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Public employee pension reform - what can and should be done?

Original post made by peter carpenter, Atherton: Lindenwood, on Mar 23, 2011

Numerous Town Forum topic threads have quickly digressed to this issue so let's have that discussion here.

I propose:
1) We start with the assumption that the present public employee defined benefit systems, particularly with low retirement thresholds of 3% at age 50, are unsustainable
2) Both the employing government agencies and the public employee unions collaborated to create, perhaps unintentionally, the current unsustainable system
3) It solves nothing to attack individual public service employees
4) It does nothing to attack other posters as opposed to challenging their ideas and opinions
5) We can build a better system and we must.

I have NOT restricted comments to registered users in the hope that more people will participate in this discussion and that all that do so will be respectful of each other.

Comments (31)

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Posted by Menlo Voter
a resident of Menlo Park: other
on Mar 23, 2011 at 6:41 pm

as far as I am concerned, the pension system needs an immediate revamp.

All employees hired from, let's say Jan 1, 2012, received a 401k type retirement plan. No defined benefits, just defined contribution. Public employees get to have their retirements rise and fall with the economy just like the rest of us.

Public employees no longer get to have collective bargaining rights. FDR was right, public employee unions are counter to the proper function of the government. Also, the taxpayer doesn't get a seat at the negotiating table. The only people there are the unions and their bought and paid for politicians. Don't like it? Don't go to work for the government.


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Posted by POGO
a resident of Woodside: other
on Mar 23, 2011 at 10:38 pm

I have long maintained that the current public pension system is unsustainable. Fortunately, the ranks of the concerned is growing and even Jerry Brown and Andrew Cuomo have joined the chorus.

People should realize that it was just three years ago that elected officials - many who owe their election victories to public unions - implemented the new, richer pension benefit calculations and most shockingly, made them RETROACTIVE to all of their employees. Nice - even though that wasn't the deal these employees struck, if they were near retirement, they received the higher pensions!

I agree with Menlo Voter that there is no reason to continue to compound the problem with every newly hired employee. The madness has to stop. From now on, there should be a defined contribution plan for all public employees. This shouldn't be viewed as either a hardship or some kind of degraded benefit... it's what just about EVERYONE in the private sector gets.

By the way, I'm also in favor of phasing out Social Security and having existing SSI contributions - about 12% of an employee's wages - go into a similar defined contribution account. Wouldn't it be nice if pensions and Social Security were no longer a part of government spending? If we started this now for newly hired public employees and everyone under 20 years old (who have yet to even enter the workforce!), that would be the case for our children.

Thanks to Mr. Carpenter for starting this thread.


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Posted by just the facts ma'am
a resident of Menlo Park: Central Menlo Park
on Mar 24, 2011 at 6:56 pm

Pogo, a couple of corrections and comments:
- For wages paid in 2011, employees pay 4.2 percent and employers pay 6.2 percent, the other portion %1.45 is Medicare, and not part of Social Security.
- It was 5 years ago that the pension formula changed (not 3).

I don't mean to start an argument, but one of the easiest things to do is set a cap on retirement benefits (which CAN be done retroactively), just as they do with Social Security. Currently that the SS cap is $27,876 (in Menlo Park a retiree would only have to earn $34,414 per year to get that check) which requires an annual income of $106,400 or more to earn from SS.

Think about how much we could save if we did that.

I am not saying that $27K should be the max, just something between $27,876 and $86,184 (which is what a retiring MPK employee would get if they earned SSN max $106,400. Something resonable.

So it's not that they need a pension, it's that it is TOO BIG.

Peter, you bring up a couple of great points. one of the things not discussed is to simpoly terminate the pension system today, and start EVERYONE on a new one tomorrow. Retirees wopuld get waht they got, you would get credit for what you put in. (i.e. 9 years at 2.7%) but going forward you have a defined contribution plan.

The other option is to simply state that the city will pay 8% (social security) and ALL extra pension costs are born by the employees. If CalPERS runs short everyone takes a proportional cut.

To Peter's point, this is unsustainable. And without change the current employees and past retirees will not see their full pensions. we just can't afford it.



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Posted by POGO
a resident of Woodside: other
on Mar 24, 2011 at 8:48 pm

Thank you, just the facts. I appreciate the clarifications.

While I stand corrected (and appreciate the correction), the "employee portion" of the SSI tax rate was lowered from 6.2% to 4.2% for this year only. Starting next year, it will jump back to 6.2%, so we are looking at 12.4% for SSI only. If that amount were diverted into a personal retirement account, over a career, most workers would have quite a nest egg for their retirement - producing far more income than current SSI benefits. In addition, this would be a new source of wealth for individuals and a new source of money for investments... not to mention the wealth-building by inheritance.

