re·ac·tion·ar·y, rēˈakSHəˌnerē, adjective
1. (of a person or a set of views) opposing political or social liberalization or reform.
–  Source:  Google search “what is a reactionary”

When it comes to civic financial health and quality public education, “reactionary” is a word with increasingly bipartisan connotations. But the other qualities connoted by the word all still apply; shrill and divisive rhetoric, an almost militant unwillingness to acknowledge any of the opposition’s arguments, and, of course, an unyielding position favoring the status-quo, no matter how untenable.

Pension reactionaries embody all of these characteristics. For the most part, they are also hypocrites. Because their devastatingly effective campaigns against pension reformers are funded not only by public employee unions, but also by powerful elements of those same Wall Street financial interests those unions routinely deride. They employ distortions of fact, they demonize reformers, and they employ inversions of logic.

Let’s examine some of the misleading arguments and tactics of the pension reactionaries, in no particular order:

(1) Identify key reformers, demonize them, then accuse anyone who advocates reform of being their puppets.  Pension reformers have been the victims of character assassination for years. The more they represent an effective threat, the more potent the attacks leveled against them: John Arnold, a “hedge fund billionaire,” Charles and David Koch, the “conservative billionaire brothers,” and, of course “Wall Street” whose alleged shenanigans are said to pose the real threat to the solvency of these funds. The fallacy here, notwithstanding the vicious and unfounded attacks that have tainted these individuals, is that whether or not pensions are financially sustainable or equitable to taxpayers has nothing to do with who some of the reformers are. And what about liberal democrats who advocate pension reform, such as San Jose mayor Chuck Reed, Chicago mayor Rahm Emanuel, Rhode Island governor Gina Raimondo, and countless others? Are they all merely puppets? Absurd.

(2)  Assume if someone advocates pension reform, they must also want to dismantle Social Security. While there are plenty of pension reformers who have a libertarian aversion to “entitlements” such as Social Security, it is wrong to suggest all reformers feel that way. Social Security is financially sustainable because it has built in mechanisms to maintain solvency – benefits can be adjusted downwards, contributions can be adjusted upwards, the ceiling can be raised, the age of eligibility can be increased, and additional means testing can be imposed. If pensions were adjustable in this manner, so public sector workers might live according to the same rules that private sector workers do, there would not be a financial crisis facing pensions. There is no inherent connection between wanting to reform public sector pensions and wanting to eliminate Social Security. It is a red herring.

(3)  Public sector pension plans would be financially healthy if they had not been invested in risky derivatives, especially mortgages. This is a clever inversion of logic. Because if pension funds had not been riding the economic bubble, making risky investments, heedless of historical norms, then public employee unions would never have been mislead by these fund managers to demand and get unsustainable enhancements – usually granted retroactively – to their pension benefit formulas. The precarious solvency of pension funds today is entirely dependent on asset bubbles. Most of these funds still have significant positions in private equity investments, which are opaque and highly volatile, and despite recent moves by some major pension funds to vacate hedge fund investments, they still comprise significant portions of pension fund portfolios. What the pension reactionaries either don’t understand or willfully ignore is a crucial fact: if pension funds did not make risky investments, they would have to bring their rate-of-return projections down to earth, and their supposed solvency would vaporize overnight.

(4)  Weakening pensions is a choice, not an imperative. The crisis is political, not actuarial. This really depends on how you define “weakening.” If you weaken the benefits, you strengthen the solvency. The fundamental contradiction in this logic is simple: If you don’t want pension funds to be entities whose actions are just like those firms located on the proverbial, parasitic “Wall Street,” then they have to make conservative, low risk investments. But if you make low risk investments, you blow up the funds unless you also “weaken” the benefit formulas.

To drive this point home with irrefutable calculations, refer to the California Policy Center study “Estimating America’s Total Unfunded State and Local Government Pension Liability,” where the impact of making lower risk investments that yield lower rates of return is calculated. If, for example, state and local public employee pension funds in the United States were to lower their rate-of-return to a decidedly non-“Wall Street,” low-risk rate of return of 4.33% (the July 2014 Citibank Pension Liability Index Rate, used in the study – it’s even lower today), and invest their $3.6 trillion in assets accordingly, their aggregate unfunded liability would triple from today’s estimated $1.26 trillion to $3.79 trillion. The required annual contribution (normal plus unfunded) would rise from the estimated $186 billion to $586 billion. The alternative? Lower benefits.

