Thursday, December 29, 2016

More Money for Pensions Means Less Money for Roads


            The Wyoming Taxpayer is Tapped Out

(First published by Maureen Bader on December 17, 2012)

Wyoming’s state pension plan does not have enough money in it to pay bureaucrats their promised pensions. To fix that, legislators may increase contributions to the plan. The question is where will the money come from? State employees, taxpayers or both? Government is looking for ways to strengthen the plan but like so much of government policy these days, it is avoiding a long-term solution, leaving both taxpayers and pensioners at risk.

Pension plans come in two basic types: defined benefit and defined contribution. Defined benefit plans promise a defined payment when a person retires. This type of plan was developed at a time when relatively few retirees took money out of and many workers paid in to the plan. Wyoming state employees have defined benefit pension plans. Defined contribution plans, on the other hand, make a payment to retirees that depends on how much is contributed into the plan and how well the money is invested.

Today, most of the private sector has switched over to defined contribution plans to ensure they are able meet their pension obligation to retirees. According to the Bureau of Labor Statistics, in the Mountain geographical area to which Wyoming belongs, about 84 per cent of government workers have access to defined benefit plans, while only about 20 per cent of private sector workers do. In fact, only 48 per cent of private sector employees have a company pension plan at all. If a company in the private sector has a plan, it is most likely a defined contribution plan.

Pensioners who still have defined benefit pension plans face huge financial risks. For example, one day the City of Central Falls in Rhode Island simply stopped sending pension checks to pensioners because its pension fund ran out of money.

In fact, Wyoming’s state employee pension plan is only about 82 percent funded. That means, should the plan close down today, the government would only have enough money to pay 82 percent of what it promised retirees.

Wyoming’s legislature made a few pension reforms in 2012 that will save Wyoming taxpayers $1.2 billion over 30 years and reduce the anticipated unfunded liability by $2.9 billion. Now, still with an unfunded liability of $1.275 billion, it is looking to increase the amount contributed to the plan each year. Currently, the taxpayer contributes 7.12 percent, or $128.5 million per year to the employee plan, while employees contribute 7 percent, or about $126 million. If contributions increase beyond this by between 2 percent and 4 percent, the plan could be fully funded in 30 years. This means, however, that the taxpayer could be on the hook for an additional $74 million per year to fund the pensions of government employees -- employees whose compensation packages are already more generous than many in the private sector.

Wyoming legislators are developing a bill to increase contributions. At the moment, the plan is for state employees to pick up the tab for the increase. However, government workers are a savvy group with easy access to legislators, so expect amendments to any bills presented to the legislature in January that have employees picking up the bill.

If government forces taxpayers to put at additional $74 million per year into state employees’ pension accounts, that means it has $74 million less for priorities such as road maintenance -- or to leave in the pockets of taxpayers to fund their own pension plans. Everyone must save for his or her retirement, but the government’s solution is based on a reality that no longer exists. To provide security to current and future government retirees, and to ensure that taxpayers are also able to save for their retirements, the state must move to a defined contribution plan in parity with private sector pension benefits.


Tuesday, December 27, 2016

Bureaucrat pension plans create false security and violate taxpayers’ rights

This is the first article I posted, back in 2012, on the problem with the public sector pension plan in Wyoming. I will publish more in the days, weeks and months ahead.

(First published by Maureen Bader on February 17, 2012)

The Wyoming legislature failed to consider HB0091, a pension reform bill, and is bad news for Wyoming taxpayers. In many states, the plans that are supposed to pay government workers their promised pension do not have enough money. But taxpayers, many of whom do not even have a pension plan, are taxed to put more money into the bureaucrat retirement kitty. HB0091 attempted to lessen that risk. It would have closed the current pension system to new employees and provided them with the type of pension plan now common in the private sector.

Pension plans come in two basic types: defined benefit and defined contribution. Defined benefit plans promise a defined payment when a person retires. Defined contribution plans, on the other hand, pay out depending on how much is contributed into the plan and how well the money is invested.

Defined benefit pension plans were the norm in days gone by. They were developed at a time when relatively few retirees took money out of the plan and many workers paid in. These plans held a gold-plated promise of retirement security that Bernie Madoff would have been proud of. In fact, they are nothing more than Ponzi Schemes creating big financial risks for organizations, retirees and taxpayers.

Today, the private sector is moving away from defined benefit plans. According to the Bureau of Labor Statistics, in the Mountain geographical area to which Wyoming belongs, about 84 per cent of government workers have access to gold-plated plans, while only about 20 per cent of private sector workers do. In fact, only 48 per cent of private sector employees have a company pension plan at all. If a company in the private sector has a plan, it is most likely a defined contribution plan. Organizations that still have defined benefit pension plans face huge financial risks.

General Motors is a case in point. In the past, General Motors gave mostly unionized workers gold-plated defined benefit pension plans as a perk to maintain labor peace. In 2009, General Motors’ pension plan was short about $17 billion dollars. When the U.S. government bailed out General Motors, it saved the pensions of more than 120,000 retired salaried employees and 400,000 retired hourly workers with taxpayer’s money. If the government hadn’t bailed out General Motors the pension cupboard would have been left empty those pensioners could have been left without a pension.

Defined benefit pension plans now mostly exist in the government sector and these create financial risks for taxpayers and both current and future pensioners. For example, when the pension fund in the town of Pritchard, Alabama ran out of money in 2010, the town stopped sending pension checks to pensioners. Not even government workers are safe when government runs out of money because there will be no bailout.

In Wyoming, the shine is off the state’s gold-plated pension plan and people running the retirement system know it. The state’s Retirement System Director Thom Williams, in a presentation to the Joint Appropriations Interim Committee, told legislators the existing defined benefit pension plan was short more than $1 billion and it would take decades before the fund was back in the black. To close this gap and make sure the pension plan has enough money to pay the pensions of retirees, Mr. Williams proposed creating a new tier of benefits within the existing defined benefit plan for new employees. However, this means new government employees will be forced to fund gold-plated benefits for current retirees and get less of a benefit in the future. It also does nothing to remove the financial risk to taxpayers and ultimately, the retirees themselves.
                                                                                                

HB0091 was set aside this time, but it will be back. Not only are government sector defined benefit pension plans leaving a legacy of debt and higher taxes to current and future generations, they may not even fulfill the promise of paying retirees.  To ensure the financial sustainability of these plans, new government employees must be placed in a defined contribution plan, as called for in HB0091, just like employees in the private sector. Many taxpayers face an uncertain retirement future. Taxing them to fund bureaucrat retirement bliss, however illusory, is nothing more than taxpayer abuse.

Monday, December 26, 2016

On the Naughty List

The American Spectator reported on December 23, 2016, that my articles on the public sector pension issue in Wyoming put Wyoming Liberty Group on the National Conference of Public Employees Retirement System's “naughty” list of organisations because I highlighted" the problems that public employee pensions are causing for state governments and taxpayers."

You can read that article here:
https://spectator.org/public-pension-defenders-make-naughty-list-a-whos-who-of-conservative-organizations/

What were those articles? I will start posting them here in the days ahead for your reading convenience.