This Is Not A New Idea

On Friday, The Daily Signal posted an article about a proposal before Congress asking taxpayers to make loans to private, union-run pension plans. This is a really bad idea. We have seen what has happened to the college loan program since the government took it over. Just in case you think the idea of the government bailing out union pension plans is far-fetched, I posted an article about this idea in October of 2010.

The article reports:

The Butch Lewis Act—a proposal to bail out private-sector pensions through loans as well as direct cash assistance—acknowledges the high probability of default by stipulating that pension plans that have trouble repaying their loans after 30 years of interest-only payments will be eligible for forgiveness or alternative repayment plans.

A loan with a zero-consequence default option for the borrower is not a loan—it’s a bailout.

But it’s not just defaults that taxpayers need to be concerned about. There’s also the cost of providing highly subsidized, low- or no-interest loans for 15 to 30 years, as well as the risk that plans will increase—rather than decrease—their unfunded liabilities over the course of their loans.

These features could lead to loans to insolvent pension plans costing taxpayers more than direct cash bailouts.

But those costs won’t be apparent in the official government score because the Congressional Budget Office is required to score loans under the assumption that insolvent pension plans are essentially riskless borrowers.

In reality, loans to insolvent pension plans could cost taxpayers hundreds of billions of dollars. The most liberal proposals—which supplement loans with direct cash assistance—could cost more than the entirety of multiemployer pensions’ half-trillion-dollar shortfall.

Does anyone really believe that these loans will be paid back? Union membership is down, and various courts are hearing cases that will make the mandatory payment of union dues by non-union members who work in a union shop illegal. Both of these factors will make the union retirement plans (actually a true Ponzi scheme) unsustainable.

The article concludes:

Coping with roughly $500 billion in private union pensions’ unfunded promises will not be easy. There are ways to minimize losses to workers who have earned pension benefits and protect taxpayers from paying for private pensions’ broken promises.

Policymakers should look to improve the solvency of the Pension Benefit Guaranty Corp.’s multiemployer program through premium increases and other reforms; end union pensions’ preferential treatment; enact and enforce sound funding rules; hold pension trustees liable for financial decisions; act sooner rather than later to enact needed reforms, including benefit reductions; and explicitly prohibit federal pension bailouts.

None of these actions provide a costless cure-all, but they offer more fair and rational solutions that don’t treat taxpayers as guarantors of private-sector promises or set the stage for even more mismanagement and reckless behavior.

There is no reason every American should pay for the fact that the unions have not sufficiently funded their retirement plans!

The Next Financial Collapse The Taxpayers Will Be Asked To Bail Out

On January 17, 1962, President John F. Kennedy signed Executive Order 10988. This order allowed federal employees to form unions. Eventually bureaucrats at all levels of government formed unions. So what was the result of this? The eventual result is large amounts of unfunded liabilities in terms of generous retirement benefits and medical benefits for retirees. These are listed as unfunded liabilities because the actual cost of the benefits negotiated did not show up in the annual budgets of the towns and cities that were approved by the states. This is the perfect negotiating tool–unions make large donations to candidates. These unions then negotiate for retirement benefits for union members. Those doing the negotiations want to stay on the good side of the unions in order to continue to receive campaign contributions.

The Daily Signal posted an article today showing the per capita amount of these unfunded liabilities in every state.

Here is the chart and the list:

The article reports:

Contractual or constitutional obligations for government pensions could mean that paying the pensions of retired government employees may take precedent over paychecks for current employees.

Moreover, some state constitutions prevent any changes to government employees’ pension benefits. That means current government employees can’t ever be required to contribute more to their pension plan than they did on the first day they were hired. And, actually, not a single term of their initially promised pension benefits ever may be altered.

Just imagine how detrimental it would be to private employers if they never were allowed to alter the benefits they initially offered their employees.

With an average funding ratio of only 33.7 percent across state and local pensions and every single state at risk of defaulting on pension obligations (as measured by Pension Protection Act standards, assuming a risk-free rate of return), taxpayers across all states face significant tax increases to pay for their governments’ unfunded pension promises.

As the federal government attempts to cut the amount of taxes each American pays, the states may be forced to raise their taxes to cover their unfunded liabilities. States and municipalities need to fund their pension programs as the money is needed and encourage employee participation–past practices need to change.

