PENSION RIP-OFFS

City, county and state government pensions are one of the less publicized rip-offs of the American taxpayer.

Newspapers throughout the nation sporadically print back page stories about government employees who retire after 20 years with full benefits and pensions (generally east coast states). These same people then go to work for another municipality and after 3 to 5 more years they collect another full pension, resulting in taxpayer’s footing the bill for billions of additional pension dollars. On top of that, these same governments are not funding the pensions while handing out huge increases in long-term retirement benefits; instead, they are stealing the money to cover their bloated budgets. This process is a national disgrace with horrendous implications on the economy regardless of your views on government’s place in society. The problem not only exists with city, county and state pensions, its ugly head has also reared in the private sector as well. Someday, someone is going to have to cough up an enormous amount of money to even out the books, and it won’t be the current politicians who face up to this fiscal banditry – they’ll be long gone.

But how does this work? How do the politicians ignore their fiscal responsibility by playing dangerous and fraudulent games with pension monies? We’ll explain it in terms that you most likely can readily identify with.

The Mechanics of Pension Rip-Offs

Let’s say you work for the XYZ Manufacturing Company and every month they withhold $50.00 for deposit in your 401(k) fund. That money is supposed to automatically be deposited in some vehicle such as a bank account or into a mutual fund. If the owner is faced with a lousy month of sales and he can’t make payroll in full, he may elect to not make the deposits and hope he can make it up later. Now first of all, what he is doing is illegal and secondly it is most likely being done without your knowledge. Since it’s illegal few small companies push the envelope because they don’t want to be thrown in jail. But the legislators and administrators in many states are doing the same thing except on a much grander scale. Instead of depositing the money in a bank or fund, they use the money to pay city, county or state bills. Yes, it’s illegal in all branches of government, too.

Over the last few years, we have been inundated with stories about how Congress has stolen your Social Security payments to pay out-of-this-world federal bills. On top of these unfunded liabilities, state government has been giving enormous pay increases to state employees too, which aggravates the total pension-funding problem. We can all remember the old adage, “Robbing Peter to pay Paul.” At some point, we all must recognize that our younger citizens will be presented with a huge bill because the older taxpayers have run out of money to make up the difference.

In total, America’s private pension plans are under funded by $353 billion for all private-sector American workers, while public-sector plans are under funded by $450 billion, for close to $1 trillion in debt.

Contents of Article

This article contains three sections, “Current Status of Private Sector Pensions,” “Current Status of City, County and State Pensions,” and “Pension Rip-Offs by State.”

Current Status of Private Sector Pensions

It’s not just the government agencies that are committing financial hara-kiri (suicide) with pension funds. Many American companies, faced with unacceptable union demands, acquiesced to generous pension benefits to avoid large wage increases. It is estimated that 20 percent of the American work force expect to receive payments after retirement through defined benefits plans. In many cases, granting “down the road” benefits was the only way they could stay in business. But as these bills come due, business owners can’t turn to taxpayers to demand tax increases to bail them out. They either have to declare bankruptcy, find another means of reducing the debt or sell the furniture.

American companies are now feeling the bite as a result of their labor negotiations with many powerful unions. These endangered companies saw only two courses of action to stay solvent. One was to go back to the negotiating table and ring concessions for their unions – yeah, sure – and I believe they will find an honest politician in New Jersey, too. The second and preferred method was to declare bankruptcy, which United Airlines did in 2002. In May 2005, United won court approval to shift the responsibility for their pension obligations from the company to the Pension Benefit Guaranty Corp (PBGC) so they could stay in business. Now the Pension Benefit Guaranty Corp. works in much the same way as the Federal Deposit Insurance Corp. (FDIC), which guarantees your bank deposits up to $100,000. Franklin Delano Roosevelt created the FDIC at the height of the Depression to restore citizen’s faith in the banking system. The Pension Benefit Guaranty Corp. provides limited assurances for people with private pension plans. As it stands now, the PBGC is itself running a $23.3 billion deficit due to the frightening number of pension plan failures. Currently, there are 1,108 under funded pension plans with a collective debt of $353.7 billion dollars, an alarming increase since the year 2001.

