program’s 75-year deficit by about 9 percent.
The nearly 100-page report from the Senate Special Commit-tee on Aging lists many alternatives for reform but explicitly states that they “should not be construed as proposals that have been endorsed by the Committee or its members.” Only two paragraphs are devoted to a mention of mandatory coverage.
Forced coverage of state local workers would cost states and localities $44 billion over five years, according to a 2005 study. These expenses, the study concluded, could lead to increased taxes, cuts to vital government services and the destabilization of public pension funds.
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We Want to Hear from youWould you like to see an issue addressed in the next fPPta e-newsletter? is your board
facing a specific challenge or attack that fPPta membership should be aware of?
We welcome your comments, questions, and suggestions.
The Aging Committee report briefly acknowledged that mandatory coverage could have a financial effect on states and localities.
“This change may also impact the funding of the state and local government of pension systems,” the report stated. “State and local governments would need time to modify their pension systems to fit with the Social Security pro-gram, as was done for newly-hired federal employees after 1983.”
Copies of the report were distributed to the 18 members of the National Commission on Fiscal Responsibility and Reform, the panel created by President Obama to devise a package of recommendations that would balance the fed-eral budget – not including several hundred billion dollars in interest payments on the national debt – by 2015. With Social Security accounting for more than one-fifth of the federal budget and the program’s revenues expected to fall below expenditures for the first time this year, the commis-sion is almost certain to include Social Security reforms in its calculations.
While the report did not back any specific reforms, Aging Committee Chairman Herb Kohl, D-Wisc., said it demon-strated that Social Security could be preserved with a series of relatively minor tweaks.
“This report shows that, contrary to popular belief, the sky is absolutely not falling for Social Security,” Kohl said. “By implementing one or more of these modest changes, we can ensure solvency and even strengthen benefits for those who count on their monthly check the most.”
Public Employees Earn Significantly Less Than Private Sector Workers: Study
Public employees earn more than 10 percent less than their private sector counterparts and better pension and health care benefits do not make up the difference, according to a new study.
The report from the Center for State and Local Government Excellence and the National Institute on Retirement Securi-ty (NIRS) found the state workers earn 11 percent less than private sector workers with comparable education and ex-perience while local workers earn 12 percent less, and over the past 15 years, the gap has expanded. In California, the wage differentials are 9.8 percent for state workers and 6.1 percent for local workers.
“The picture is clear,” said Keith Bender, a co-author of the report and an associate professor in the Department of Economics at the University of Wisconsin-Milwaukee. “In an apples-to-apples comparison, state and local government employees receive less compensation than their private sec-tor counterparts. These public sector employees earn less than they would earn if they took their skills to the private sector.”
The value of retirement, health care and other benefits is, on average, greater for public employees, but this only makes up for part of the difference. Even after accounting for benefits, the report found, total compensation is still 6.8 percent lower for state workers and 7.4 percent lower for local workers.
“For a long time, there has been a compensation trade-off in public sector jobs – better benefits come with lower pay as compared with private sector jobs,” NIRS executive director Beth Almeida said. “This study tells us that is still true today. What’s striking is that, on a total compensation basis – look-ing at pay and benefits – employees of state and local govern-ment still earn less than their private sector counterparts.”
The report concluded that, based on the findings, “now is not the time to advocate for large-scale rollbacks in the compen-sation of state and local workers.”
“Although the current recession calls for equal sacrifice, the long-term pattern indicates that state and local workers are not, on average, overcompensated,” the report stated. “If the goal is to compensate state and local sector employees in a manner comparable to those in the private sector, the data do not call for reductions in state and local wages. If anything, they call for increases.”
“In an apples-to-apples comparison, state and local government employees receive less compen-
The Government Accountability Office has released a report that examines lifetime income options for retirees.The findings include:
• Participation in private sector defined benefit (DB) plans dropped 26 percent from 1990 to 2007 even as the size of the workforce increased 22 percent.
• During that same time, participation in defined contribution (DC) plans nearly doubled from 35 percent to 67 percent.
• Many participants in DB plans are choosing to receive lump sum payouts at retirement when that option is offered.
• Only about six percent of households have annuities, and many of these are deferred annuities which are rarely converted to lifetime income
• Social Security accounts for 37 percent of income for households with at least one person over the age of 65; earnings from employment account for 30 percent; pension income 19 percent; and income from assets 13 percent.
“Workers are increasingly finding themselves depending on retirement savings vehicles that they must self-manage, where they not only must save consistently and invest prudently over their working years, but must now continue to make comparable de-cisions throughout their retirement years,” the report stated. “Poor or imprudent investment decisions may mean the difference between a secure retirement and poverty, which highlights the need for improving financial literacy. How we address this issue for the already large segment of the population depending on limited retirement savings to ensure income adequacy throughout retirement continues to be one of the key policy challenges facing the Congress and the nation.”
The Obama administration’s Middle Class Task Force has recommended that the federal government promote the “availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their … living standards will be eroded by investment losses or inflation.”
Professor Sees Impending Collapse of Public Pensions
A new paper by a Northwestern University professor suggests that many state pension funds could run out of money within 10 to 20 years and may need to be bailed out by the federal government.
Joshua Rauh, an associate professor of finance at Northwestern University’s Kellogg School of Management, writes that either funding or benefit reforms will be needed to keep public pension funds solvent.
“There seems to be a high likelihood that future generations will have to bear the substantial burden of making up pension benefits for previous generations of state employees,” Rauh writes. “While citizens of states that are particularly hard-hit by the pension crisis may be able to escape to other states, an acceleration of this demographic phenomenon would leave a dwindling taxpayer base behind in the states facing the largest liabilities. This would increase the likelihood of a federal taxpayer bailout in which taxpayers in all states would bear the burden of the states in default. The problem of state and local pension liabilities is therefore a problem for all US taxpayers, not just those in the states with the largest deficits.”
In suggesting that states may have to freeze pension benefits, Rauh raises both the prospect of moving toward private re-tirement investment accounts and the possibility of imposing mandatory Social Security coverage for newly-hired public employees in jurisdictions that do not now participate in the program.
To freeze benefits, he writes, “there would presumably need to be a compensating differential to induce public employees to accept such a deal and to provide for their retirement security. Employees would need a defined contribution plan, and those that do not have Social Security (some 25% of state and local workers) would need to be brought into that program.”
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