My next door neighbor was a cop, still under 60, been retired for more than 5 yrs

[SK in CV]

[quote=harvey][quote=SK in CV]A little lesson on the difference between defined benefit plans and defined contribution plans…

[…]

Then the shit hit the fan a few years ago, when investment returns were sharply negative. The required amount to fund all future payments was computed just as it had been in the past, but the fund balances at year end were signficantly lower than the required funding. Employers (plan sponsors) were required to make up that difference. That’s what caused the crisis.

[…][/quote]

I don’t disagree with anything in your explanation above. But there are a couple of observations that I think are interesting and relevant:

#1: The explanation offers no hint as to who is responsible for the crisis. (In fact the explanation actually emphasizes that the employers did nothing wrong.) Sure the market crashed, but that happens. It has happened before and will happen again. Was no one responsible for recognizing this basic risk? Did anybody do anything wrong?

It is difficult to accept that we have a crisis of this magnitude, in a system that is specifically designed to mitigate risk, and somehow nobody is to blame.

#2: We could easily take the explanation above, change a few words here and there, and replace “pensions” with “mortgage backed securities.” In other words, there was a financial model that supposedly managed risk, the model blew up, and there were massive losses.

Remember those AAA rated securities?

It’s interesting that you mention that “annuity companies do this all the time, they’re very good at it.” Remember AIG, one of the largest annuity companies in the world?

Two phrases stand out in the explanation that are noteworthy: The word “assumptions” along with the the term “fully funded.” Both are central to the problem. Who defined the standard for “fully funded?” Because, obviously, the accounts were not funded well enough to weather a downturn (and a downturn that wasn’t terribly big by historical standards.) It seems that fully funded isn’t really “fully” funded after all.

The pension system is using the term “fully funded” to mean “we are comfortable with the risk.”

It’s easy to be comfortable with risk when you can just pass it off to someone else.

I don’t see any fundamental difference between the root cause of the pension crisis and mortgage crisis. Both were based upon flawed financial models that failed to predict certain events. Both were supposedly based on systems designed to mitigate risk, something they completely failed to do. And both were based on the desire to get more out of the system without putting more in (some call this “greed.”)

And that gets to the crux of it: Who bears the risk? Why is so much of the public-sector compensation system set up so that all long-term risk in their retirement portfolios is borne by the taxpayer?

[/quote]

You make some good points.

I probably should have worded the “didn’t do anything wrong” part a little more carefully. When actuaries tell a plan sponsor that a plan is fully funded, it’s perfecly reasonable (under normal circumstances) for the plan sponsor to accept that finding and not make any additional contributions for that year. I know I’ve looked at it in the past with regards to CalPERS and I really don’t remember what I found. I have no recollection whether I found the actuarial assumptions to be reasonable, nor do I recall any specific criticism that those assumptions that were unreasonable at the time they were made.

As to your point #2, not only are the two similar, they are inextricably related. Who were the biggest investors in those AAA rated mortgage backed securities? Pension funds. And more than any single type of investor, pension funds pay careful attention to those ratings. I don’t think there’s any 1 party or participant in the mortgage crisis that can be pointed to as THE culprit. There’s half a dozen at least that had significant responsibility. The ratings agencies, in any case, are pretty high up that ladder. Had they not failed miserably, the pension shortfall would have been much smaller, maybe even never reached crisis level by anyone’s definition.

But of course that’s not the entire story either. Historically, pension funds have been risk-off investors. That changed about 15 years ago, and with declining interest rates for the last decade, they moved more into the risk-on investment market. Though I suspect even with that higher risk exposure, they would have survived just fine had the fixed income market not tanked as it did. But then, had that market not failed, the equities market wouldnt have either.

[CA renter]

[quote=Allan from Fallbrook][quote=CA renter]+1 on both Arraya’s and Gary’s posts.[/quote]

CAR: Hey, kudos to you for maintaining your decorum throughout the discussion.

I wanted to ask if you’d seen the statistics about Wisconsin union membership rates dropping, after enactment of Gov. Walker’s Act 10? http://www.thegatewaypundit.com/2012/05/no-wonder-they-hate-him-wisconsin-union-loses-half-of-membership-following-walkers-law/

When it becomes apparent to even Jerry Brown that things need to change, well, you don’t need to be a weatherman to know which way the wind is blowing.[/quote]

Thank you, Allan.

Yes, I’ve seen the numbers. It makes sense to terminate membership when one realizes that union membership won’t offer any advantages. The unions have been rendered powerless. Why pay for nothing?