Permitting United Airlines to escape their pension obligations has far-reaching implications. With the court’s ruling, the 120,000 employees of United Airlines can expect to receive about two-thirds in pension benefits to the tune of $6.6 billion, the limit of the agency’s guarantee. But what about the other airlines that have maintained a good track record in the face of ever-growing competition? The president of the Air Line Pilots Association, Duane Woerth, said, “The only way an airline can avoid burdensome pension costs is by entering bankruptcy and terminating the plans. But if more and more airlines choose to shed their pension liabilities in bankruptcy, it sets up the potential for the ‘domino effect,’ in which all the other legacy carriers are incentivized, or even forced, to file bankruptcy, in order to achieve the same cost savings and level the playing field.”

One congressman, Jim Bunning (R-Kentucky), who was especially critical of government’s encouragement of corporate mismanagement through lax rules, said, “I want to know why we should reward lousy management.”

The Bush administration has promised an overhaul of the regulations and the 1974 law that established the Employee Retirement Income Security Act and the Pension Benefit Guaranty Corp. Congress recently sent a pension reform bill to President Bush for signature. The bill sets reasonably strict funding requirements and higher insurance premiums for traditional corporate pensions. The most important mission of pension reform is to protect employees from being shortchanged and taxpayers from having to foot the bill for pension defaults. But in response to intense lobbying, Congress also carved out some big exceptions for ailing airlines, notably Northwest and Delta. That opens the door for other companies and industries to demand special treatment. And by creating the perception of an uneven playing field, the bill could provide yet another excuse for companies that want to get out of the pension business completely.

The only reality for taxpayers to assure themselves of a comfortable retirement is to pull in the belt a few notches by creating your own 410(k) plan that you can control. Regardless of how much mental masturbation occurs over government control of Social Security and assurances by government of bailouts of bankrupt pension plans, take the bull by the horns to assure your own sanity and economic future and have your payroll deductions automatically deposited into your own account. The message is loud and clear – don’t rely on corporate America or the government.

Current Status of City, County and State Pensions

San Diego, California Pension Scandal Reflects Future

San Diego, California is the best place to start the discussion about the huge pension disaster that will befall most cities, counties and states, as San Diego will likely be the catalyst that exposes a series of pension scandals throughout the nation. As in many other cities and states, San Diego politicians have continued to borrow against worker’s pension funds while increasing those same benefits to placate unionized municipal workers. How did this all happen? San Diego traditionally has had low taxes due to citizen’s careful scrutiny of the politicians spending habits. Since the city fathers could not award city workers generous wage hikes, over 25 years they continually hiked their retirement benefits. The logic is simple. The citizens will not realize they were bilked until these same politicians are out of office, retired or six feet under. For many years, instead of saving high investment returns on pension-fund assets for possible negative market reactions (“Rainy day fund”), San Diego took the unusual and fiscally irresponsible step of giving pension-related cash bonuses to its employees. When the stock market went into the dumpster starting in 2000, it is alleged that officials hid the bad news about the extent of the pension liabilities so that they would not be faced with either asking voters for tax increases or telling employees they would need to cut back on benefits. In January 2005, when it became apparent they could no longer hide the truth, officials admitted that the Employee’s Retirement System (SDCERS) was only 67.2 percent funded, with the shortfall exceeding $1 billion.

The city hired a law firm, Vinson & Elkins, to review their disclosure practices from 1996 to 2004. The 276-page report they prepared contained a scathing review of the widespread problem that was much bigger than simple municipal corruption. The report said that although there was no evidence that the city meant to deceive investors, “..in a routine and occasionally careless manner that focused on current issues while regarding long-term concerns as speculative and inappropriate for disclosure.” What that means in the English language is that they buried their heads in the sand, as they did not want to face political suicide by owning up to the truth. The Justice Department and the Securities and Exchange Commission (SEC) are investigating the pension funding for something is definitely rotten in Denmark.

