Posted on 08/07/2014 12:34:21 PM PDT by MichCapCon
As pension funding crowds out important functions of local governments like police and fire protection, roads and even streetlights, many municipalities have begun shifting towards 401k-type accounts for new employees.
But other cities have not.
Capitol Confidential has examined the most recent Comprehensive Annual Financial Reports (CAFR) of Michigan’s 100 largest municipalities. Of the 10 municipalities with the lowest funding ratios for their pension systems, only two of them have begun shifting employees away from the defined benefit pension system.
Lincoln Park has only put away 32 cents on the dollar for its pension obligations. It began offering the option of a defined-contribution plan or a hybrid pension plan to new employees in 2004. The city now operates under an emergency manager and representatives declined to comment.
According to the reports, Burton (39 percent), Romulus (45 percent), Norton Shores (54 percent), Hamtramck (54 percent and has an emergency manager), Genesee Township (55 percent) and Jackson (55 percent) still have an open defined-benefit system. Bloomfield Hills (51 percent) is attempting to close its system to new employees and issue bonds to pay down its debt.
The city of Walker, which is 57 percent funded, closed its system to new employees in 2005 and is paying down its debt. Plymouth closed its plan around 2001 and shifted employees to a generous 401k – it has a funded ratio of 49 percent, but is making payments and paying down liabilities.
Others are struggling to find a way out.
Suzanne Moreno, treasurer for the city of Romulus, said they have shifted new hires outside of public safety officers to a defined-contribution plan. The city also trimmed benefits for pension plan members.
“We have put contract initiatives in place for new hires going forward for both pension and retiree health care, effective January 1, 2012,” Moreno said. “Employee contribution amounts have increased, multipliers have been reduced and eligible wages for calculating final average compensation exclude overtime.”
Patrick Burtch, city manager for Jackson, said the upfront costs have delayed them shifting.
“For example, closing plans with higher than average benefit levels or instituting hybrid plans only serves to increase the amount of funds the city needs to subsidize from general operating funds,” he said. “That, coupled with reduction in work force, means we will have significant short term complications.”
These “transition costs” happen only after cities rack up unfunded liabilities. Proponents of shifting employees to a new plan argue that they can be taken care of in a fiscally responsible way and that leaving the system open allows for new liabilities.
James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, said this shows the importance of shifting employees before the problem becomes too big.
“The cost of a pension system includes uncertainty about the future,” Hohman said. “That some cities have only saved 50 cents for every dollar of benefits promised to members speaks to the danger of keeping these plans open.”
The state has attempted to incentivize cities, villages and townships to address their unfunded liabilities. One of the criteria for extra state revenue sharing is to create an “unfunded accrued liability plan,” listing what liabilities exist in the local unit, what the unit has done and what it plans on doing to address these liabilities.
A 401k, defined-contribution plan is a pay-as-you-go system and retirement plans cannot be underfunded. In contrast, defined-benefit pension systems have routinely racked up unfunded liabilities in Michigan and around the country.
There is proposed legislation in the Michigan State House that would help with this shift. House Bill 4804 would, according to MichiganVotes.org, "establish that counties and local governments may adopt an ordinance that prohibits granting employees a conventional 'defined benefit' pension (rather than a 401k), and if such an ordinance is adopted, prohibit government employee unions from making this issue a subject of collective bargaining."
Bankruptcy.
It’s simple; since the employees themselves in government rarely put their own money toward the pensions it’s all a future promise to pay. So don’t and say ‘tough luck’.
Steal “more” money......lol
What else would they do?
And that would lead to a bankruptcy due to loss of revenue and we all know how that goes..
Solve the pension problem?
Ban public unions.
Ban public union political activities and money
Raise taxes to take money by force from people more responsible than themselves.
“It’s simple; since the employees themselves in government rarely put their own money toward the pensions it’s all a future promise to pay. So don’t and say ‘tough luck’.”
I disagree. From an economic perspective in a free labor market, an employee enters into a contract with an employer (public or private) to exchange his/her labor for a compensation package which includes cash, non cash, and benefits. An employer may offer generous retirement benefits in the future in exchange for lower cash compensation today. Essentially public pension are no different than the fully funded defined benefit pensions many private sector organizations provided employees.
