Posted on 05/16/2016 1:34:14 PM PDT by MichCapCon
A report from the state House Fiscal Agency shows that there has been a steady decline in the number of police officers in Michigan, falling 15.4 percent from 1990 to 2015. The report does not go into why this is, but here’s one theory: Pension underfunding is crowding out government spending, including hiring decisions.
Consider that the state police retirement system now costs between 57 percent and 63 percent of the Michigan State Police’s total payroll. It is not because the benefits are lavish. It is because the state is trying to pay for promises that it made in the past but didn’t set money aside for — the state saved only 63 percent of what pensions are expected to cost. And while the state may be able to rescind benefits for retiree health care, it has saved only 12 percent of what its current health insurance policies have cost.
Essentially, the state could increase its trooper workforce by 33 percent if employees had been offered retirement benefits at private sector averages.
Local government pension systems are underfunded as well. Our work in 2014 found counties had average funding levels of only 74 percent. And police unions have resisted the municipal trend toward defined contribution retirement, making them more susceptible to crowd-out. In other words, Michigan is trading pension costs for fewer police officers on the street.
This is a well-documented problem facing governments across the country.
It is a problem which benefits neither the employees that face these payroll constraints, nor those who want more police services, nor the taxpayers that have to pay for them. Policymakers need to seriously consider offering new employees defined contribution retirement benefits that will be paid as they are earned. It might change some of the trends in government employment highlighted by the House report.
The idiot politicians pay government “workers” more and give them big benefit packages to “earn” their votes. It works. Unfortunately, they are using OPM (other peoples’ money) to do this. Just look at the competence of the average government “worker”. I laugh at the criminals.
Yep...defined benefit pensions are unsustainable, and should be outlawed.
So?
The people of Michigan sat on their asses and voted for it.
Now I’m supposed to feel sorry for them?
Defined Benefit Plans, especially those in the public sector, are built on quicksand. The actuaries never could keep up with the promises politicians made to union bosses in exchange for votes.
It’s a house of cards.
I don’t feel sorry for the voters but I also wouldn’t fault them if they found a way to cut the pensions. The unionists fought hard for politicians who they thought put them at the top of the Ponzi scheme. I’d shed no tears if they wound up on the bottom.
promises that it made in the past but didn’t set money aside for
None of this is a real problem at all, Why don’t we just hold these people accountable under the LAW, just like EVERYONE ELSE would be.
FRAUD, Prison, Asset Forfeiture, ALL FRAUDULENT CONTRACTS NEGATED BY FRAUD. Politicians and Union bosses both, they are all in on it, they ALL GO TO PRISON, They all LOSE ALL THEIR POSSESSIONS.!!
JUST LIKE EVERYONE ELSE WOULD
And the we wonder why society is breaking down.
Take just a moment, and think about this. Let's say a liberal state government sees the writing on the wall, and decides to sabotage any Republican efforts to trim down costs. They make a 40 year budget that sets aside 57-63 percent of some budget item, locking it up so that no future bill could affect it.
Someone pulled that, everyone would not only expect the state assembly to overturn it, but to do it as their first action.
Yet SOMEHOW, this has been done repeatedly, and no one has done a dang thing about it.
I'm sorry officers, I appreciate your service, but you were paid your wages, you should have done what every other American does and save your money, as your additional pay long after you left service isn't going to go on forever. I'd suggest saving a large percentage of your pension now to cover these costs.
“Yep...defined benefit pensions are unsustainable, and should be outlawed.”
They are indeed sustainable and ran fine for decades. You just have to fund them. The issue today is that the state or employer makes a promise, and then use the money that should be invested to fund them, for other fun things. In private business, they used to have to fund them off the balance sheet. This changed in the early 90s and they were used as an asset to bump the stock price.
The model never works if you do not invest and pay benefits from the general fund as they come due. That is what is happening today.
I always laugh at someone who says defined benefit cannot work, and then says a 401k can, or can even do better.
The rate of contributions, plus an element of time can easily create a fund that could support you perpetually after a normal length career. You could live 150 years more and do fine.
It is the mark of the mathematically ignorant to say that defined benefit is not sustainable.
“Yep...defined benefit pensions are unsustainable, and should be outlawed.”
Actually, I’d keep them legal, but create a law that the union is responsible for managing both the pension fund and the healthcare fund.
Let’s see how the unions would react having to do real work. If they fail, at least people would know which heads to hunt!
They can still create all of their propaganda, request tax increases, etc., but take ALL responsibility when things fail.
My guess is that you wouldn’t see a public sector union in this country in about 3 years. At that time, we then outlaw the entire notion of such absurd nonsense!
“I always laugh at someone who says defined benefit cannot work, and then says a 401k can, or can even do better.”
Well, they’re not working! :-) I completely agree with your statements as to *how* they have worked and how you could make them work. The problem is that the solution is not extensible when it comes to reality. People will always corrupt the process. Sometimes by accident, sometimes on purpose.
Keynesian economics is a perfect example of theory colliding with reality. The theory is quite simple and sound in a perfect world. If the economic winds shift and things slow down, taxes are decreased and government pumps money into the economy thus incurring debt. Once the economy recovers and begins to grow, taxes increase, government pays down debt, and spending on the public is reduced.
That methodology can work if everything is perfect. The world is not perfect though. Far from it actually. Everything from natural disasters to all out war can wreck that economic system quite quickly.
Defined pensions are much like that ... they work fine in theory. As soon as *something* corrupts the system, they implode.
Big, centralized solutions can seem like they are ideal solutions to complex problems. They have one major weakness though ... *if* they fail, they wipe out the security of LOTS of people.
With 401Ks, you are distributing the risk across a larger number of people. So long as they’re contributed a defined amount of money, it will grow and, so long as they don’t do anything “exotic”, they should get good returns during their career. “Implosions” should be isolated to very few people instead of an entire group of people. In fact, using simple retirement funds pegged to a particular retirement date would probably generate a decent ROI across the employee’s career that would be on par or better than a pension.
The problem with 401Ks as far as government is concerned is that they can’t get their filthy hands on that money. That’s why they hesitate to switch to that kind of system ... they couldn’t care less about the security of the people in the pension system ... they just want access to that money for various antics and shenanigans.
It makes it very difficult for defined benefit pensions to work when the workers retire at 50 years of age, after 20 years of working, then collect a decent pension for the next 30+ years. In essence, they are collecting a pension for LONGER than they actually worked. Nice gig, if you can get it.
If you retire at 65, it’s more feasible.
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