A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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A Small Pension Step « Back to Story
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If public pensions were built as a defined benefit based on aggreggated earnings over years of service, instead of the last 3 or 5 (highest earning) years, and if the practice of padding OT through excessive overtime were curtailed, much of the problem could be reduced. Throw in reform of the disability pension rules (3/4, tax free) and you have serious progress. Having said that, these employees chose to defer salary in echange for a long-term deferred compensation, and it should be honored.
What a mess! It used to be that government jobs were low paying, and in return for low pay, employees were not expected to do much heavy lifting, but got lifetime job security and reasonable but not excessive benefits. A friend told me that after he started working for a northeastern state government agency in the 1960's, one of his fellow employees advised him to always keep his golf clubs in his trunk. As a high school student I recall getting a summer job in a local hospital complex in the 1970's and after showing up for work in June was told that they didn't expect to have any work until September. I spent the summer joining the other workers in playing cards and watching soap operas.
Of course this isn't representative of all government workers. Even at my jobs in the 70's there were usually a few who took their work seriously, and kept the whole place going. And of course, police and firefighters never have the luxury of goofing off. And it may be that what happened in the '60's and '70's is not representative of what's going on today.
Still, it is obvious that the unionization of public workers has led to extraordinary increases in wages and benefits for workers in the public sector. In the northeast people have voted on the system by leaving - without Democratic supported massive immigration the northeast would be losing even more political power than the one or two Congressional seats every ten years.
And at some point the system has to collapse, since the over taxed private sector will no longer be able to pay benefits promised by a corrupted government. In New York we already see the effects of high taxation - there is virtually nothing going on economically in the state outside of New York City.
What is the long term solution? As noted, we are rapidly approaching a system of subsidized poor, high paid government workers and the wealthy, and not much else - with the wealthy ready to bolt should the Governor not be successful in resisting demands for higher taxes on the rich. Sounds an awful lot like a third world country, doesn't it? And what does New York City have, except for a world class financial sector and tourism? Even the financial sector is being hollowed out as back offices are relocated elsewhere.
America is separating into two camps, one which favors high pay for government workers, taxing the wealthy, subsidizing poverty etc., and one not. Soon, this ideological divide will become a geographic divide as people leave high tax states. Then what happens - separate countries?
Surely it is all just demographics, 100 years ago the life expectancy after 20 years of fire or police servcie was 5 - 10 years retirment? Now it can be 20- 30 years, but with the same contribution.
The West is leaving the demographic sweet spot of high participation rates in work and fewer children, to enter ever increasing retired and fewer workers.
In the 1890's we have 70% of the 70 year olds in work, we need the same now. All for Police and Fire Service getting full pension after 20 years, but this is kept back until they are 65 years old. They then move from 20 years in uniform to civilian jobs until 65, or they stay longer in the police or fire service in uniform. Mixing pension and paid employment is to difficult and taxed unfairly, shoudl shift this round and make doig part time (or full time) work past 60 much more advantageous.
The entire premise of publicly subsidized pensions for public employees is wrong. Why should there be such an incentive for a public career? And why should this career be so long?
This recession has produced many casualties among lder workers who qualify for vast numbers of civil service jobs. They have effectively been repositioned for a frugal retirement and stable, proven work habits. They would be happy to forgo 20 years of work and the brass ring of guaranteed pensions. As medical expenses would be a bigger concern than pensions, they would gladly take an early retirement or honest medical leave, even with a haircut.
The truth is that most dollars paid for most public service benefits beyond salary are used to buy political loyalty, not to guarantee honesty, diligence, or hold valuable skills and training on behalf of the public.Public employees need a good dose of competition. If you disagree that wages are the basis for the competition, which should let the public at large exercise an opinion as to how important tenure and a huge pension are to their immediate choice of work -- or for that matter, a choice of work within increments of five years.
And I will repeat what I said in an earlier blog. A new bankruptcy provision for state governments will focus statehouse minds wonderfully on the issue. Bond creditors will receive absolute protection over hack politicos who have gamed the system.
None of these pension related issues is solved the vicious circle of corruption between public service employees and politicians is destroyed. This will only happen when PS unions are declared illegal.