The San Diego City Attorney, who is a part of the investigation, has give the city’s pension board a deadline to deliver privileged documents sought by federal prosecutors. The City Attorney said, “The fact it's taken so much time means there's stonewalling going on." Rumors are flying that one of the major reasons the board is reluctant to cooperate is that they voted themselves generous benefits from the pension plan regardless of the final status of the fund. A likely scenario is that the members will likely invoke their fifth amendment privilege if forced to testify about the shenanigans. Historically, one of the pension board members, Diann Shipionne, blew the whistle by writing opinion articles in local newspapers and testimony before the City Council. Naturally, a top city official was quoted as saying, that she “omitted, slanted and misrepresented facts.” In February 2005, then Mayor Dick Murphy nominated a spanking new 13-member board to replace all of the existing members including Ms. Shipionne, apparently the only honest voice on the entire board. The Mayor rewarded her zeal by stating that the board was better off by starting with fresh faces.

As a consequence of this disaster, San Diego Mayor Dick Murphy has resigned. The scandal in San Diego provides a crystal ball for not only the entire state of California, but more importantly, for the rest of the country. Three days after his resignation, Michael Zucchet, his anointed heir was charged with taking bribes from a strip-club member. The FBI and Securities and Exchange Commission (SEC) are investigating potential fraud and public corruption. The nine-member council that rules the roost only has six members. Perhaps they can’t find three wise men out of the entire population.

San Diego had a reputation of fiscal conservatism and responsible government for many years due primarily to voter’s vigilance of the purse strings. It was touted as the model for other American cities until, that is, politicians kept increasing unreasonable pension benefits to city workers to buy votes and loyalty without making the corresponding contributions to the pension fund. Carl DeMaio of the Performance Institute said, “It’s a financial crisis in the midst of a circus-like atmosphere. City government is in complete paralysis.” San Diego, the nation’s seventh largest city, is unable to borrow any money due to their pathetic credit rating so there is the potential that the city may eventually declare bankruptcy

Orange County, California Employees Get Huge Pension Increase

In 2004, county employee’s pensions were increased 62% by the munificent lawmakers, for after all its only taxpayer money. Every one knows that the culprits who approved this revolting increase will be long gone by the time Orange County taxpayers need to pay the piper.

California Pension Status

After the attention-getting news about the San Diego pension plan scandal hit the media, Governor Schwarzenegger proposed a complete revamping of local and state government pension plans. Naturally, his ideas hit a brick wall even though the state contribution to the pension plan has soared from $160 million five years ago to $2.6 billion in this year’s budget. State Democratic leaders and state employee’s unions refuse to believe the sky is falling. As with his other plans to revitalize state government, since he can’t get anywhere with the drugged mutants who control the legislature, he plans on taking his case to the people through a referendum. One of the major problems the Governator will face is convincing state employees that his proposed switch from a defined-benefit plan to a 401(k)-style plan is in their best interest. Apparently, the same argument that was used to kill president Bush’s “privatized accounts” argument in is vogue in California, although almost every major statistic available from economists provides comfortable assurance of a better return on investment assuming that the stock market doesn’t fall into the Black Hole of Calcutta. But if that happens, your pension will be the least of your concerns as American business as we know it will cease to exist.

New York Pension Status

The state of New York has a $120 billion pension fund. New York used its record-high returns on pension investments during the 1990s to justify future benefit hikes to state and local retirees. One of the major problems with New York and other agencies is the funds are making more speculative investments to cover potential shortfalls. After the stock market tanked starting in 2000, local government’s were supposed to find ways to generate more cash to cover losses in the pension funds. Since this was a Herculean effort for many small municipalities, they basically ignored the problem. How did Albany respond? They permitted these same municipalities to borrow more money. The bottom line of these transgressions is taxpayers not only have to make up for the pension fund losses, they also have to pay for the debt for the borrowed money.

Governor Pataki recently signed into law a bill permitting the New York City Metropolitan Transit Authority (MTA) to borrow $1 billion to invest in the stock market. Fare revenues backed the $1 billion in bonds that were issued to cover the deficit. If the stock market falls, subway and bus riders san expect to see huge increases in fares.

The nonpartisan Citizens Budget Committee (CBC) has recommended that the state convert the pension fund into a system of 401(k)-type accounts. In that scenario, workers would be responsible to invest their own money, with the inherent profit or loss – but that notion will be hard fought by the progressive/socialist consortium. The subtle beauty of that approach is that once the money is transferred to the worker’s account, meddling politicians can’t steal the money to pay other bills. The CBC pointed out that when the powerful unions fail to get expensive benefits through traditional labor negotiations, they lobby the legislature to get those marvelous benefits signed into state law.