On a personal note, my father was a professor at a community college, and a (mandatory) contributor/member of the union. He hated every second of it. He spent his years there fighting everything the union did, and was very public about his battles.

He was one of the lucky ones who got to live during the “Golden Age” of public unions. We had free/very low cost healthcare which provided for his care during his ~25 years of various cancer treatments (I’m guessing it would have cost at least $1MM by the time it was all said and done), a nice pension, and the “golden grail” of all public benefits — retiree healthcare (which few get these days). One day, when he was retired and complaining to me about unions, I asked him why he didn’t send his pension check back and refuse any retiree medical care. He kicked me out of his house (we had a really great relationship, except for this one topic). Apparently, he didn’t get the connection. He was a very intelligent man, but like so many out there, didn’t realize how much unions have done for middle-class Americans and workers all across this country, public and private.

Unfortunately, from everything I’ve seen, it’s the people who gain the most as a result of unions, public safety nets, etc. who are most rabidly anti-union/govt. I’m sure that many of those public employees who left the unions felt that they were “forced” to pay the union dues against their will. Of course, they chose these professions largely because of the compensation, benefits, and working conditions that are a *direct result* of union activity…they’d be working in private schools or for private security companies, etc., if not.

Too many people are completely incapable of understanding the age-old battle between capital and labor. It is behind every instance of slavery, every war, every revolution. I think we are headed down a very dark, dangerous path.

Naturally, the past few weeks have been very upsetting and frustrating to those of us who are pro-labor. Another article about the defection from unions [bold is mine]:

………….
“Walker is working to make that harder than ever (ditto for voting, and suing for equal pay and much more). Just as attacks on private sector unions left public sector unions vulnerable, so hamstringing public employees hurts private sector workers too. Despite Walker’s less-than-convincing claims otherwise, Democrats warn that it would only be a matter of time before a reelected Walker would push to make Wisconsin a “right to work” state – a goal that activists at a Madison Tea Party rally told me they’re eager to support. Union leaders say Walker’s public sector union-busting has already led to private sector strikes at Ashland Industries and Manitowoc Crane. Both strikes began after management demanded contract provisions like those Walker forced on public workers.

In other words, “divide and conquer” works, and it goes in both directions.“

http://www.salon.com/2012/06/04/turning_against_unions/

…………….

I don’t see workers of any stipe benefitting from the decimation of unions. It is a very sad situation, IMHO.

[Allan from Fallbrook]

[quote=CA renter]
Too many people are completely incapable of understanding the age-old battle between capital and labor. It is behind every instance of slavery, every war, every revolution. I think we are headed down a very dark, dangerous path.

Naturally, the past few weeks have been very upsetting and frustrating to those of us who are pro-labor. [/quote]

CAR: My conservative bent is no secret, as is my antipathy towards (private sector) unions. I’m not anti-Labor per se, but I have spent many years battling unions on my projects and cannot tell you the number of times (but it’s probably in the high hundreds) that I went head-to-head with union supervisors, project managers, etc over nonsensical work rules, “mandated” guidelines, etc that in many cases would double or treble labor costs on a project.

I take your point on the battle of Labor versus Capital, but I would also point out that there are now significant protections in place, along with powerful agencies, that prevent wage and labor abuses. Agencies like OSHA and FLRB and protections like FLSA. Not to be glib, but I doubt we’re going to see child labor at the DMV anytime soon.

On the public sector front, I agree with you and BG that we should not demonize the individual workers and that many of the “spiking” examples are not only isolated, but used as political fodder to incite public anger. However, it has to be said that both politicians and public unions sat on the same side of the table whilst negotiating and that the taxpayers did get screwed. When solid blue states like California and Wisconsin react like they did (and exit polling in WI indicates that many union members and families pulled the lever for Walker), it would lead to the belief that huge changes are in the offing.

[Anonymous]

The public-sector pension debate simply doesn’t fit the “labor vs. capital” theme. That argument is just a ploy to win allies while at the same time stabbing them in the back.

The two parties that are in conflict are the “old-guard” public sector unions and everyone else (including all private labor, unionized or not.)

The “old-gaurd,” public-sector employees in retirement or near the end of their careers are the big beneficiaries of the current pension contracts that ensure they see no real impact from the economic downturn. This select group has the established contracts and the vesting, and they are the ones fighting to maintain the status quo, for themselves. Somebody has to pay the bill, and it won’t likely be them.