And, while I like your idea of a cap, I like the idea of defined contributions better. We have to get government out of the pension business. How about a little personal responsibility?

Nice post!


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Posted by Michael G. Stogner
a resident of another community
on Mar 27, 2011 at 9:43 am

Pogo,
Do you have a Ref. website or article for this.

"People should realize that it was just three years ago that elected officials - many who owe their election victories to public unions - implemented the new, richer pension benefit calculations and most shockingly, made them RETROACTIVE to all of their employees. Nice - even though that wasn't the deal these employees struck, if they were near retirement, they received the higher pensions!"

Thank you


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Posted by POGO
a resident of Woodside: other
on Mar 27, 2011 at 1:44 pm

Of course, Mr. Stogner.

"...preventing the unprecedented increases awarded in 2007 (a 35% pension increase RETROACTIVE [EMPHASIS ADDED] to first day on job, causing an instant pension liability for Menlo Park of $6,343,530)..."

Can be found at: Web Link


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Posted by Joanna
a resident of Menlo Park: Downtown
on Mar 29, 2011 at 12:51 pm

Is there a way to get out of existing pension liabilities? A message should be sent and that would do the trick.


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Posted by peter carpenter
a resident of Atherton: Lindenwood
on Mar 29, 2011 at 1:02 pm

peter carpenter is a registered user.

Joanna asks:"Is there a way to get out of existing pension liabilities?"

To my knowledge there are only two ways to do this - 1) via negotiation with the individual unions and 2) via a local agency declaring bankruptcy, as did Vallejo, and then petitioning the bankruptcy judge to throw out this obligation - as did the automobile companies.

Personally, I prefer that we fulfill the existing obligations that we freely made and place our emphasis on making sure that all new public service employees are hired into a defined contribution system.


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Posted by both
a resident of Menlo Park: other
on Mar 29, 2011 at 1:41 pm

"Personally, I prefer that we fulfill the existing obligations that we freely made"

Yup, a fire union influence, fer sure...


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Posted by peter carpenter
a resident of Atherton: Lindenwood
on Mar 29, 2011 at 1:50 pm

peter carpenter is a registered user.

Both - I believe that agreements that we freely entered into by both parties should be honored unless both parties agree to change those agreements.

Do you think that your mortgage holder should have the right to change your rates beyond that provided by your mutual agreement?

Do you think that your auto insurance carrier can do the same?

And what exactly do you mean by 'a fire union influence'?
The last time I ran for office the union opposed me and they certainly have no influence over my actions - including authoring the Fire Board ordinance which requires that any proposed new union contract be provided to the public at least 15 days before the Board is permitted to vote on that contract and refusing to accept their demand for an 11% pay increase.


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Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Mar 30, 2011 at 9:47 am

The solution is to continue to grant the agreed on benefits but use the tax power to keep the pension fund solvent. Tax pension benefits above the sustainable level at 90% and feed the money into the fund.


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Posted by Joanna
a resident of Menlo Park: Downtown
on Mar 30, 2011 at 11:48 am

Defined Contribution


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Posted by the dude
a resident of Menlo Park: Stanford Hills
on Mar 30, 2011 at 1:46 pm



Hear Hear, the public sector equivalent of the define contribution

Web Link


let's all e-mail to city.council@menlopark.org
to register your opinion to the city council!


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Posted by Long time Menlo Man
a resident of Menlo Park: Downtown
on Mar 31, 2011 at 12:44 pm

The measure recently passed by voters will hobble the ability of Menlo Park to replace administrators who are retiring. Now you're talking about further restricting pensions so more quality administrators go elsewhere? This doesn't seem like a wize move for the long term lively hood of a quality Menlo Park.


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Posted by Joanna
a resident of Menlo Park: Downtown
on Mar 31, 2011 at 1:11 pm

I wholeheartedly disagree with you. More money does not mean more talent. We pay through the nose for our city manager. We (incompetent council members) lavish him with low interest home loans, car allowances, bonuses and a fat paycheck. And for what? Mediocre results. Average performance. Someone please tell me that we are getting what we are paying for. He even has an assistant that makes more than....

Offer a public job for half of what we currently pay and you will find plenty of qualified candidates.

It is nonsense to think that paying exorbitant wages and bonuses will make a difference in the quality of the candidate.