Buried amongst the ravings of the unions is the fact that most of these public-sector employees retire at the age of 55 or after 25 years of service. This is virtually unheard of in the private sector. And on top of that, with the average American living to the ripe old age of 75+, these public workers can have a second career of 25 years elsewhere and retire again after another 25 years living their lives in grand style.

The painful truth is that 90 percent of public-sector employees have traditional benefit plans – known as defined-benefit plans because retirees receive a defined amount each month – while just 20 percent of private-sector workers have this type of plan, a sharp drop from 1960 when 40 percent of private-sector workers were enrolled. One of the reasons for the wide disparity is because 36.4 percent of government employees belong to a union while only 7.9 percent of private-sector workers do.

Of course, we can’t escape the classic liberal analysis of the problem. Gerald McEntee of the American Federation of State and Municipal Employees, which represents 1.4 million government workers, added his two cents by saying, “A lot of people are exaggerating the problem. Right-wing think tanks and conservative Republicans want to do away with traditional pension plans and replace them with much cheaper 401(k)’s at the same time they want to give all these tax cuts to the rich.” So people are exaggerating the problem? What planet have you been living on? So how do you propose we solve the problem, Gerald – increase taxes, no doubt?

If we can’t get government employees to accept a small dose of reality and back off of their exorbitant pension demands, then the solution is simple. Clean house and fire 10 percent of all workers – they won’t be missed.

New York City Pension Status

problem. The funds committed may fall well short of the city’s promise to hundreds of thousands of current and retired workers. The city has been using an unusual pension calculation that does not comply with accepted government accounting rules. If private industry did this, the chief officers would be roasted on a spit.

The city’s chief actuary, Robert C. North, says the numbers are “meaningless” when it comes to showing the plan’s financial health. He has prepared a set of alternative calculations showing that the “real world” gap in the pension funds could be as high as $49 billion. This is nearly as high as the city’s annual budget and the equivalent of the city’s publicly disclosed debt.

Now this doesn’t mean that the city will quickly run out of money, but it does mean the city is promising benefits to its current employees it might not be able to provide without substantial tax increases or major budget cuts, and we all know how the money will be found.

The city’s required contributions to the pension fund have quadrupled in just five years from $1.1 billion in 2001 to $4.7 billion this year.

Outside experts say the city’s accounting methods are flawed because it provides a misleading picture of the plan’s actual condition. No other large city or state plan uses this method.

The State Legislature must approve all increases in public employee’s pensions, as legislators have granted billions of dollars of new benefits, often over the city’s objections. Legislators claim that that these new benefits were doled out based on an understanding that they represented no threat to the future generations of New Yorkers who must foot the bill.

New York City pension are comparable to their neighboring state, New Jersey, wherein a teacher, age 55, with 30 years of service, can retire at $51,000. Police, after 20 years of service, can retire at $53,000. In recent years, city retires were given cost-of-living increases, a benefit unheard of in the private sector, plus pension plan contributions were eliminated. New York City has also promised to pay for its retiree’s health care, but no one seems to know how much that will cost. Mayor Bloomberg estimates that it may cost $50 billion but estimates run as high as $100 billion that have not been formally reported.

New Jersey Pension Status

New Jersey is one of the relics of modern pension planning in that bureaucrats run the states’ investment program instead of professional fund managers. In slightly more than two years, the state’s Division of Investment has lost nearly $18 billion in public pension funds, enough to run the state for eight months. Giving the department a fair shake, most managed funds have lost considerable money since 2000, but the losses in New Jersey have forced taxpayers to cough up $200 million in 2005 and $1.6 billion in 2006. In New Jersey, state, county and municipal employees contribute about 5 percent of their salary into the pension fund system, which in turn invests the money. The state’s fund consists of stocks, bonds and fixed income, cash and mortgages. What is really startling about the fund is that the taxpayers have to support the fund if a five-year average on returns falls below 8.25 percent per year. As of June 2004, the returns for the prior five–year period averaged 1.5 percent. Guess who is reaching into their pocket to make up the difference. I’ll bet you will be hard pressed to find “such a deal” for workers in other states.