The pension reactionaries willfully ignore additional key points. They continue to claim public sector pension benefits average only around $25,000 per year, ignoring the fact that pension benefits for people who spent 30 years or more earning a pension, i.e., full career retirees, currently earn pensions that average well over $60,000 per year. Public safety unions still spread the falsehood that their retirees die prematurely, when, for example, CalPERS own actuarial data proves that even firefighters retire today with a life-expectancy virtually identical to the general population.

Reactionary propagandists who oppose urgently needed pension reform should recognize that it is bipartisan, it is a financial imperative, and it is a moral imperative. They need to recognize that the sooner defined benefits are adjusted downwards, the less severe these adjustments are going to be. They need to understand that for many reformers, converting public employees to individual 401K plans is a last resort being forced on them by political, legal and financial realities, not an ulterior motive. They need to stop demonizing their opponents, and they need to stop stereotyping every critic of pensions as people who want to destroy retirement security, including Social Security, for ordinary Americans. And if they wish to defend Social Security, then they should also be willing to apply to pension formulas the tools built into Social Security – including its progressive formulas whereby highly compensated workers receive proportionally less in retirement than low income workers. Ideally, they should support requiring all public workers to participate in Social Security, so that all Americans earn – at least to the extent it is taxpayer funded – retirement entitlements according to the same set of formulas and incentives.

 *   *   *

Ed Ring is the executive director of the California Policy Center.

REFERENCE

Estimating America’s Total Unfunded State and Local Government Pension Liability
California Policy Center study, September 2014

35 Responses to How the Pension Reactionaries Mislead the Public

  1. wesmouch says:

    Thank you for your work Mr Ring. I have come to believe that public Unions are the nemesis of the taxpayer and are incompatible with a civil society. God bless you.

  2. S Moderation Douglas says:

    “….including its progressive formulas whereby highly compensated workers receive proportionally less in retirement than low income workers.”

    Isn’t that income redistribution? Why would you want to do that?

    • Tough Love says:

      You vehemently protest my saying that even the lowest paid Public Sector workers deserve no more in total compensation than their Private Sector counterparts, but here, you refuse to support the necessary “redistribution” of total payouts (from the highest too the lowest) to make financially feasible exactly want you want ….. supporting HIGHER payments to the lower paid.

  3. Equal Time says:

    Back at you – “When it comes to civic financial health and quality public education, “reactionary” is a word with increasingly bipartisan connotations. But the other qualities connoted by the word all still apply; shrill and divisive rhetoric, an almost militant unwillingness to acknowledge any of the opposition’s arguments”.

    • Tough Love says:

      And to you ………..

      “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

      Upton Sinclair

    • Rex the Wonder Dog! says:

      “But the other qualities connoted by the word all still apply; shrill and divisive rhetoric, an almost militant unwillingness to acknowledge any of the opposition’s arguments”

      ET ( love that!), you and your comments are from another planet, Trough Feederland from the Omega Galaxy, where math is taught as 2+2=48!

  4. S Moderation Douglas says:

    How pension “reformers” mislead the public.

    1. Demonize the unions. “Powerful Public Employee Unions” is an oxymoron. The charge is that private sector unions are OK. They were effective in eliminating employer abuses, in bringing the forty hour week, vacation and sick pay, health insurance, etc., yadda, yadda, yadda. And they were limited from “excessive demands” by the free market. If they demanded too much, their employer would go out of business and their jobs would be lost. “Public sector unions are a cancer. They elect their own bosses who then collude with them to rip off the taxpayer.” …LOL… For the most part, public sector unions have been playing defense, and not very successfully. Even before the crash in 07-08, public pay had not been keeping up with inflation.