When a public or private firm reneges on pension payouts, or reduces them, the firm is essentially stealing from the employee. The employee performed the work at a point in time for wages and the promise of future retirement benefits. The obligation of the employee has been met, if the firm does not provide the promised benefits at a future date it is breaking a contract and stealing the value of the labor represented by the benefits not paid.
The employee is not at fault because the organization to which he/she contracted labor did not put aside the funds to pay out the benefit at the future promised date. The employee is also not at fault if the organization made a bad contract (i.e. the total value of the compensation package for which the employee contracted was greater than market value) just as the employer is not at fault if an employee accepts a below market compensation package for a job. The contract is between the organization and the individual and should be inviolate from the point of both parties. Regardless of future circumstances, the employer owes the deferred compensation and benefits for which the employee contracted at the time he/she performed the work.
Free markets require contracts to operate efficiently. To say a firm or government agency can simply say “tough luck” to employees who have performed work in exchange for compensation that has not been paid is no different than an individual contracting a five year car loan with a bank, paying the loan for two years, and then telling the bank “tough luck” for the other three years. Any court in the land would consider such action breach of contract and the failure of the car purchaser to surrender the car would be consider theft.
Citizens of communities with underfunded pension plans elected representatives who chose not to fund the plans in the past through taxes or spending cuts. The voters who elected these representatives are ultimately accountable for the actions of the representatives, including the failure to set aside funds. The work was performed by employees resulting in an obligation for the employer to fulfill its contract to pay compensation according to the terms agreed to by both parties when the employee performed the work. The voters are obligated pay for the decisions they made in the past, and benefited from, by fulfilling the pension contracts and either pay higher taxes or accept a lower level of government services. To do otherwise would say contracts have no meaning, theft is permissible, and there is no free market.
The “servants” get all the money and do none of the work. Insanity brought to you by 75 years of democrat rule.
Ban public employee unions. This is when the problem started. That’s how it can end.
This is not a free labor market. It is a government mandated market. The beneficiary of this mandate drives the decision making. The promises were given to themselves by themselves.
That describes the state of the US in 2014 - See what the Federal Government did to the Delphi pensioners and GM bond holders.
The difference is the public sector is using taxpayer money. And no private company sets up benefit defined pensions and if a big one does it is highly regulated by government.
I don’t believe public sector employees should be treated better and get large, lifetime pensions more and more in fraudulant ways like padding their final years with untaken sick time, etc. (the private sector normally doesn’t carry sick time over from year to year) and then double dipping with a job in another agency.
Frankly, the voters aren’t very aware of how much of their taxes go to this stuff and the government sure doesn’t tell them. It’s not the free market when public employees are involved. It’s a legislative matter and as we saw in Wisconsin they throw a hissy fit when you try and reform this outrageous waste of tax money.
For the private sector I fully agree with you. The public sector, except for maybe cops, firefighters, and emergency workers can go pound sand as far as I’m concerned.
ding ding ding
I disagree with your comparison to the private sector. First off there is virtually no private sector union. Secondly very few of us in the private sector have a contract.
My benefits (medical and retirement) have been changed multiple times in my lifetime with little to no compensation in return. For instance my pension was changed to a 401k, it was simply rolled over and the pension was eliminated. My healthcare plan went from 0$ contribution to thousand $ a year with reductions in coverage. Again no compensation for the change.
Furthermore I did not campaign, fund or elect by boss who controls my benefits and pay.
Please stop comparing the private sector to the public. There is no comparison. The public sector is organized crime which requires the private sector to pay protection money or face consequences.
You forgot to mention that the public employee campaigned funded and elected the very people who control their pay and benefits. I would call this putting the fox in charge of the henhouse. So in the end the public employee squandered their own pension by electing these patsies. Tough luck.
All defined pension plans, private and public, are promises to pay. I think both should be treated equally under the Pension Benefit Guarantee Act. All entities that make such promise should be required to pay into the fund that under rights the act. When an entity, private or public, is judged to be insolvent the benefits are reduced and capped. Public entities should not be exempt because governments can theoretically always raise tax levels to pay benefits. They should be allowed to file for bankruptcy and have their financial condition assessed at then current tax rates.
I assume the missing percentage went for graft, trips to anywhere. Buying votes etc.
It will be called, a special tax. We should call it “a pandering politician tax” for the pols who kicked the problem down the road to appease unions for votes.
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