So how does the state pension system compare to private sector plans. According to Michael Diamond of the Gannett New Jersey newspapers, a 58-year old firefighter in Camden made $76,000 in his final year of work. He retired with $53,000 a year and health benefits for life. On the opposite end of the spectrum, a cardboard box manufacturer in Cherry Hills worked for 25 years until the company folded in 1999. His annual pension is $5,520 per year. He and his wife moved to Delaware where property taxes are 81 percent lower.

Pension problems are aggravated by retirement benefits fit for a king, tacking (holding multiple state jobs) and outright taxpayer abuse. The system is heavily weighted to the worker’s benefits are calculated based on the three highest salaries rather than an average of all years of employment. Who in their right mind have ever heard of such a grand giveaway? Here’s where the unfair benefit calculation and tacking come into play. The worker can be employed in one lower paying job for 20 years, raking in as much overtime over the last three years as humanly possible, and then after retiring take on a second job for 3 to 5 years at a higher salary to ramp up the pension. One individual somehow managed to hold eight part-time jobs that paid him total of $264,284 a year. He retired on slightly more than $150,000 per year. In comparison, the Chief Justice of the U. S. Supreme Court makes $203,000 and the governor takes home $175,000.

New Jersey State Workers vs. Private Sector Workers

In an article published in The Star-Ledger, New Jersey state workers salary and benefits were profiled along with a comparison of state worker salaries and benefits versus private sector employees.

This comparison was prompted by a desire by a few state congressional leaders (and it must be assumed by the majority of the citizens of the state) to bring these salaries and benefits in line with the private sector.

Comparing Contracts between State Workers, Teachers and Two Private Sector Unions

Although state workers are represented by seven different unions, the largest and most powerful union is the Communications Workers of America (CWA) representing almost 40,000 state workers. The two private sector unions shown include low-paid casino workers (who often garner much of their income from tips) and a typical butcher at Shoprite Supermarkets.

Item	State Worker (CWA)	Public School Teacher	Casino Service Worker	Shoprite Butcher
Pay	$52,000 (median)	$60,723 (average)	$4-$20 per hour	$50,128 (average)
Holidays	14	(Note 1)	9	9
Raises in last contract (annual average)	2.87%	4.65%	3.47%	3.38%
Vacation	12 days 3 weeks after 5 years on job 4 weeks after 12 years 5 weeks after 20 years	(Note 1	2 weeks 3 weeks after 8 years	1 week after 1 year 2 weeks after 3 years 3 weeks after 8 years 4 weeks after 12 years
Sick days per year	15	10	0	12
Annual Pension (25 years service)	$21,137	$26,635	$10,800	$16,500
Retirement Age	55 (After 25 years of service)	55 (After 25 years of service)	65	60
Note 1: Teachers work on 10-month contracts. The school year includes 182 days of instruction and a few days per year for parent-teacher conferences depending on their contract.
In comparing schoolteacher salaries, let us not forget that most teachers (but not administrators) have virtually the entire summer to run a small business and make between 5,000 and $20,000 in additional income, if they so desire. Therefore, a one-on-one comparison to other workers salaries does not necessarily reflect reality.

Comparing Benefits between State Workers and Private Sector Employees

Item	Private Employees	State Employees
Defined benefit pension	18%	100%
Medical Insurance	69%	100%
Free Health Insurance	12% (Note 1)	60% (Note 2)
Health Benefits for Retirees	5%	100%
Dental Plan	45%	100%
Vision Care Plan	28%	100%
Prescription Drug Plan	63%	100%
Note 1: In calculating take-home pay, the average private sector worker without free health insurance may often pay $800 per month for a family of four for medical premiums, reflecting a salary loss of at least $10,000 per year. Note 2: State workers in the NJ Plus plan pay no health insurance premium.

New Jersey Advisory Panel Recommends Pension Cuts

In November 2005, an advisory panel has recommended substantial changes to the retirement system for public employees to erase the state’s unfounded pension obligation of $12.1 billion. Their “key” recommendations include the following:

· The retirement age for teachers and state workers would be raised from 55 to 60 to save $175 million

· Employees of the state and some local governments would pay a greater share of their health insurance premiums

· Pensions for municipal attorneys, assessors and “other” professional services vendors will be ended.