    2. Exaggerate the pay and benefits of the public sector. The “$100,000 club” was the face of the public employee. This was an obvious rip off of the taxpayer. This must be especially galling  to Joe Sixpack, the “average” private sector worker making $50,000 a year, with NO pension. When the lists first came out, I looked at the top pensioner at the time. He was, literally, a brain surgeon. According to all the Economic studies, primarily that from the American Enterprise Institute, professionals in this category in the private sector earn, on average, about sixty percent more than equivalent public sector workers. Even after pensions and benefits are included, the private sector doctor makes twenty percent more. For a more realistic comparison, look at the public workers we all love to hate; road maintenance or DMV clerks. A CalTRANS maintenance worker or equipment operator makes about $45,000 a year, from which about $4,200 will be withheld toward his pension (deferred compensation) After thirty years his pension will be about $2,700 a month ($2,250 for those hired after 2012). DMV clerks WISH they could make as much.

    3. ….DEFINED BENEFIT SYSTEMS ARE UNSUSTAINABLE…..
    Asset bubbles? Private equity? “low-risk rate of return of 4.33% (it’s even lower today),”
    If a defined benefit system is inherently doomed to failure, a defined contribution system would be even worse. Every DB system, every IRA, every 401(k) or other defined contribution system depends on the historical fact that, with dividends, stock market investments have increased fairly consistently at about 10% per year, 7% after inflation. Yes, expectations are now being lowered. And, yes, the returns are volatile. But no one no where, even the financial economists who insist on using the risk free rate to “value” pensions, recommend actually investing in only risk free instruments.

    4. Pension reformers who claim that pension reform is “urgently needed, that it is bipartisan, it is a financial imperative, and it is a moral imperative.” Need to understand and admit that pension reform is already occurring, and will continue to do so for the foreseeable future.  In California today, benefit formulae for new employees are below those in effect before the accursed SB400. Employees are paying much more out of pocket than before. Caps have been imposed similar to those for Social Security. Spiking has been controlled.

    5. Public safety unions. Where to begin? How much is a cop worth? I personally wouldn’t take the job even for twice the pay, even if I were qualified, which most people are not. But it appears that police and firefighter pay, and pensions are often the most “egregious” examples raised by reformers, and also the most often excluded by those reforms. One still does occasionally see a blog comment claiming safety workers die younger, it doesn’t seem to be coming from “the unions” so much. But there is a difference. CHP, I believe, has a mandatory retirement age of sixty. At least one other state has a fifty five age limit. Other state and local units have similar limits, I presume, and there are probably not enough “desk jobs” for those worn down or stressed out by street work. Military can routinely retire under age 40 with half pay, and medical care for life; young enough to begin another career, not so easy for a 55 year old with no experience other than police work. Social Security for these workers is a non starter. There are compromises available, should police and fire wish to negotiate them. Some labor unions have provisions for early retirement where DB pensions are boosted until SS retirement age, then reduced so that the SS payment plus pension remains fairly constant.

    6. And, finally, there is a LOT of general antipathy toward public sector worker pensions AND pay (and vacations, and job security, and their very existence) fueled by gross exaggerations in articles such as this one. I don’t rightly know the motive, or the source of funds for the various “think tanks”. I don’t blindly blame Wall Street.

    Lily Tomlin once said (maybe more than once): “No matter how cynical you become, it’s never enough to keep up.” 

    S Moderation quotes Dr. Lee (of OJ fame) “There’s Something Wrong Here”
    Some body, somewhere, is spending a LOT of money trying to eliminate public sector unions in general and public sector pensions specifically. Why? Pensions generally consume about 4% of government spending overall. Not bad, for a labor intensive sector. Even if costs nominally increase by 50%, as some project, they likely will be offset by lower wages.

    If S Moderation were forced to speculate, he would say the reason public unions must be squashed is the money and support they bring to political campaigns. Do you really think those who spent millions backing prop 32, the “Paycheck Protection” act of 2012 were altruistically concerned about saving the union deductions for the average government worker? Do you believe those putting up the money for Friedrichs v. California Teachers Association (et al.) are concerned about the freedom of speech for Ms. Friedrichs and her colleagues?

