Monday, March 19, 2012

RH Jones re: Defined benefit pensions

From RH Jones, March 19, 2012
To all:
Please read the attachment below. This is part of the start of the nationwide attack on our delayed compensation state pension.
It seems to me that the public thinks that our pension is supported by taxpayers. Our pension is our money that we honorably negotiated during our career employment which was established by our elected public employers and our Ohio State Teachers Retirement System (STRS). Our STRS was formed way back in 1920 by the public, legislators and teachers working together to form a modest retirement income for teachers. This was done in the American spirit that honors those whom have worked the productive years of their lives to educate Ohio's youths. Our STRS has survived through WWI, WWII, the Korean War, the Vietnam War, and the numerous wars since then. It has also survived the Great Depression, the Great Recession; and, with the help of the legislature, it has somewhat survived inflation of the dollar, until now. It has been 25 years since the Ohio public legislature has boosted their share of the employer compensation to the STRS. Without an employer increase in their contribution, retired teachers have been left with a diminishing value of their pension. Increased health care costs brought on by inflationary medical expenses. These have been far beyond normal inflationary rate in those 25 years. The simple non-compounding 3% Cost of Living (COLA) allowed by the legislature early in 2008 helped, but in no way could keep retirees up with inflation as they paid out higher bills caused mostly by increases in taxes, food, fuel, transportation and, of course, medical.
Cutting out the pension's defined benefit is not the answer either. Defined Benefit pensions pour billions into Ohio's economy, and would pour ever more if the public pensions could keep up with inflation; however, private Defined Contribution pensions, that many far-right conservatives are advocating, would pour even less into the economy -- as research has proven. That type of pension would, therefore, not be able to add such billions to the Ohio economy. It would just help the few businesses whom would be offering financial advice. Over the years businesses come and go but the Defined Benefit pension "stays the course" and helps to smooth the financial ups and downs of our free economy.
The capacity of the middle class - of which retired teachers, due to their personal training expenses and responsibilities, should have a part, has been diminished by the super rich. For instance, the Akron Beacon Journal recently published the salary of the Goodyear Chief Executive Officer (CEO). In his last contract he gets over $12 million for the year. Also, tax cuts for big local, state, national, and international businesses have been rampant of late; but no tax cuts for retired teachers, or other retired public middle class workers. Factory and retail workers working in many businesses have been held down from their share of business profits in order to supply CEOs with income that is far too enormous for their work contribution. Many university CEOs of both private and public universities are doing the same. This is at the expense of their students, and taxpayers, whom are paying out more toward public university tuition.
Personally, I can understand some of the comments of the financial adviser below; however, the fault is not with state pensions. Before I retired I hired a financial adviser to help me with my financial situation. But as the middle class has shrunk in numbers and income, there is now less money available to purchase the talents of financial advisers, or other small businesses. But please do not expect to gain business by depriving a proper retirement from those retired teachers who taught you.
RHJones, a concerned retired teacher
Pension Retention Will Be Sent To Detention or, The Golden Goose Is Wearing a Noose
March 5, 2012
By Rob McClain
Public employee pensions are promises made by people who never have to fulfill them. Pension fund managers are the promise-keepers. They balance risk and return by using demographics, life expectancies, and asset allocation to provide paychecks for life.
Public employees expect a comfortable retirement after a period of service. Their pension plans are about to have train wreck. According to, “at its current level of tax collection, Ohio would need to devote 8.75 years of tax revenue to pension funding simply to catch up on already-made promises.” Forget funding for roads, education, Medicaid, or ANY other program, including new state employee benefits and salaries. The pension monster needs all your money, Ohio.
Public employee unions absolutely intend to send us the bill for their pension plan’s underperformance. Their members can and will engage in whatever intimidation is necessary to get what they want from every school board, township trustee or Governor of the state. Think SB5; was there anyone on the side of taxpayers in that argument other than Governor Kasich? Union money poured into advertising to scare voters into making what will be one of the most ill-advised decisions in fiscal history.
So, how did this happen? Pension funds invest in financial instruments that stabilize their returns so the portfolio (The Golden Goose) can generate tomorrow’s paycheck for life (The Golden Eggs). The pension system goose was never built to handle the confluence of disasters that is dashing the dreams of public and private pensioners. Any one of these “waves” could be survived by a careful and cautious fund manager. But not any three…and certainly not all six:
Wave 1: The Federal Reserve’s near-zero interest rate policy for a more than a decade.
Wave 2: The finance industry’s of use derivatives to leverage their profits.
Wave 3: The 40% crash in the stock market in 2008-2009.
Wave 4: Collapse of the housing market and the “fraud-closure” aftermath.
Wave 5: Destructive demographics: workers are retiring too soon and living too long.
Wave 6: More than 70% of retirees will require long term care during their last years.
This column lacks the space to explain each item at length, so let’s pick just two:
The Federal Reserve intends to keep interest rates near zero (Wave 1) until at least 2014. At a time when pension funds need to shore up funding in a big way, returns in fixed securities are stagnating. You can’t run uphill on a treadmill, and pension managers know it. They must break promises, change retirement rules or wait for union leadership to browbeat money out of taxpayers.
Pension funds loaded up on mortgage-backed securities (Wave 4) beginning in the 1990’s because of the asset’s AAA ratings and steady returns. With a plague of “walk-away” homebuyers, how is that working out for pensions? About as well as electing a community organizer as President.
Thanks to the federal government’s recent “fraud-closure” settlement between major banks, the Justice Department and 49 state attorneys general, the banks are allowed to reduce the balances of millions of mortgages, driving down the value of the bonds held by pension funds, as well as the income they receive from holding the assets. Bottom line: public pensions will shrink. The private sector is in no better shape. The S&P 1500 is staring at a pension under-funding obligation of $484 Billion. Does anyone honestly believe that union leadership under isn’t going to lash out and demand that taxpayers pony up?
Again, look to the streets in Greece, where the government has had to cut benefits. Rioters there think that they have a solution: burn the cities until someone cries “Uncle”. Union leaders in Wisconsin and Ohio whipped members into a frothing-mouthed frenzy over contributing more money to their own retirement and medical insurance costs. Teacher unions in New Jersey savaged Governor Chris Christie over a one year pay freeze and 1.5% salary contribution toward insurance costs. The head of the Bergen County teachers’ union sent an e-mail asking members to pray for his death.
My hope is that future pensioners will sit down and make a plan for individual financial security. If you don’t make a plan, I promise you that your fund manager has one for you. The plan manager starts by saying, “We will not honor the promises we made” and ends with you saying, “Welcome to Wal-Mart”.
Larry KehresMount Union Collge
Division III
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