The Next “To Big To Fail”

On December 23, Investor’s Business Daily posted an editorial about the problem with public employee pension funds. These future pensions are generally unfunded liabilities that municipalities take on when negotiating with public employee unions. What generally happens is that employees are promised great pension benefits instead of instant raises. That way the municipality does not have to raise its immediate budget–it looks as if it is being fiscally sane, and it quietly kicks the can down the road. In most cases (if not all) no provision is made to pay for these future benefits. Well, there always is a place where the can is no longer kicked down the road because the road ended. California is nearing that place.

The article reports:

Last week, the 85-year-old California Public Employees’ Retirement System, or CalPERS, slashed its official investment forecast going forward, meaning that state and local governments, police and sheriffs departments, and even school districts will have to spend billions of dollars more to CalPERS to support their future retirees. And, no doubt, it will mean higher taxes for all.

Sadly, this move won’t be enough. For years, the state has projected steady investment returns of 7.5% for CalPERS, the largest pension fund in the nation. But returns have been below that. So now CalPERS is trimming its return to 7% per year. But, given the pension fund’s mismanagement and poor performance, even that may be too high. Today the fund is a little over 60% fully funded, meaning it will have to raise billions of dollars more to be solvent. That means higher contributions for government workers, and higher taxes for average citizens.

It’s no accident. “CalPERS has … steered billions of dollars into politically connected firms,” wrote Steve Malanga in City Journal, back in 2013. “And it has ventured into ‘socially responsible’ investment strategies, making bad bets that have lost hundreds of millions of dollars. Such dubious practices have piled up a crushing amount of pension debt, which California residents — and their children — will somehow have to repay.”

That’s happening now. California’s famous Highway Patrol, for instance, has grossly underfunded its pensions. So it got the state to agree to a $10 hike in car registration fees to help make up the shortfall. No doubt, it will be asking for more soon.

It’s not just California. Across the country, pension funds have been underfunded, mismanaged and in some cases looted by managers. Today, according to the Fed, pension funds across the country are $2 trillion in the red — after being overfunded as recently as the year 2000. That means tax hikes are coming, like it or not.

This is a nationwide problem. This is also not a new problem. In 2010 I posted an article about the shortfall in union pension money. The close connection between many local politicians and local union leaders is a major contributor to this problem.

The Investor’s Business Daily article concludes:

In a scathing, just-released report, the American Legislative Exchange details how “rather than investing to earn the best return for workers, (politicians and fund officials) use pension funds in a misguided attempt to boost their local economies, provide kickbacks to their political supporters, reward industries they like, punish those they don’t and bully corporations into silence and behaving as they see fit.”

It’s quite an indictment. It’s time for a national commission to look into the misconduct and mismanagement — which pose a clear danger to the financial system — and answer the scariest question of all: Have public employee pension funds become too big to fail?

We have just elected a businessman to the Presidency. Hopefully he will have the skill and the knowledge to deal with this upcoming disaster. What is happening in California will eventually impact the rest of the country.

This Is Just Wrong

The Congressional Budget Office website has posted a suggestion for cutting our military spending. As usual, it is a suggestion that does nothing to solve the bureaucracy problem–it just takes money away from people who were actually promised benefits.

Aside from the toll twenty or more years in the military takes on families, it also takes a physical toll on the soldiers. Many of our retiring soldiers also collect disability pay for various injuries suffered in the course of their service. These injuries include war injuries, but they also include more simple (but often painful) injuries acquired in the various physical requirements of service. Under the current program, soldiers with injuries collect disability pay (the amount is based on the severity of the injuries) as well as retirement pay. The Obama Administration is wanting to change that.

The article explains:

Military service members who retire—either following 20 or more years of military service under the longevity-based retirement program or early because of a disability—are eligible for retirement annuities from the Department of Defense (DoD). In addition, veterans with medical conditions or injuries that were incurred or worsened during active-duty military service (excluding those resulting from willful misconduct) are eligible for disability compensation from the Department of Veterans Affairs (VA).

Until 2003, military retirees who were eligible for disability compensation could not receive both their full retirement annuity and their disability compensation. Instead, they had to choose between receiving their full retirement annuity from DoD or receiving their disability benefit from VA and forgoing an equal amount of their DoD retirement annuity; that reduction in the retirement annuity is generally referred to as the VA offset. Because the retirement annuity is taxable and disability compensation is not, most retirees chose the second alternative.

