And Here It Comes: State Pension Systems [Reformed]

Market Ticker ^ | 25 March 2010 | Karl Denninger

[Lorianne]

For those who think that the state mess isn't going to have a big impact, you need to read this bill. This, incidentally, is from a state (Florida) that is allegedly one of the best in terms of its public-pension status - those of you in Illinois, New York, California and others are in much worse shape.

Let me recap what this bill does:

__Increases employee contributions for all future hires and many current employees by 1% to the pension plan.

__Actuarial disclosure (and public posting of same) must be regularly performed and corrective steps identified to halt and reverse any unfunded liabilities.

__Pensions are now computed based on the average compensation during the employee's term of employment, not the last five years, and explicitly exclude any and all overtime or other "cramming" attempts. Further, the pension paid is capped at that average compensation. All "hazard pay" riders (e.g. additive amounts for police, fire and similar employees) are ended.

__Retirement ages go up materially. The minimum retirement age is now typically 60, and with the exception of "special risk classes" (e.g. cops) you now need 33 years of creditable service. Pension payouts now cannot start before age 62 if retiring before July 1st 2011 and 65 thereafter. For "special risk" classes the prior 55 year age lifts to 60 as of July 1st, 2011.

__Municipalities can close their defined benefit plan, choosing instead to offer defined contribution plans (e.g. 401k equivalents.) An existing employee can transfer out of the pension system to that 401k-style system, but if they do they cannot transfer back to the pension system.

Finally, there is no grandfathering - this applies to all current and future employees, without exception

[gidget7]

The biggest thing about this, glaring at us, is the usurping of contract law. Or rather more usurping.

[mlizzy]

Yes, that was in the Chicago Tribune today — front page ... I’ll have to grab the link ...

[PGalt]

BUMP! BUMP! Hooray Karl Denninger!

[Alberta's Child]

Very interesting news. I believe this kind of measure is going to become much more common as other states are forced to tighten the screws on their public employees just to maintain solvency.

[Rockingham]

Not only is the Florida legislature is solidly Republican, but both houses are now dominated by conservatives. In addition to public employee pension reform, the legislature is on the verge of doing away with tenure for public school teachers in favor of merit pay.

[mlizzy]

Chicago Sun Times, actually. Here's the link: Pension cuts a giant first step. Keep going.

[johniegrad]

The biggest thing about this, glaring at us, is the usurping of contract law.

True but what else can be done? The steps seem reasonable just illegal. LOL.

[Alberta's Child]

This is good news for anyone who is tired of bearing enormous tax burdens on the state level.

And I would consider this no more a "usurpation of contract law" than a similar move by a private company to modify its pension obligations just to stay in business.

The State of New Jersey, for example, is facing a $46 BILLION pension shortfall. The state government has been signing contracts that include obligations the state simply isn't capable of meeting. Any public-sector employee who has a problem with this can now understand what those of us in the private sector consider a normal state of affairs.

[poobear]

Finally! Now if they could just address that “double dipping” thing. Guess now that the age of retirement has been raised it will be harder to retire then be rehired for the same position. Our School Superintendent is on his second pension (possibly third) AND gets paid more than the President yearly. The only people who will be able to afford those gated communities in the future will be retired government workers. Kind of like the former Soviet Union when you think about it.

[Hostage]

The alternative is bankruptcy.

[LooneyTick]

Firefighters shouldn't have to work until they are 60. Rough job on the body at about 55.

[WOBBLY BOB]

http://www.pensiontsunami.com/public.php

[Jack Black]

Why is contract law usurped? Companies retain the ability to reform their pension plans going forward. So do states. It seems that the plan is changing, but there is no talk of abrogating earnings from the old plan.

[Jack Black]

BTW: We went through this in Oregon and ended up with a reformed pension system with Tier 1 and Tier 2 employees. Tier 1 have more of the old rules applying to them, Tier 2 runs all on the new rules. That’s a another way to get the changes in place. Of course the fix isn’t nearly as effective, and we’re still in some trouble with our plan.

[Oldpuppymax]

So this means that state employees are going to be treated like WORKERS rather than GODS??? Oh the HORROR!!!

[gidget7]

Most state employees are unionized. Now I agree that the unions have destroyed our country with the help of congress, but the to correct this stuff is at contract renewal time, not in the middle. If states are allowed to change contracts for existing employees without agreement, so will private. It’s a very touchy position, and the term tread lightly should apply. Insist on changing the terms of the contract, but don’t void an existing one. It could effect MANY other forms of contracts. And we also need to remember, these are employees, NOT THE UNION HEADS we are talking about.