I have now read the Comment by Al Moncrief and, as a lawyer, I am shocked at what he has reported. However, there are circumstances in which effectually retrospective legislation is justified (for example, in Australia, there was a tax avoidance device known as the Bottom of the Harbor scheme in the late 1970s which provoked some heavy retrospective legislation which I regarded as justified by reference to equitable doctrine such as courts exercising equitable jurisdiction according to good conscience and equity over many centuries did when parties had acted fraudulently or in bad faith. In the case of public sector pensions I would base retrospectivity on the fact that public sector unions had used their political clout to take what could never have been justified as sound or even acceptable fiscal policy.
I am surprised that legislatures haven't yet, as I read the story, got round to imposing an income tax on pensions defined so as to strip the excesses imposed by public sector union capture of previous legislatures and municipal governments. I presume that there is not principal of law which would make that impossible.
35 years ago California was the world's image of the future and even New York's heavily unionised workforce in public and private sectors merely had its hands gently on the state and city's throats. What does it say about American attitudes and American government that in the farthest reaches of the Anglosphere, in the state of Victoria, Australia, we began campaigning in 1975 to end the scandal of public sector retirement benefit costs. It got worse till about 1980 but, by 1993 all defined benefit schemes had been closed to new members and earlier, inadequate reform efforts had at least persuaded many public servants to retire early and take lump sums instead of indexed pensions. (Unfortunately our federal government hasn't done as well but the fact that federal members of parliament were frightened into limiting there scheme's benefits severely - for new members - suggests that there won't be too much gravy for federal public servants in future.
"Article 5, Section 7 of the New York State Constitution guarantees that pension benefits shall not be “diminished or impaired.”"
Astounding! The pension of state employees is guaranteed by the Constitution of the State!
Under what administration was that enacted?
It all doesn't matter. In the end NYC will be what Bloomberg has always wanted: an upper tier of super rich that visit and don't care, the uber poor who don't know and don't care and finally everyone else who works for the city or caters to them. The rest of us, have long left...and the others will sooner rather than later. Pity isn't it, it used to be a nice middle class town. Well that's over.
THE COLORADO WE LIVE IN.
Fact #1: Governor Hickenlooper signs a bill to give a raise to state legislators. Fact #2: State legislators steal contracted, earned, fully-vested, and accrued retirement benefits from elderly in our state (SB 10-001, COLA theft bill.)
Our values are warped.
Recall that Colorado Public Employees Retirement Association (PERA) retirees are suing the state and PERA over the theft of contracted, fully-vested, accrued pension cost-of-living (COLA) benefits that were earned over 30 years. In the first round, a Colorado district court judge has ruled against the plaintiffs (saveperacola.com) in an incredibly flawed opinion. That ruling is under appeal.
Note that prior to the Legislature’s taking
of the contracted COLA retirement benefit the Colorado Attorney General issued an opinion that this action would contravene Colorado case law, and that the taking of contracted benefits from fully-vested pension members would be unconstitutional. Also, note that in 2008, in a Denver Post article, PERA’s General Counsel Greg Smith was quoted stating that taking the COLA would likely be illegal. For some reason he had a change of heart, and testified in favor of the COLA theft bill in 2010.
In spite of all this, the Colorado General Assembly donned its blinders and adopted the COLA theft bill, and like lemmings the Colorado PERA Board of Trustees followed PERA’s Executive Director Meredith Williams over the cliff. Colorado PERA led a parade across the state and managed to frighten a few PERA retirees into supporting the proposed theft. They then used the support of this fraction to bolster their case for the theft of contracted benefits from all other PERA retirees.
To ensure passage of SB 10-001, PERA hired an undetermined number of lobbyists to join a number of union lobbyists (total 12 to 20?) PERA used pension member assets to finance the theft of contracted retirement benefits from these same members. That is insane. PERA corralled the public unions into supporting the COLA-theft bill, and then rammed the bill through the process. Colorado PERA and the General Assembly were informed hundreds of times that the proposal was prima facie unconstitutional.