As a result of several laws, starting with the National Defense Authorization Act for 2003, two classes of retired military personnel who receive VA disability compensation (including those who retired before the enactment of those laws) can now receive payments that make up for part or all of the VA offset, benefiting from what is often called concurrent receipt. Specifically, retirees whose disabilities arose from combat are eligible for combat-related special compensation (CRSC), and veterans who retire with 20 or more years of military service and who receive a VA disability rating of 50 percent or more are eligible for what is termed concurrent retirement and disability pay (CRDP). CRSC is exempt from federal taxes, but CRDP is not; some veterans would qualify for both types of payments but must choose between the two.

This option would eliminate concurrent receipt of retirement pay and disability compensation beginning in 2015: Military retirees currently drawing CRSC or CRDP would no longer receive those payments, nor would future retirees. As a result, the option would reduce federal spending by $108 billion between 2015 and 2023, the Congressional Budget Office estimates.

This is not the place to cut government spending. One of the things President Obama has done in office has been to undo the welfare reforms put in place by the Clinton Administration. Going back to those regulations, which actually decreased welfare rolls and put people back to work, would seriously reduce government spending. We need to give money to people who have earned it–not people who have not. When Congress recently did not extend the amount of time people could collect unemployment, unemployment went down. When you reward a behavior, it increases. We need to learn that lesson if we are ever going to cut government spending.

 

This Story Has Been Around For A While–I Don’t Know If It Is True

World Net Daily has been reporting on this story for about two years. I have no doubt that the policy they have been reporting on is something that the Obama Administration would like to do, I am just not sure that they will try it.

Here is the story:

Two years ago, as WND reported, the Obama administration was proceeding with a novel way to finance trillion-dollar budget deficits by forcing IRA and 401(k) holders to buy Treasury bonds by mandating the placement of government-structured annuities in their retirement accounts.

Remarkably, those financial professionals specializing in private retirement savings and the U.S. citizens investing in private retirement plans now face the possibility the Obama administration and its allies on the political left will impose rules and regulations that effectively abolish the private retirement savings and investment markets.

This would definitely redistribute wealth–it would take it away from everyone.

The article further reports:

With the issuance of the White House 256-page Budget Proposal for Fiscal Year 2013, the Obama administration endorsed “Automatic IRAs,” a plan introduced into Congress in 2010 by Sens. John Kerry, D-Mass, and Jeff Bingaman, D-N.M., in which private companies would be automatically enrolled into government-mandated IRAs, forcing those businesses to contribute on behalf of their employees a “default amount” equal to 3 percent of an employees pay, unless an employee specifically opts out of the plan.

The FY 2013 Budget proposal notes that currently 78 million working Americans, roughly half of the work force, lack employer-based retirement plans.

Argentina has already taken over private retirement plans. This plan has not been successful in solving Argentina’s problems:

Writing in the London Telegraph in October 2008, business and economics editor Ambrose Evans-Pritchard warned that G7 nations, including the United States, may begin following the path of Argentina in forcing privately managed pension funds to be invested in government-issued debt.

In 2008, Argentine sovereign debt was trading at 29 cents on the dollar, reflecting the devalued state of the Argentine peso, with the result that private pensioners holding government debt in their retirement accounts could not be assured those bonds would have any meaningful value at maturity

What the government is planning here is called stealing. Privately managed pension funds are not government property.  Meanwhile, the Service Employees International Union (SEIU) is moving to require the government to create government-mandated worker retirement accounts as an entitlement program, with the possibility that a portion of all private retirement funds could be forced into U.S. Treasury debt. I am not against encouraging companies to set up some sort of retirement savings programs for their employees, but these programs need to be private programs designed in a way that does not put undue burdens on private companies. At the rate Congress makes decisions, Social Security will not be there for today’s workers, and even a Christmas-Club type savings plan (remember Christmas Clubs ?) would be a step in the right direction. However, a government takeover is never a good idea.

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Searching For The Truth About Delphi

 

The Washington Free Beacon and the Daily Caller have both posted articles about how the bailout of the automobile industry was handled in regard to Delphi, a company which supplies electronics and technology to the auto industry.

The Daily Caller posted an article stating that the decision to end the pensions of the non-union  workers at Delphi was not made independently by the Pension Benefit Guaranty Corporation (PBGC), the federal government agency that handles private-sector pension benefits issues, but that the decision was the result of pressure from the Treasury Department. They have uncovered a chain of e-mails that backs up this conclusion.