    I don’t.

    But, that’s just my opinion.

    AFK

    • Benjamin says:

      The union is not responsible for the 40 hour work week; Henry Ford is.

      http://www.history.com/this-day-in-history/ford-factory-workers-get-40-hour-week

    • John Moore says:

      According to the Stanford Institute For Economic Policy Research, Total unfunded liabilities for all Ca. govt. agencies thru June 30, 2013 are $946.4B, $74,661 per Household. As of Dec. 31, 2015, the unfunded liabilities will have increased by over $100B due to poor investment performance since June 30, 2013. That debt is for past services and does not pay for any pensions for work going forward. PEPRA is a red herring to discourage real reform. Deficits will continue to soar unabated, if for no other reason because there is no salary cap. PEPRA does cap the size of public retirements at about two to three times the current average benefit for those 90% or more qualified, but guarantees that a greater number of employees will reach that cap. Its over all effect is to grow higher deficits. To date, no one has shown a way out of this legalized embezzlement.

    • SkippingDog says:

      S. Moderation gets to the heart of the matter, particularly with the last two paragraphs of his post. The real opposition to public pensions and public unions comes from the same groups that oppose Democratic political policies. Funny how that always seems to be the real case.

    • Rex the Wonder Dog! says:

      1. Demonize the unions. “Powerful Public Employee Unions” is an oxymoron.
      Top political donor-#1-California Teachers Association, Burlingame, CA Teachers union, $118,238,531
      Yes, the LARGEST special interest in the state, the CTA, is not “powerful”, I guess that is why they gifted out over $100 million in less than 12 months, because it did nothing.
      2. Exaggerate the pay and benefits of the public sector.
      Right, like GED jobs comping over HALF A MILLION PER YEAR!!!!! Happens all the time in the real world, GED employees pulling doe $over $500K, and another 21 pulling down over $300K, 90% cop and FF;
      Michael Banks FIRE CHIEF $561,277.53
      William Lindsay CITY MANAGER $379,136.29
      Angel R Bobo FIRE CAPTAIN $364,741.17
      Jovan A Walker POLICE OFFICER $361,712.75
      Merlin K Turner BATTALION CHIEF $354,230.27
      Christopher Magnus POLICE CHIEF $333,805.35
      William Cantrell POLICE OFFICER $324,449.48
      Manly Moultonjr. BATTALION CHIEF $323,256.02
      Dwayne J Jurado FIRE ENGINEER $319,868.75
      Dedrick A Rileysr. POLICE OFFICER $318,267.08
      http://transparentcalifornia.com/salaries/richmond/
      4.Need to understand and admit that pension reform is already occurring, and will continue to do so for the foreseeable future. In California today, benefit formulae for new employees are below those in effect before the accursed SB400.
      3%@55″ is NOT “well below” 3%@50 Doug. And it is unsustainable. You cannot have GED educated gov employees working a short 30 years, then “retiring” and living another 40 years, making 10 times more in “retirement” than they actually made while working.
      5.Pensions generally consume about 4% of government spending overall
      Your SPIN knows no bounds. STATE pension costs are only 4%, but 90% of government employees work local, county, city, school districts and special districts. It is more like anywhere from 20%+ right now and going up, every year. CalSTRS is raising their pension rates by 200%, and taxpayers pay 90% of that increase.
      That was awesome, spanking Doug with the TRUTH, again. Thanks for playing!

      • Rex the Wonder Dog! says:

        With all due respect to Doug, he was correct on the 2%@50 pension formula, and was aware that it changed ca person reached age 50, increasing with each year past 50. I, and most people, were not aware the 2% multiplier changed at age 50, increasing each year thereafter.

        Hat Tip to Doug.

        • S Moderation Douglas says:

          Dog,

          I have been posting the same information since at least 2012. Dozens of times, usually with a link to the CalPERS formula charts. What other information are you, and most people, not aware of?

          Doug?

          • Rex the Wonder Dog! says:

            I have never seen you post that comment before. I had always thought the multiplier remained the same.

