In The News › Public employees’ pensions are a budget’s black hole: James Varney

Apr 22, 2014

Source: | The Times-Picayune

Filed under: Orleans Parish, Pensions

Public employees’ pensions are a budget’s black hole: James Varney

By James Varney | The Times-Picayune

April 22, 2014

If anyone still believed public employee pensions weren’t a budgetary cancer, then the court defeat New Orleans suffered last week with its firefighters’ plan should convince them. Defined benefit plans are a menace.

This is true for all pension plans, but it is only in the public sector that defined benefits, as opposed to defined contributions, are a fixture. What that means is that, if you are a private sector worker, you pay for virtually all of your retirement and most of the government workers’, too.

Where’s the “fair share” in that?

The argument is not that public employees don’t deserve a pension as much as the next guy. The economics, however, dictate theirs cannot be a generous package paid almost entirely with other peoples’ money.

What’s more, it makes no sense to say public employees must have a cushion against market shocks not available to the general public. If a pension fund chooses to make big bets with Cayman Islands hedge funds – the phrase underscores the risky nature of the investment – taxpayers can’t be expected to make good on the loss.

Yet that is exactly the sort of thing that has gone on with the New Orleans Firefighters’ Pension and Relief Fund. Make no mistake: this is a remarkably generous system that has been crippled by foolish decisions. Now, the courts have demanded taxpayers take the hit.

In a report last April, the Bureau of Governmental Research, which has delved into the time bomb of New Orleans area public pensions, minced few words.

“In summary, multiple factors have contributed to the high costs associated with firefighter pensions,” the BGR concluded. “Given this background, one might expect plan generosity to suffer. So far, this has not happened. The New Orleans firefighter pension plan is remarkably generous.”

There have been some alterations at the margins to that generosity. For example, in 2013 the contributions began a gradually imposed climb that will bring them to 10 percent, a figure more in line with the national median contribution by public employees. And rather than calculate benefits based on the four highest years of salary, the system will now use 5 years.

There is a lawsuit pending against the increased contributions, but, for now, most firefighters are having a higher percentage deducted from paychecks. And the rich “benefits multiplier” remains intact. In New Orleans, that ranges from 2.5 to 3.3 percent, a range that begins at a higher point than the national 2.4 average, according to the BGR.

Again, the point is not that firefighters don’t deserve a pension, or that they don’t perform a critical service. It is that they are unquestionably getting an unsustainable sweet deal. The amount public employees contribute must be raised and factors like the “benefit multiplier” must be trimmed.

Unions enjoy more clout within the public sector than the private sector. No bonus points are awarded for connecting the dots between that union power, the juicy retirement package dished out to public employees, and the cowardice politicians of all stripes and throughout the country have shown in reigning in these costs.

The fact the Landrieu administration fought the good fight on behalf of taxpayers and lost before Louisiana’s elected judiciary will only reinforce that craven impulse among the political class.

That distressing situation is true beyond the city’s borders. Democratic lawmakers in the deep blue seas of California and Illinois have encountered nothing but ferocious blowback from their union allies when pension reform is attempted.

It is critical to remember none of this is “theft,” to use a favorite union word. None of this is designed to strip an employee of a pension.

Public employees fight for their soft retirement beds in a number of ways. They don’t receive Social Security, they say, neglecting to mention that means they don’t have to contribute to the world’s largest Ponzi scheme. They supposedly pass up much higher paying jobs in the private sector, they claim, as if finding any job in the private sector that can meet both personal and public pension obligations is easy.

The unions also holler – although on this one they are technically correct – that politicians have shortchanged their pension obligations. Thus underfunded, obligations accrue and sometimes reach the whopping hit New Orleans now faces. On this point, however, remember these obligations would be easier to meet without defined benefits and low employee contribution levels.

It would seem that nothing can be done now about taxpayers’ obligations to the New Orleans firefighters’ system. But it should provide a clarion call to all that unless these pension schemes are brought under control it will be impossible for governments to meet their obligations, period.

Continuing down this road jeopardizes a spectrum of government projects. If literally tens of millions must be funneled to feather public workers’ retirement nests, then departments that benefit all residents will be starved for cash.

Public employees should remember, though, that at some point even their own pensions would be imperiled. A bankrupt government can’t pay its current bills, let alone past sweetheart deals.

Apr 22, 2014

Source: | The Times-Picayune

Filed under: Orleans Parish, Pensions

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