· End the abuse of “double dipping” whereby state employees hold two or more jobs. This issue is especially bothersome to many New Jerseyans.

· Bar pensions for convicted public officials

· Bar the practice of borrowing money to pay for personal obligations.

· Base pensions of the average of the five highest annual salaries instead of three highest salaries.

The panel noted that 91 percent of private employers use the age of 65 as the retirement age for full benefits, and at least 13 states have a cutoff that exceeds 55. Greg Edwards, president of the Center for Policy Research of New Jersey, said, “People are living longer. Many people are choosing not to retire at an early age. And early retirement is a bad incentive to provide, especially for teachers.”

The panel went so far as to “reluctantly” recommend the sale of state assets to close the gap. The Apathetic Voter is aware of a hockey arena in Newark that might fetch a $1/4 billion bucks as starters.

The panel recommended that active state workers, along with employees of municipalities, totaling 212,019 retirees and beneficiaries and 532,465 active workers, contribute more toward their health insurance. Currently workers with the most basic coverage pay nothing. Those insured by HMOs pay 5 percent while those with the most generous policies pay 25 percent. The panel said that if the state required a 10 percent contribution for those insured under the most basic policy, state and local governments would save $489 million per year.

Unfortunately, the panel took no action on the following possible remedy to reduce the horrific burden of the state’s fringe benefit costs:

· Convert the existing pension system into a “defined contribution” plan like a 410 (k) for newly hired public workers. Earlier this year, the state’s pension director predicted that without major changes, the $2.2 billion bill for health insurance premiums and retirement benefits could triple in just 5 years.

The panel cited one unnamed employee who earned less than $10,000 a year in public service for 24 years, then was paid $141,000 for one year as a prosecutor. That gamesmanship, that likely is practiced by more pensioners than we want to believe, changed his pension from $3,600 to $70,000 annually.

Who are these political neophytes making these recommendations? Don’t they understand that the taxpayers of New Jersey just love dumping their hard earned paychecks into the perennial horn of plenty, to be feasted on by the ½ million active and retired government employees?

Naturally, the powerful teacher’s union, which represents 192,000 teachers, and other unions are screaming bloody murder. Changes to the pension system only require action by the legislature, but changes to healthcare premiums must be negotiated with the powerful unions. Just watch the fireworks at the negotiating table during the next round of contract negotiations.

The Apathetic Voter has a simple solution to the problem if the unions adamantly refuse to accept the desired healthcare changes. Simply furlough 10% of the 532,465 active workers – they won’t be missed. Corporate America often uses that ploy with great success to clean out “dead wood.”

Even the Europeans Recognize the Problem

Even the Europeans (who are renowned or defamed depending on your outlook) for their cradle-to-grave welfare system, recognize the problem. In Great Britain, the Pensions Commission has recommended rising the retirement age to 69; Italy has raised the age from 57 to 60; Belgium is considering raising the age from 58 to 60; and Germany will raise the age from 65 to 67 between 2012 and 2027.

The Pensions Commission, which also has recommended the use of individual retirement accounts (which have been so disparaged by the liberal/left clique in this country), reported that there will be 50 percent more pensioners by 2050 and that and that nearly 10 million people are not saving enough for their retirement. Unless drastic action is taken the pension fund gap will approach $100 billion by mid-century. The British plan borrows from Sweden, perhaps the most socialized country in the European Union, that has augmented state pension plans with private savings accounts, but you won’t read about the success of this idea in any AARP publications. As a matter of fact, you will only read about two countries that have had a degree of negative results using privatized accounts in heavily biased AARP publications, but not about the eighteen countries, including communist China, which have had very successful results with some people retiring with three times as much money then if they had relied on the state pension system.