Unions are not in solidarity on this issue because many union members are actually bearing the cost of the crisis more than anyone. The young public union members are the ones losing their jobs in San Jose and elsewhere, and all people (union or otherwise) suffer due to reduced services and higher taxes.

It is ridiculous to try to frame the public-sector pension crisis as a “labor vs. capital” struggle. “Capital” isn’t really involved at all, and the winners and losers are vastly inconsistent across the population of “labor.”

If we must characterize the pension crisis simplistically as a simple struggle between two groups, then it should be framed as one generation of workers in one segment of the workforce against everyone else who pays taxes. It’s a rather small fraction of the population that is the root of the problem.

The poster Dazed and Confused was correct when he noted “that the unions have really missed an opportunity to take the higher ground and retain allies among the moderates who are not already committed on the public employee pension issue.” Although the old-guard public-sector union members may win the battle to get every cent of “theirs,” they will have done so at severe cost to unions in general, and especially to the next-generation of public-sector employees (those who still have jobs.)

[CA renter]

Allan,

Believe it or not, I have battled unions myself regarding ridiculous rules and processes. I don’t call these things out on this site because there is plenty of vitriol without my adding to it. That being said, there are reasons (labor protections of various sorts) for many of their “rules,” even if they tend to go over the top in their application and enforcement.

Yes, there are safeguards in place like OSHA and FLSA, etc., thanks to massive union efforts, but private corporations have been chipping away at these protections over the years, and they are chomping at the bit in anticipation of the decimation of the few remaining unions. Without public sector unions, I give it 5-10 years before most of these worker protections are whittled away to almost nothing. That, and the privatization of public resources, public services, and cash flows, is what this anti-union movement is all about.

The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. I’d wager that they will see their overall compensation cut as a result of the weakened public sector unions because their employers will not have to compete with the public sector for employees. The overall supply of good, middle-class jobs (public sector jobs that have always been available to the general public) has just been reduced by a very large fraction. I fail to see how workers of any stipe will benefit from this.

[CA renter]

Pri,

This isn’t about public vs. private sector workers, it’s not about older vs. newer workers, and it’s not about about taxpayers vs public sector workers (as if they aren’t taxpayers???).

This is ALL about labor vs. capital.

Again, how do you see private sector workers benefitting from the significantly reduced supply of decent, middle-class jobs?

[Coronita]

My goodness, haven’t we beaten this dead horse to a pulp already?

I mean the horse is not only dead. It’s roadkill. Completely flattened. The gutts are splattered all over the asphalt. The blood is already dried blood. And birds have already picked off all the remaining flesh that hasn’t been etched into the asphalt already…
The bat is completely broken and in pieces, because that’s what happens when you start slamming a bat into the asphalt with nothing between the bat and the asphalt…And it’s an aluminium bat that’s not suppose to break. But you folks managed to do it…

[SK in CV]

[quote=CA renter]
The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. [/quote]

No, it’s not about saving taxpayers money. It’s about winning elections. The SEIU and public labor unions are among the most powerful political tools that the Democrats have. The origin of the anti-public labor movement has its roots in conservative organizations that have a primary goal of getting Republicans elected. Destruction of those public and private labor unions is a tool in reaching that goal. Fewer union members, fewer unions, fewer dollars and voters to the Dems. It isn’t any more complicated than that.

[CA renter]

[quote=flu]My goodness, haven’t we beaten this dead horse to a pulp already?

I mean the horse is not only dead. It’s roadkill. Completely flattened. The gutts are splattered all over the asphalt. The blood is already dried blood. And birds have already picked off all the remaining flesh that hasn’t been etched into the asphalt already…
The bat is completely broken and in pieces, because that’s what happens when you start slamming a bat into the asphalt with nothing between the bat and the asphalt…And it’s an aluminium bat that’s not suppose to break. But you folks managed to do it…[/quote]

There’s still some residual DNA in the cracks of the asphalt. 😉

[Anonymous]

[quote=SK in CV][quote=CA renter]
The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. [/quote]

No, it’s not about saving taxpayers money. It’s about winning elections. The SEIU and public labor unions are among the most powerful political tools that the Democrats have. The origin of the anti-public labor movement has its roots in conservative organizations that have a primary goal of getting Republicans elected. Destruction of those public and private labor unions is a tool in reaching that goal. Fewer union members, fewer unions, fewer dollars and voters to the Dems. It isn’t any more complicated than that.[/quote]

That analysis of the situation is oversimplified and refuted by very basic facts.

What about the Democratic mayor of San Jose? What about the Democratic governor of CA?