          • S Moderation Douglas says:

            Apparently EdRing doesn’t like links: (Your comment is awaiting moderation)

            CalWatchdog.com Sep, 2012
            CalWatchdog Staff

            “Yes, we can break public-employee pensions”

            Douglas 22 September, 2012, 20:17

            The 2% at 50 formula graduated to 2.7% at 55. So a safety worker who retired at 55 with 33 years service would receive 90% of salary.
            Under the 3% at 50 formula, guess how much a 55 year old safety worker with 33 years service would receive? Correct answer, 90% of salary, a zero percent increase.
            ……………………………………
            Rex the Wonder Dog! 22 September, 2012, 21:42

            The 2% at 50 formula graduated to 2.7% at 55. So a safety worker who retired at 55 with 33 years service would receive 90% of salary.
            Actually SB400 raised the multiplier from 2% to 3%, an increase of 50%.

            dot, dot, dot:

            Go home troughie, you can’t hang here with the Big Boys 🙂
            ……………………………………

            (S Moderation Douglas is the new and improved “Douglas”)

            Coincidentally, CWD.com is the reason for the name change.

            Douglas is not “awaiting moderation”; Douglas IS Moderation. Fair and balanced. The eponymous source of unbiased information. Dedicated to truth, justice, and the American Way.

          • S Moderation Douglas says:

            “CalPERS’ new shtick: Ripping CalPERS = ripping retirees. Groan.”

            Douglas says:
            December 17, 2012 at 9:55 am

            (CalPERS link inserted here)
            Page 29: 2% @ 50: A safety worker retiring at age 50 with 30 years service will receive 60% of his final salary. Page 39: 3% @ 50: A safety worker retiring at age 50 with 30 years service will receive 90% of his final salary. That is, in fact, a fifty percent increase, not to ALL state employees, only to safety workers, and only to those who retire at age 50 with 30 years service. Around ONE PERCENT OF ALL STATE RETIREES.

            (The pamphlet has been upgraded and the link changed, search “your-benefits-your-future-state-safety-benef”
            ……………………….
            Rex the Wonder Dog! says:
            December 17, 2012 at 2:14 pm

            NO miscellaneous employees received a fity percent increase or anything close.
            I retired at 63 with 37 years service. My pension increased by 3% under the new formula. NOT 50%. Not even close.
            Ergo: ” a 50 percent retroactive giveaway to all state employees”
            Sorry Dougie-hate to spank you yet again, but AB 616 in 2001, added three high-end formulas for ALL other CalTURDS recipients besides public safety.
            Ergo Ms Dougie-THOSE three formulas raised all OTHER employees pensions, retroactively, by 50%.
            Oh man, did that feel good 🙂
            ……………………………..

            Rex the Wonder Dog! says:
            December 13, 2015 at 11:34 AM
            I have never seen you post that comment before. I had always thought the multiplier remained the same.

            Rex the Wonder Dog! says:
            December 11, 2015 at 11:40 AM
            I, and most people, were not aware the 2% multiplier changed at age 50, increasing each year thereafter.

  5. S Moderation Douglas says:

     I were not aware. ???

    Douglas says: December 17, 2012 at 7:32 am

    “CalWatchdog adheres to the Code of Ethics of the Society of Professional Journalists.”

    And yet we begin with a Reedism in the FIRST SENTENCE:

    “a 50 percent retroactive giveaway to all state employees in 1999″

    wrong
    ________________________________________________

     Rex the Wonder Dog! says: December 17, 2012 at 8:35 am

    “a 50 percent retroactive giveaway to all state employees in 1999″
    wrong

    Google SB400. 100% correct
    ______________________________________________
    Douglas says: December 17, 2012 at 9:55 am

    http://www.calpers.ca.gov/eip-docs/about/pubs/member/your-benefits-your-future-state-safety-benef.pdf

    Page 29: 2% @ 50: A “typical” safety worker, retiring at 55 (or over)with 30 years service will receive 81% of his final salary
    _______________________________________

    http://dropafile.com/calwatchdog/calpers-new-shtick-ripping-calpers-ripping-retirees-groan/comment-page-1/#comments

    This statement has been repeated at least a dozen times since 2012. What else is there that you and “most people” are not aware of?