The Daily Caller reports:

The email chain was titled “Delphi Hourly Plan.” Delphi’s unionized hourly retirees originally saw their pension plans terminated together with the nonunion Delphi salaried retirees’ plans in a process that commenced on July 31, 2009.

Later, in September 2009, the union retirees’ plans were topped up while nonunion retirees’ plans remained terminated.

 These emails contradict July 2012 congressional testimony Feldman (Treasury official Matt Feldman) gave during an investigation by the subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.

The treatment of Delphi employees is becoming a campaign issue in Ohio, where many of its employees were located. Paul Ryan met with nine Delphi retirees who lost their pensions, while their union coworkers pensions were untouched.

The Washington Free Beacon explains some of the details of the bailout:

Delphi was an important element of the auto-bailout. The company, one of GM’s largest parts suppliers, had been in bankruptcy since 2005 and Treasury officials recognized that it would need to be lifted from bankruptcy along with GM.

To cut costs, the Pension Benefit Guaranty Corporation (PBGC), an independent federal insurer of retirement systems, terminated the nonunion plan while GM volunteered $1 billion to top-off pensions belonging to the United Autoworkers union.

The administration has contended that GM was acting on a 1999 agreement with the union to close any pension gap that emerged if Delphi declared bankruptcy.

That agreement, however, was liquidated when GM itself entered bankruptcy and emerged as a new company, according to bankruptcy expert Todd Zywicki.

General Motors’ decision to guarantee the obligations of a separate company—Delphi—was completely unjustified under established principles of bankruptcy law, and it increased the cost of the taxpayer bailout of the automotive industry by more than $1 billion with no reciprocal benefit to General Motors,” he told Congress in July.

The auto industry bailout is an example of the government interfering with the laws of bankruptcy and acting in total disregard to the law. It’s time to bring people into Washington who respect the laws of this country.

 

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Thug Tactics In Recruiting Union Members

This story is based on two sources–a Washington Free Beacon article on Thursday, and a MyCentralJersey.com article on Wednesday.

The Washington Free Beacon reports:

HealthBridge and CareOne, two nursing home companies, are suing the New England Health Care Employees Union (Service Employees International Union Chapter 1199 New England), accusing the labor leaders of using political threats and dangerous workplace sabotage to force several non-union shops into their ranks.

The explosive charges stem from a July labor walkout in which identification badges were removed from elderly patients’ doors, including from some who suffer from dementia and Alzheimer’s, and medical records were mixed up. The lawsuit alleges that such tactics constitute the same sort of intimidation that the Racketeer Influenced and Corrupt Organizations Act (RICO) were designed to prevent.

MyCentralJersey.com reports:

Among the prestrike acts of sabotage alleged in the court filing: Workers removed patient ID wristbands, dietary stickers and name plates from doors; tampered with medication records; and hid or damaged blood pressure cuffs and stethoscopes — acts designed to leave “patients and replacement workers to fend for themselves.”

…The lawsuit alleges that the unions are resorting to desperate measures because their pensions are underfunded and the groups need the union dues to sustain their operations.The New England affiliate, which represents 29,000 workers, contributed $3.5 million in dues to SEIU in 2010. The New York affiliate represents 350,000 members and contributed $40 million in dues. SEIU comprises 2.1 million workers nationally.

On June 13, 2010, I reported (rightwinggranny.com):

The reference for this story is a May 25 article in the Washington Examiner.  The article deals with the Pension Benefit Guarantee Corporation (PBGC).  Senator Bob Casey, (D-Pa.), introduced S. 3157 in late March.  According to Thomas.gov, the bill is currently in committee.  The bill is called “Create Jobs and Save Benefits Act of 2010.”

The bill would back union pension funds with federal tax dollars.  The article in the Washington Examiner points out that in 2006, before the recession, only six percent of these union pension funds were doing well.  In a column in the Washington Examiner in April, Mark Hemingway pointed out that the average union pension plan had only enough money to cover 62 percent of its financial obligations.  Pension plans that are below 80 percent funding are considered “endangered” by the government; below 65 percent is considered “critical.”  Union membership is declining, which means that less people are paying into these funds.

The union pensions are essentially a Ponzi scheme. The only way that union members will receive their pensions is if the membership of the unions increases to cover those expenses. Meanwhile, the unions are spending millions of dollars to support political candidates that will be sympathetic to their cause.

