What Will Cities Do To Solve Their Pension Problems?

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.

That is correct. However, tell that to the GM senior bondholders who should have been paid first when the O regime came in. Contracts can and have been broken. Frequently, via bankruptcy -- occasionally, by a court.

Can I get an ‘amen’?

“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.”

yours is the most intelligent description of the problem I have seen. I hope you have your asbestos suit on
. There are a fair number of FReepers who were burned by the decisions of politicians to “kick the can down the road” by not funding the pension contributions when they were due.

I have come to despise politicians. It seems they get co-opted right after they get reelected

” However, tell that to the GM senior bondholders who should have been paid first when the O regime came in. Contracts can and have been broken. Frequently, via bankruptcy — occasionally, by a court.”

In the GM case the government made the union pensioners whole but failed to fully back the management pensioners. In private industry in the 1980’s, many of the leveraged buyout deals by people such as Milken were partially financed by pension funds which were cleaned out by the Wall Street private equity firms who then took the companies through bankruptcy allowing them to pocket the pension money and offload the pension obligations on the government insurance fund. After these sham bankruptcies the firms were recapitalized. Employees with of these companies having pensions above the maximum insurable by the government were stiffed. A prime example is the senior pilots of the airlines who collectively lost millions in benefits while the attorneys, consulting firms, and investment bankers walked away with millions if not billions in fees.

This theft of pensions to benefit Wall Street speculators was done with the approval of the courts, the Justice Department, and the knowledge (i.e. acquiescence and approval) of politicians in both political parties. Plus, the speculators received special tax loss carry forwards on the paper losses of the bankrupt companies and once the companies started recording earnings after bankruptcy and the tax breaks the private equity owners were taxed at capital gains rates, not corporate tax rates (i.e. carried interest). I totally lost any respect for private equity firms and Wall Street during this period. It was criminal.

“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.”

Not all public sector employees are unionized, particularly in the South, yet many of those states also have significant unfunded liabilities. This is not the fault of the employees. It is a conscious decision of politicians and the bureaucrats they hire to manage the government. Living in North Carolina I do no perceive bureaucrats at the state or local level being held hostage to what you refer to as the “organized crime” of the public sector. In this state unions have little influence over the legislature, public pensions are almost fully funded, and during the financial crisis of 2008, wages of state employees were actually cut by the legislature.

Most private sector employees do not have a formal written contract. When I speak of “contract” with respect to private sector I speak to the implicit agreement when an employee goes to work for an employer. The conditions of the contract can be changed during the term of employment and often are. At the time the conditions of employment are changed the employee can accept the changes or leave the firm. However, the compensation agreed to up to the point of the formal change of conditions must be paid for labor performed.

For example, an employer cannot change wages and other compensation for past services. If I am paid every two weeks at a rate of $10.00 per hour, an employer cannot hand me a paycheck this week paying me at a rate of $8.00 per hour. The pay reduction applies only to wages after the announcement of the reduction, not past wages owed.

Similarly, if went to work for a company in 1970 and was told in addition to wages I would receive a pension worth 50% of my ending salary if I worked 20 years, I am owed that pension if I fulfilled the 20 years service and the company did not modify the terms of the pension plan during that period. That is the contractual relationship between an employee offering labor and an employer compensating him/her for that labor. This applies to any employee, public or private.

When your benefits were changed as a private employee the employer did not take anything away from you with respect to wages and benefits earned up to the time the benefits were changed. When your pension was changed to a 401K your accrued benefits to that point in time were rolled into the 401k, not taken away from you. Since the accrued benefits were not taken away, you did not incur a loss on the labor hours you had given the company to that point in time. When the company changed the rules you were free to leave. If you stayed with the firm when it reduced or changed benefits, by staying you were agreeing to the new terms of the employee/employer contract.

With respect to public sector employees campaigning, funding or electing bosses you are suggesting they are responsible for the actions of their bosses. Not all public employees belong to unions, not all belong to the same party, not all campaign for political candidates and not all vote. Furthermore, even if public employees acted 100% in unison with respect to elections (which they don’t), there are many times more non public employee citizens voting in elections than employees of the government affected by an election. If public sector employees are truly extorting the private sector, businesses and individuals comprising the private sector have the right to organize and with superior numbers elect representatives who will change the rules governing compensation of public employees going forward. What they do not, and should not, have the right to do is reduce compensation for work already performed under terms to which both parties agreed.

I disagree most government employees are democrats and they actively campaign for and vote in their bosses. Cities like Detroit, Cleveland or Springfield, MA contain 2 types of voters. Those who are receiving welfare and those who work for the government. There is essentially no private sector or opposition party. Now that those cities are bankrupt let them sell all their assets, fire their government employees and end welfare payments. All to pay their obligations. When that money runs out who shall they come for next? For further reading you can check up the Massachusetts Probation department trial.