  6. SeeSaw says:

    If any group deserves to be demonized its Reed, DeMaio, and their four pals. There is nothing sensible about trying to pull the wool over the eyes of the voters by making them believe this initiative is sensible pension reform. “Sensible” and “viscious” are not synonymous descriptions.

  7. SeeSaw says:

    There is no such thing as private-sector taxpayers. We all worked in the, respective sectors, but when it comes to paying taxes we are all “one”. I once worked in the private sector too, TL and my spouse worked 50 years in the private sector–so you can come down from that high horse anytime.

    • Tough Love says:

      Oh, so there is nothing “sensible” by an initiative that tries to end (and just for NEW Public Sector workers …. and NOT even for the future service of CURRENT workers, easily as justified) PUBLIC Sector pensions that are ROUTINELY 3x-4x (4x-6x for Safety workers) greater in value at retirement than those of identically situated Private Sector workers.

      On what “planet” are Public Sector workers “entitled” to a better TAXPAYER-FUNDED deal than the taxpayers themselves ?

  8. SeeSaw says:

    Ask the private-sector employers, TL. They are the ones responsible for the differences. As a public-sector retiree I am subjected to the GPO and do not receive SS benefits as the spouse of a SS beneficiary. Perhaps I should ask the Feds why I am being discriminated against when it comes to collecting a share of my spouse’s SS benefits while the wife of a private-sector billionaire is eligible. How unfair–on what planet is any private-sector spouse allowed a better SS deal than public-sector retirees like me!

    • Tough Love says:

      Which is it SeeSaw ?

      Are you too intent on deceiving or too “thick” to understand ?

      Read the following link:

      http://www.foxbusiness.com/personal-finance/2015/03/24/government-pension-could-reduce-your-social-security/

      Social Security’s GPO provision is the source of the elimination of your SS spousal benefit and as stated the REASON for that is:

      “This is not done as “punishment,” but rather with the goal of “fairness.” It’s designed to somewhat correct for an unintentional result of the way Social Security benefits are calculated.”

      • Tough Love says:

        SeeSaw,

        Here is another quote on the SS GPO provision DIRECT from the SS website … https://www.ssa.gov/pubs/EN-05-10007.pdf

        “The Government Pension Offset ensures
        that we calculate the benefits of government
        employees who don’t pay Social Security taxes
        the same as workers in the private sector who
        pay Social Security taxes.”

        You see, they too (like I) DON’T think Public Sector workers are “special” and deserving of a better deal that Private Sector worker ….. unlike (the ever greedy) YOU.

        • Rex the Wonder Dog! says:

          I have never seen you post that comment before. I had always thought the multiplier remained the same.

        • Rex the Wonder Dog! says:

          You see, they too (like I) DON’T think Public Sector workers are “special” and deserving of a better deal that Private Sector worker ….. unlike (the ever greedy) YOU.

          seesaw is more delusional than greedy. Now, can you imagine what her poor hubby deals with on a 24/7basis????? I pity that poor man 🙂

          • SeeSaw says:

            Whatever. I am a good person with a modest pension and am not delusional and my husband does not have to deal with me in any way whatsoever! The two of you whose only, respective, expertise is the ability to lob insulting comments at someone you don’t know–enjoy yourselves–you obviously have nothing else going for you.

  9. Tough Love says:

    SeeSaw, It would have been nice for you to you ADMIT that you didn’t understand the REASON for the Social Security’s GPO provision and that you are NOT being (in your words) … “discriminated against”.

  10. SeeSaw says:

    NO–the reason makes no sense. As I said already, the law has nothing to do with whether a beneficiary has or has not paid SS taxes. Many beneficiaries have never paid a dollar’s worth of SS in their entire lives–it does not matter whether they are rich or poor. The deciding fact is whether or not they are drawing a public pension.

    • Tough Love says:

      Ok (if you say so)….. Please tell the US Gov’t Office of Social Security that what they say “makes no sense” …. and that YOU know better.

      LOL

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