The initial decision in this case, that of the district judge is incredibly flawed. Read the decision and see if you don’t agree. The district judge does not seem to understand that Colorado has an “automatic COLA” rather than an “ad hoc” COLA that could legally be altered by the pension plan sponsor. The judge states in his decision that Colorado PERA retirees have a contractual benefit to their base benefit, but not to the COLA benefit. He argues this in spite of the fact that the COLA benefit is set forth in statute with the same force of law as all other PERA pension statutory provisions. The COLA benefit is an earned benefit identical to all other earned PERA benefits. Judge Hyatt argues that since the COLA rate has changed in the past it can be diminished in the future. The judge does not seem to understand that increasing a COLA benefit is not a taking, however, diminishing a COLA benefit harms the beneficiary and is therefore a taking. The fact that a COLA benefit has been increased in the past does not grant the state the power to violate the pension contract.
If Judge Hyatt were correct (that giving something to a person allows you to later legally take something from that person) then few pension COLA provisions in the nation would be considered contractual, and these provisions have been upheld as contractual in courts around the country.
PERA members earned the 3.5% COLA that was set forth in Colorado law. Many PERA members literally paid for this 3.5% COLA set forth in the law when purchasing service credit. If the state and other PERA employers did not like the terms of the pension contract with employees and retirees, they should not have become a party to the contract. However, once a party to the contract, they are bound by its terms.
Again, many PERA members sent money to PERA for the purchase of “service credit” (essentially paying for extra years of service in the pension.) The members who made these purchases did so based on the “guaranteed” (PERA’s words) COLA rate. If these PERA members had any idea that the state would renege on its contractual obligations, lowering the value of their purchase, they would not have given PERA the money. They would have left the funds in their 401K accounts.
Incredibly, in his decision the district judge contradicts one of his prior decisions in which he ruled that the COLA benefit was contractually protected. See below this post from “Alan B” in the on-line version of the Denver Post:
“What truly confounds me in this case is that Judge Hyatt ruled the opposite in my divorce case. Which only shows what I have read before that it takes the courts 5 to 10 years to figure something out. He ruled that my wife was entitled to her share of PERA discounted at the legal rate assuming that PERA would pay my pension compounded at 3.5 percent for the rest of my life. Her lawyers argued that her social security could not be guaranteed yet the PERA could be. Judge Hyatt ruled for her and in this case he ruled the opposite of what he had ruled in the current case. Is the 3.5 percent annual adjustment guaranteed or not, Hyatt has spoken on the record, yes and no.”
What happened in Colorado was, in my opinion, a crime.
Thank God the courts are beginning to correct the outright, unabashed theft of public pension benefits that has occurred in a number of states across the U.S. Read below the clarity that this Florida judge brings to the matter, it is truly breathtaking.
The Florida Legislature attempted pension reforms that were not nearly as aggressive, in terms of risk of unconstitutionality, as those adopted by the Colorado General Assembly. Nevertheless, the Florida Legislature has been smacked down by the courts.
Here are some noteworthy portions of the Florida ruling:
“This court cannot set aside its constitutional obligations because a budget crisis exists in the state of Florida. To do so would be in direct contravention of this court’s oath to follow the law.”
“To find otherwise would mean that a contract with our state government has no meaning.”
“There was certainly a lawful means by which they could have achieved the same result.”
“Florida law is clear that a legislature can, as part of its power to contract, authorize a contract that grants vested rights which a future legislature cannot impair.”
“The elimination of the future COLA adjustment alone will result in a 4 to 24% reduction in the plaintiffs total retirement income. These costs are substantial as a matter of law.”
“Where the state violates its own contract, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the state’s self-interest is at stake.”
“All indications are that the Florida Legislature chose to effectuate the challenged provisions of SB 2100 in order to make funds available for other purposes.”
“If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”
“The Takings Clause is intended to prevent the government from forcing some people alone to bear public burdens, which in all fairness and justice should be borne by the public as a whole.”
“Defendants are further ordered to reimburse with interest the funds deducted or withheld . . . from the compensation or cost-of-living adjustments of employees who were members of the FRS prior to July 1, 2011.”
Here’s a link to the decision in Florida:
Eventually Justus will prevail in Colorado. Read all about the Colorado theft, and support the lawsuit at saveperacola.com. Friend saveperacola at Facebook!