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Posted by Long time Menlo Man
a resident of Menlo Park: Downtown
on Mar 31, 2011 at 2:09 pm

I don't like paying more in taxes than I have to but those who believe Menlo Park can compete with other cities who pay more and provide better retirement packages are being unrealistic. Put yourself in the new potential administrators position. Would you do the same job in Menlo Park for less $$ AND an inferior retirement package than you would do it for the city down the street? Of course you wouldn't! Why would you? Good new administrators will NOT want to come here either. The reason I've lived in Menlo Park and pay more in taxes is because I want the best. I don't want 2nd, 3rd, . . .10th best. Look at the track record of previous administrations. All top notch people because we pay better AND have an excellent benfit package. Ask any of them if they would have come to Menlo Park for less $$ AND the reduced pension package. Of course they wouldn't have. They'd be at the city down the road.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Mar 31, 2011 at 5:02 pm

Look at the great Town Manager who just retired from Woodside - how much was she paid?

As POGO states:"With very little in sales tax revenues, Susan manages to run a balanced budget, with no debt and, in fact, a full one year of cash reserves on our balance sheet. Importantly, we have very little political drama and zero scandal... just the way we like it."

I believe that the vast majority of public service positions could be easily filled be superb candidates for about 80% of the current salary levels. Instead everybody cries for comparability to other highly paid public service positions (but, heavens no, not to the private sector) and, of course everybody wants their City Manager to be paid above average. If everybody is paid above the average guess what happens to the average.

When the Fire District has a vacancy there are more than 100 candidates who apply - any economist would tell you that they are not competing for a low wage and poor working conditions position.


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Posted by Ropy Thiele-Sardina
a resident of Menlo Park: Menlo Oaks
on Mar 31, 2011 at 5:03 pm

Long Time Menlo Man

That kind of thinking is EXACTLY what caused our city council to give away $6 Million in the middle of the night in 2007. They wanted to compete with oither cities.

Do you really believe that ANYONE will leave their MPK job with this kind of pay and benifits for the public sector? I dare them.

DO you think the city down the street (which is Redwood City with an EVEN BIGGER budget deficit than us) is oging to pay more (hint they already have the 2/60 plan we are moving to). Do you thin they will go to San Mateo COunty with a pension deficit (as in under funded) of $1 Billion (yes you read that number right).

So it's not like we are the only city doing this. they will ALL have to cut pay, stop paying these pension or we willend up with a general fund that only can afford to write check to CalPERS and NOT provide ANY city services.

Wake up....it's a tough world out there.

Roy Thiele-Sardina


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Posted by Hank Lawrence
a resident of Menlo Park: Sharon Heights
on Apr 2, 2011 at 8:22 am

What should be done is to start a Pension Reform Committee with Gail Slocum as Chair, Heyward Robinson as Vice Chair, and Kelly Fergusson as second vice chair. With these fiscally responsible people at the helm Menlo Park's financial future is in good hands.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 2, 2011 at 9:01 am

Here is an excellent, well balanced view from the Chairman of the New Jersey Assembly Budget Committee:
Excerpt:
" New Jersey must start over. We need to recalibrate the system by which we pay the salaries, benefits and pensions of public employees in our state. That's why I am proposing an equitable, negotiated solution that would bring long-term relief to our taxpayers, while at the same time treating the thousands of public employees across the state with fairness and respect.

The plan acknowledges that the police, firefighters, teachers and others now working in government should not have their lives, and those of their families, significantly disrupted, especially in the middle of a national recession that has serious diminished the earning power and life savings of so many Americans. Those employees will be subject to the more modest salary and benefits changes covered in the recent, shorter-term reforms, but not the more sweeping, long-term restructuring I am proposing.

Those more substantial changes will apply to all new employees hired by the state and local governments. They will enter government under newly established compensation and benefits rules that are more in line with the private sector. The new employees would be subject to a salary scale capped by job title; required to pay more into their health care plans; required to work a 40-hour week; granted fewer vacation and sick days; and subject to retire at a later age than current public workers. The newly hired employees would be coming in with their eyes open, under job terms and conditions they deem appropriate and acceptable."


Web Link


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Posted by divide and conquer?
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Apr 4, 2011 at 9:29 pm

The unions often defend pension benefits by pointing out how relatively modest the average pension is. OK- if that's true, I think that opens up a potential strategy for concessions. Namely, there are a LOT of union members who are have a small pension pending, who might be convinced to vote for a "haircut" of excessive benefits, provided it helps secure their relatively modest pension. If you were looking at losing your $20-30K pension COMPLETELY if your city goes bankrupt, vs. authorizing the people you never really liked that much who have pensions above $100K getting 10-20% cuts, wouldn't you vote for the sure thing? Maybe this doesn't work as well when management/non-management are in separate unions, but I think there might be something there. Phrase it in terms of "we want to protect the little guy so much, we HAVE to shave a little off the gold-plated pensioneers".