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A Ponzi Scheme Works As Long As There Are New People Getting In

Today’s Wall Street Journal posted an article about the 1,400 union-run retirement plans that are poorly run and underfunded.

The article reports:

…Multi-employer plans in the U.S. are underfunded by some $369 billion. An estimated $43 billion of that off-balance-sheet liability belongs to the 44 S&P 500 companies that are exposed to multi-employer plans. The other 88% of the $369 billion is borne by small, mid-cap or private firms that may be even less prepared to cover the obligations. The report says Safeway’s $6.9 billion in liabilities amount to 76% of the company’s market cap, for example.

The article points out that CEO’s and union chiefs have ignored the problem, preferring to invest in current wages and benefits rather than funding pensions. If these unfunded pensions are dumped into the Pension Guaranty Fund, the people expecting the pensions will receive a maximum of $12,800 a year–the maximum payout of the fund.

In June 2010 I posted an article (rightwinggranny.com) about the coming crisis in union retirement plans. When you consider the amount of money the unions spend on political causes, you would think they might have some they could invest to make sure their workers actually receive the benefits promised them. Right now, union pensions are a ponzi scheme (just like Social Security). That will not change until union members realize what is going on and force a change.

Just for the record, the website Open Secrets is reporting that labor PACS have contributed $28,047,761 to political campaigns this year (figures as of April 30, 2012). Of those contributions, 88% went to Democrats and 12% to Republicans.

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Union Leaders — The New Fat Cats

Ed Morrissey at Hot Airposted a story today about two high-ranking union officials who took advantage of a legal loophole in the Illinois pension law to collect a $100,000 per year pension for teaching one day in school. A bill was passed recently that:

…enabled union officials to get into the state teachers pension fund and count their previous years as union employees after quickly obtaining teaching certificates and working in a classroom. They just had to do it before the bill was signed into law.

The article at Hot Air Reports:

Although the bill received bipartisan support, the benefit to union officials was sponsored by Springfield Democrats showered by IFT campaign contributions during the 2006 elections.

“The people that are on the inside and understand the process are going to be able to make the system work for their advantage,” said Kent Redfield, who teaches political science at the University of Illinois Springfield. “That this legislation got a hearing and got considered and passed is a reflection of that close relationship between the IFT and the Democratic leadership.

“It feeds into the cynicism about all the deals, that it’s an insider’s game and that the system is rigged.”

Meanwhile, Illinois residents have been hit with tax increases because the spending by the state is out of control. Overspending by government is both a local and national problem. Until the unions and the democrat politicians stop working toward taking as much money as possible from working people while blaming the rich for the state of the economy, our country’s financial problems will continue.

 

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What Happens If You Opt Out Of Social Security ?

Merrill Matthews at the Wall Street Journal posted an article on Saturday detailing what has happened to three Texas counties that opted out of Social Security thirty years ago.

The article reports:

…Now, 30 years on, county workers in those three jurisdictions retire with more money and have better death and disability supplemental benefits. And those three counties—unlike almost all others in the United States—face no long-term unfunded pension liabilities.

Since 1981 and 1982, workers in Galveston, Matagorda and Brazoria Counties have seen their retirement savings grow every year, even during the Great Recession. The so-called Alternate Plan of these three counties doesn’t follow the traditional defined-benefit or defined-contribution model. Employee and employer contributions are actively managed by a financial planner—in this case, First Financial Benefits, Inc., of Houston, which originated the plan in 1980 and has managed it since its adoption. I call it a “banking model.”

If the states are laboratories for the federal government, I think we just had a successful test in the laboratory.

The article further points out:

If a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving children or a spouse who didn’t work). But a worker in the Alternate Plan owns his account, so the entire account belongs to his estate. There is also a disability benefit that pays immediately upon injury, rather than waiting six months plus other restrictions, as under Social Security.

The concept here is that the money invested belongs to the person–not the government–that’s why the plan works!

The article also mentions:

The Alternate Plan could be adopted today by the six million public employees in the U.S.—roughly 25% of the total—who are part of state and local government retirement plans that are outside of Social Security (and are facing serious unfunded liability problems). Unfortunately this option is available only to those six million public employees, since in 1983 Congress barred all others from leaving Social Security. 

Congress has been spending Social Security payroll deductions on other things. That is part of the problem. It is time to take the money out of the hands of Congress and give it back to the people it belongs to.

Maybe Rick Perry knows what he is talking about when it comes to Social Security–opting out of Social Security has worked in Texas!

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