Even General Motors Recognizes the Problem

Over the years, General Motors (GM) executives undermined the company by offering lucrative health benefits in union negotiations to continue their production lines. Just as with state and local governments and numerous other corporations, creating new debt was a better option than direct cash payments, which was an irresponsible act but it kept the doors open. As we have all become painfully aware, all of these organizations must pay the piper or renegotiate their union contracts. But apparently, the United Auto Workers (UAW) understands the predicament facing GM especially with foreign competition, so they are committed to work with the company to share in the costs of their healthcare benefits. Henceforth, healthcare costs for retirees will total as much as $370 per year for individuals and $752 a year for families. Drug co-payments will rise to a maximum of $18, up from $10. This may seem to be a trivial amount to most private sector workers who pay much higher amounts for their healthcare premiums, but it’s a step in the right direction. GM claims that the changes will save it $1 billion a year.

Illinois Pension Status

As if California, New York and New Jersey don’t have horrendous pension funding problems, Illinois is not far behind. It’s obviously a national plaque. For the current year, Illinois faced a $2 billion budget shortfall, so they stole the money from the state pension fund to cover the debt. Illinois even floated a $10 billion bond issue to cover some of the pension deficit a few years ago. Illinois now has a $35 billion collective shortfall in the pension fund.

Texas Pension Status

At least in Texas, where the pension system has an $11 billion shortfall, legislators are trying to solve the problem. Legislation was recently signed that restructures the benefit calculations for many educators, changes the retirement age for future teachers, and bars school districts from offering early retirement as an inducement. The age for receiving full benefits will be raised from 55 to 60 as of 2007.

Conclusions

If the politicians are able to take the bull by the horns and at least legislate a few partial fixes in Texas, why can’t this happen in California, New York or New Jersey? The answer is it can’t because the government employee unions have too much clout, especially the United Federation of Teachers. With the astronomical growth of government and its corresponding employment levels (21 million and counting), each day the unions become virtually omnipotent. Unless we put a halt to the power of government, there will be no possible recovery.

Now we can add municipal pension fund scandals to Social Security insolvency problems coupled with the avalanche in Medicare expenditures to our worry list. We can be thankful that the Democrats will have an answer – increase taxes!

Pension Rip-Offs by State

Below is a list of pension rip-offs organized by state.

State

Date

Pension Rip-Off

Alabama

Alaska

02/01/06

Alaska Faces Pension Time Bomb

One of the few states to carefully assess their pension liabilities, Alaska estimates the pensions for future retirees including healthcare exceeds $5.7 billion, and yet the state is building two bridges to “nowhere” for a total cost of almost $1 billion. Oh yes, I forget, that money is coming from the feds, so obviously it doesn’t count.

Governor Frank H. Murkowski called a special session of the Legislature and pushed through changes in pension and retirement healthcare benefits for new state employees. That was all he could do, because the state constitution forbade him from changing the benefits of current employees. Instead of comprehensive, subsidized medical coverage, new public workers will have a high-deductible plan and health savings accounts. Health savings accounts? Has AARP heard about this?

Arizona

Arkansas

California

02/01/05

Majority of Firefighters and Police Retire with Higher Paying “Disabilities” Pensions

Los Angeles County firefighters and sheriff’s employees receive lucrative disability pensions at rates two to three times higher than their city and state counterparts.

The percentage of county public safety employees getting enhanced pension benefits is similar to that of the California Highway Patrol officers, who have the highest rate in the state.

02/01/05

Highway Patrol Top Officers Disability Pension Rip-Offs

The Sacramento Bee reported that after an internal investigation, many top officers of the Highway Patrol file for worker’s compensation with claims of job-related stress as they near retirement. They tend to gain disability pensions nearly equal to their top-line salaries. An internal investigation found 15 cases meriting further investigation and possible criminal prosecution.

06/15/06

Pension Crisis Looms in California

Businesses are required to comply with the strict requirements demanded of private businesses in accordance with the FASB (Financial Standards Accounting Board). If private business hid their true liabilities from their shareholders the Securities and Exchange Commission (SEC) would be screaming to the rooftops, and the CEO and other offices might face stiff jail sentences. Naturally, government agencies have been exempt from similar provisions until now. New accounting rules that go into affect for government agencies will reveal the true crisis of unfunded government liabilities for the first time.

In California, when the truth is revealed, counties like San Diego and Orange may go belly up. The Los Angeles Unified School District has acknowledged unfunded liabilities of $10 billion. Recognizing the problem, several counties had to cut their services to citizens in order to allocate funds for the long-term haul.

Colorado