Pension Truths

Los Angeles Times - San Diego tackles municipal pensions


The above article talks about public pensions in San Diego. Now, I have never lived in San Diego and have never worked there, so, on many levels it doesn't effect me; but, it is evidence of San Diego's poor municipal government and their residents and politicians insincerity when making agreements.

San Diego is a very conservative city which has tended to elect Republicans (I belong to no party by the way). Part of their agenda was to reduce the number of government workers and they actually attempted to contract out all computer jobs, that went really badly for them. Their relationship with their contractor soured and they didn't have their own people as a back up.

In regards to their pensions, during the happy days of a strong stock market, the City of San Diego negotiated with the unions to allow the employees a bigger retirement in exchange the City would not be required to contribute as much to the pensions. Let me explain how this worked, before the crash, public pensions were overfunded. Pension funds are only allowed to keep so much more than it is anticipated that they will need to pay out. I think it used to be 125%. Okay, the investments that the pensions made did so well that many municipalities stopped making their contributions or reduced them in exchange for letting people have bigger pensions (3% accrual a year rather than 2 1/2%). Now rather than putting aside the money that was to be paid by the municipalities into the pensions, many delayed their payments because the funds were already overfunded and spent the money on other projects.

When the market crash, the pensions ceased being overfunded, according to the Government Finance Officers Association the public pensions are not currently underfunded; but, they are no longer overfunded and the municipalities are now expected to make their contributions that they had previously promised and they don't want to. The public pensions were used by politicians to fund alternative investments to those with close ties to them. These investments lost hundreds of millions in California alone and are currently the subject of multiple FBI investigations.

Now here is where the politicians are just misrepresenting the situation. They claim that half the municipal budgets or even more will need to go to the retirees; but, this is only if they catch up on all delayed payments in one year and that is unnecessary. This is easily negotiated with the public unions, spread it over ten, it doesn't really matter as the pensions are not spending all their money now, these are projected losses if they don't increase their worth.

There was a time when government worked better, part of the reason was because there were no term limits and a career politician would have to live with his decisions, you couldn't just kick the can down the road. The politicians would actually attempt to fix problems rather than raid the budgets to pay for flashy projects to impress the electorate. They also became more familiar with the civil servants and would become educated in what the rules were. Now most elected officials are ignorant of how things work administratively.

Now, lets return to discussing pensions. If you are an elected official with a municipality or state and are subject to term limits then you can get a lot more votes for cutting pensions and destroying morale and commitment because, you won't be there to deal with it. Lets face it, we have two decades of term limits and the politicians have only gotten worse.

Let me ask this simple question, nationwide the bridges are in disrepair, many are dangerous; but, how many were fixed? Now, how many new bridges were built in the meantime? You get more applause for making new toys then for fixing old ones; but, the most cost effective thing is to fix old first. It is cheaper to replace the engine in your car then to buy a new car.

Now lets look beyond public pensions to where we are headed. The politicians blame everything on the civil servants (except the politicians write the laws and not the bureaucrats), the citizens follow along behind them crying that the civil servants should not have the pensions that they do because private industry has moved away from them and the workers lose. Here is the thing, we don't make anything any better by making it worse for anyone. We should be promoting pensions for everyone or we are advocating what is coming, pensions for nobody.

Don't think I believe that the public unions are on the right side of the issue. They are happy to negotiate lower pensions for people in the future so long as the current members don't have to take the hit and many current members are also good with that; but, it is equally wrong. The problem is the same, we are all looking to make the next guy pay for our mistakes rather than ramping back.

We have become a world of people who only look out for themselves and we have politicians who feel the same way. How many politicians do you hear saying that they should be meeting the promises that they made to these employees and if they did, who would vote for them? Not enough to get them elected. Too few seem interested in meeting their obligations in marriage, mortgages or government. Private industry doesn't believe it has obligations anymore, not to the employees and not to the nation and certainly not to the people who elected them.