Also, the unions often point to good investment returns as a reason to "not worry so much". Again, that's OK- but how about we call them on that and agree now on "what ifs" that guide actions if the investment returns don't measure up? Cities can cover a certain percentage for a reasonable amount of time, but then over what's sustainable, a series of benefit cuts kick in.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 4, 2011 at 9:34 pm

This is what is being proposed in Atlanta, Ga:

"The "hard-freeze" under consideration works like this: anyone enrolled in the defined contribution plan would still receive a pension, but it would be calculated as though the employee quit on the day that the plan was closed. Immediately after the plan is closed, the city would allow employees to enroll in a defined-contribution plan, which is similar to a 401(k) plan offered by most private sector employers. This method has been used by many private sector companies that have decided to cease offering defined benefit plans to their employees."


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Posted by dawn
a resident of Menlo Park: Belle Haven
on Apr 5, 2011 at 12:54 pm

Don't forget that many public employees do not receive SSI benefits.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 5, 2011 at 12:58 pm

dawn states:"Don't forget that many public employees do not receive SSI benefits. "

Don't forget that those same public employees don't pay a dime into social security - so why should they get SSI benefits?


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Posted by bob
a resident of Woodside: other
on Apr 5, 2011 at 1:21 pm

I actually agree with Peter Carpenter both sides entered in to these pension agreements with both eyes open. We should be trying to change the system going forward and not spend alot of time and money turning the clock back.


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Posted by Menlo Voter
a resident of Menlo Park: other
on Apr 5, 2011 at 4:55 pm

Dawn:

as Peter notes they don't get Social Security because they don't pay into that system. They don't pay into that system because they are allowed to opt out and have their normal SSI contributions go towards their pensions. So they get 90% of their ending salary (in the case of fire fighters) about $90,000 a year at this point for the rest of their lives and those paying into SSI get to collect maybe $30,000 per year, IF you retire after age 70. The fire fighter can retire at age 50. Poor fire fighters can't collect social security. Boo hoo. I wish I had their "problem."


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Posted by POGO
a resident of Woodside: other
on Apr 5, 2011 at 6:45 pm

Yes, I'll trade my SSI tax and benefits for the existing public employee pension plan right now. So would anyone else with a brain.

But I have proposed a solution. Take that same 13% of SSI contributions and allocate it into a 401(k) type defined contribution plan that has limited investment choices (depending upon the worker's age). The money belongs to the person who earns it and that becomes their pension plan. Yes, it will take a full generation to finally get the government out of the retirement business, but it will be worth it.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 5, 2011 at 8:30 pm

Elected public officials and public employee unions need to understand that we have only three choices:

1 - renegotiate new contracts with defined benefit retirement benefits for everyone, both new hires and current employees. Defined benefit contributions earned to date would continue in force but there would be no new defined benefit contributions.

2 - outsource those functions which cannot be renegotiated into a sustainable cost structure

3 - go bankrupt


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 5, 2011 at 9:10 pm

Correction:

Elected public officials and public employee unions need to understand that we have only three choices:

1 - renegotiate new contracts with defined CONTRIBUTION retirement benefits for everyone, both new hires and current employees. Defined benefit contributions earned to date would continue in force but there would be no new defined benefit contributions.

2 - outsource those functions which cannot be renegotiated into a sustainable cost structure

3 - go bankrupt


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Posted by Really
a resident of Menlo Park: Sharon Heights
on Apr 5, 2011 at 9:48 pm

Peter you like to make alot of accusations and have a lot of ideas. 1 how much money do you make a year? And from where? What is your pension look like.
2 Do you live in Atherton or Menlo?
3 You make a lot of your military career but remember it was only for five years not 20.
It was all fun and games during the boom, but you can't blame public employees for the economy. Try the greedy private sector.


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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Apr 5, 2011 at 9:54 pm

Really - I haven't made a single accusation.
I live in Atherton as is noted on every one of my postings
I served 6 years in the military including in Vietnam
As I stated when I began this topic:
" 2) Both the employing government agencies and the public employee unions collaborated to create, perhaps unintentionally, the current unsustainable system

3) It solves nothing to attack individual public service employees

4) It does nothing to attack other posters as opposed to challenging their ideas and opinions"

Now Really, what would you like to contribute to the discussion?


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