Heck, there’s even me. In general, I’m one of the harshest critics of Republicans on this site. But this issue is different.

How about this guy?

http://www.time.com/time/magazine/article/0,9171,2117244,00.html

The system as it is evolving is highly regressive. Current workers will have their salaries cut, their numbers thinned and their benefits slashed, all to maintain relatively comfortable benefits for retirees, who are on average richer than the people who are being asked to make these sacrifices. Current residents will watch their services dwindle, so that retirees–again, who are richer on average than they are–can have guaranteed generous cost-of-living increases year after year.

In other words, it’s the old-guard vs. everyone else.

The last sentence of this says it quite well:

Public-sector unions are strong supporters of the Democratic Party, so their clout has drowned out the voices of the poor, the young, students and average citizens. That is why real credit for courage should go to those few Democrats who are taking on these issues, even at the cost of losing support from one of their key constituencies. That includes mayors like Rahm Emanuel and Chuck Reed as well as governors like Andrew Cuomo and Pat Quinn. Sadly, they are too few and too isolated. Democrats should take note: the ideals of liberalism are now being sacrificed for the interest groups of liberals.

Zakaria is certainly not a right-wing pundit.

This issue is not about left-right politics. It’s about basic arithmetic and common fairness.

[SK in CV]

[quote=harvey][quote=SK in CV][quote=CA renter]
The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. [/quote]

No, it’s not about saving taxpayers money. It’s about winning elections. The SEIU and public labor unions are among the most powerful political tools that the Democrats have. The origin of the anti-public labor movement has its roots in conservative organizations that have a primary goal of getting Republicans elected. Destruction of those public and private labor unions is a tool in reaching that goal. Fewer union members, fewer unions, fewer dollars and voters to the Dems. It isn’t any more complicated than that.[/quote]

That analysis of the situation is oversimplified and refuted by very basic facts.

What about the Democratic mayors of San Jose and San Diego? What about the Democratic governor of CA?

Heck, there’s even me. In general, I’m one of the harshest critics of Republicans on this site. But this issue is different.

How about this guy?

http://www.time.com/time/magazine/article/0,9171,2117244,00.html

The system as it is evolving is highly regressive. Current workers will have their salaries cut, their numbers thinned and their benefits slashed, all to maintain relatively comfortable benefits for retirees, who are on average richer than the people who are being asked to make these sacrifices. Current residents will watch their services dwindle, so that retirees–again, who are richer on average than they are–can have guaranteed generous cost-of-living increases year after year.

In other words, it’s the old-guard vs. everyone else.

The last sentence of this says it quite well:

Public-sector unions are strong supporters of the Democratic Party, so their clout has drowned out the voices of the poor, the young, students and average citizens. That is why real credit for courage should go to those few Democrats who are taking on these issues, even at the cost of losing support from one of their key constituencies. That includes mayors like Rahm Emanuel and Chuck Reed as well as governors like Andrew Cuomo and Pat Quinn. Sadly, they are too few and too isolated. Democrats should take note: the ideals of liberalism are now being sacrificed for the interest groups of liberals.

Zakaria is certainly not a right-wing pundit.

This issue is not about left-right politics. It’s about basic arithmetic and common fairness.[/quote]

I said the origins. Not what the anti-public union movement has evolved into. Just a coincidence that it started with almost identical bills in multiple states (Wisconsin, Michigan, Indiana, Maine….)? No, it’s not a coincidence. These bills originated with and organization called ALEC, a big business anti-labor sponsored organization. It was anything but grass roots. It was well planned, well funded, and well executed. At it’s origins, it had nothing to do with saving states money, only with bigger profits for big business.

[Allan from Fallbrook]

[quote=SK in CV][quote=CA renter]
The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. [/quote]

No, it’s not about saving taxpayers money. It’s about winning elections. The SEIU and public labor unions are among the most powerful political tools that the Democrats have. The origin of the anti-public labor movement has its roots in conservative organizations that have a primary goal of getting Republicans elected. Destruction of those public and private labor unions is a tool in reaching that goal. Fewer union members, fewer unions, fewer dollars and voters to the Dems. It isn’t any more complicated than that.[/quote]

SK: Excellent point and, if we use the Wisconsin recall elections as a guide, the GOP succeeded brilliantly. Wisconsin will be used as a model in other states and for exactly the reason you mentioned: To erode support for and hamstring the Democratic Party.

One of the over-used (and incorrect) memes in the Wisconsin recall was the notion that “big money won that election for the GOP.” Statistics cited a 7:1 or 8:1 margin in terms of cash raised/spent. The reality was that unions put over $20MM into Dem coffers and still lost. They also lost due to another key factor: The GOP Get-Out-the-Vote effort actually beat the union/Dem GOTV effort.

In terms of power and reach, the unions have always given the Dems not only significant monetary support, but their organizational skill and GOTV muscle has been huge as well. They picked this fight with Walker because they had to and they counted on their traditional strengths to send a message to other GOP governors who were closely watching this race and its outcome. Needless to say, the game has changed and it will be interesting to watch the next few years as this unfolds.

As CAR opined, it does come down to Labor (Dems) versus Capital (GOP).

[Anonymous]

[quote=SK in CV]I said the origins.[/quote]

True, you did say “origins” and I can’t dispute that aspect of it.

But I’m not really interested in guilt by association.

The objective facts are pretty compelling on this issue. It’s not just about isolated “spiking” and a few “bad apples” – there are fundamental flaws and conflicts of interest in the current union/lawmaker relationship.

The situation certainly is not as simple as “unions good, Republicans bad.” And the unions are not going to win any allies by trying to characterize that way.

[Anonymous]

[quote=Allan from Fallbrook]As CAR opined, it does come down to Labor (Dems) versus Capital (GOP).[/quote]

But I thought both parties were the same?

[CA renter]

[quote=SK in CV][quote=harvey][quote=SK in CV][quote=CA renter]
The attack on govt workers/unions is NOT about saving taxpayers/consumers money, and private sector workers will NOT benefit in any way from the destruction of public sector unions. [/quote]

No, it’s not about saving taxpayers money. It’s about winning elections. The SEIU and public labor unions are among the most powerful political tools that the Democrats have. The origin of the anti-public labor movement has its roots in conservative organizations that have a primary goal of getting Republicans elected. Destruction of those public and private labor unions is a tool in reaching that goal. Fewer union members, fewer unions, fewer dollars and voters to the Dems. It isn’t any more complicated than that.[/quote]

That analysis of the situation is oversimplified and refuted by very basic facts.

What about the Democratic mayors of San Jose and San Diego? What about the Democratic governor of CA?

Heck, there’s even me. In general, I’m one of the harshest critics of Republicans on this site. But this issue is different.

How about this guy?

http://www.time.com/time/magazine/article/0,9171,2117244,00.html

The system as it is evolving is highly regressive. Current workers will have their salaries cut, their numbers thinned and their benefits slashed, all to maintain relatively comfortable benefits for retirees, who are on average richer than the people who are being asked to make these sacrifices. Current residents will watch their services dwindle, so that retirees–again, who are richer on average than they are–can have guaranteed generous cost-of-living increases year after year.

In other words, it’s the old-guard vs. everyone else.

The last sentence of this says it quite well:

Public-sector unions are strong supporters of the Democratic Party, so their clout has drowned out the voices of the poor, the young, students and average citizens. That is why real credit for courage should go to those few Democrats who are taking on these issues, even at the cost of losing support from one of their key constituencies. That includes mayors like Rahm Emanuel and Chuck Reed as well as governors like Andrew Cuomo and Pat Quinn. Sadly, they are too few and too isolated. Democrats should take note: the ideals of liberalism are now being sacrificed for the interest groups of liberals.

Zakaria is certainly not a right-wing pundit.

This issue is not about left-right politics. It’s about basic arithmetic and common fairness.[/quote]

I said the origins. Not what the anti-public union movement has evolved into. Just a coincidence that it started with almost identical bills in multiple states (Wisconsin, Michigan, Indiana, Maine….)? No, it’s not a coincidence. These bills originated with and organization called ALEC, a big business anti-labor sponsored organization. It was anything but grass roots. It was well planned, well funded, and well executed. At it’s origins, it had nothing to do with saving states money, only with bigger profits for big business.[/quote]

Exactly. It was exceedingly well-organized and very well funded. Big business/capital has most certainly won this very important battle, and I’m not sure labor can recover for reasons you’ve already pointed out.

Most importantly, it was NEVER about helping private sector workers (or workers of any kind), and it was never about helping average taxpayers (though the very wealthiest taxpayers — and no, you’re not one of them, Pri — will likely benefit greatly).

I have a deep suspicion that people will be paying more for less, in all aspects of their lives. IMHO, American voters have just ensured that their purchasing power will be greatly diminished over the coming years. These elections have paved the way to an accelerated race to the bottom for ALL workers.

[Author]

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