Weakening pensions is a choice, not an imperative. The crisis is political, not actuarial.
– Susan Greenbaum, guest editorial, Al Jazeera America, October 20, 2014

With this thesis highlighted, Greenbaum, a retired professor of anthropology at the University of South Florida, has just published a guest editorial that provides in one place a useful example of the distortions, demonizing and inversions of logic used by those who fight against pension reform. To understand why public employees, and their union leadership, remain sincere in their delusions regarding pensions, Greenbaum’s missive may serve as Exhibit A. Because she has joined a chorus that is funded not only by the billions that are spent by public employee unions on political and educational propaganda each year, but also funded by elements of those same Wall Street financial interests they routinely deride.

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

(1) Identify key reformers, demonize them, then accuse anyone who advocates reform of being their puppets. Greenbaum identifies a lot of “demons,” i.e., opponents, who have been the victims of character assassination for years: John Arnold, a “hedge fund billionaire,” Charles and David Koch, the “conservative billionaire brothers,” and, of course “Wall Street [whose] shenanigans, not sound financial knowledge, posed 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, former Rhode Island treasurer and gubernatorial candidate 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 Greenbaum either doesn’t understand or willfully ignores 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 Greenbaum’s 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 a recent 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), 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 today’s $186 billion to $586 billion. The alternative? Lower benefits.

Those who fight against pension reform 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.

Propagandists who oppose urgently needed reform should recognize that pension reform 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 everyone 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.

14 Responses to The Misleading Arguments of Those Who Fight Against Pension Reform

  1. Justin Case says:

    Isn’t It Time For The Abused Taxpayers Of California To Leave In Masses.
    In Order To End This Unholy Conspiracy Between The Totally Corrupt.
    Democrats And The Equally Corrupt Public Service Unions? It Is Really.
    The Only Way To Finally End This Criminal Activity! Did Anybody Ever.
    Hear Of RICO?

  2. john m. moore says:

    This is an excellent analysis. But on the other hand, the CA. experience to date with Initiatives is disheartening. In my view, the only real pension reform will come thru use of the “Recall.”
    Every county should form a “Recall” PAC and fund the recall of every office holder at the state and local level that opposes true reform. John M. Moore

  3. Richard Rider says:

    Along these lines, consider an article on misleading arguments against pension reform — what I’ve labeled “implicit fallacies”:

    “Ten IMPLICIT Fallacies Used To Justify Opulent Government Pensions”
    by Richard Rider

    EXPLANATORY NOTE: What is an “implicit fallacy?” Well, I made up the term, because I can’t find an exact definition that fits. It’s sometimes more formally referred to as an “Unwarranted Presumption.”

    As I see it, it’s an assertion based on a flawed premise — but a premise that is NOT stated. It is just assumed — implied, if you will.

    In the field of government pensions, I have noticed that many a labor unions assertion is based on such an implicit fallacy. Often when the assumption is actually stated (as I do below), it becomes ludicrous on its face.

    Not all ten of the union assertions below fit this definition perfectly, but they all have one thing in common — they are inaccurate statements — if not outright lies. And I’m seldom wrong.

    My article below has been published on numerous blogs and at least 3 newspapers. Enjoy.

    —————–

    Ten IMPLICIT Fallacies Used To Justify Opulent Government Pensions
    by RICHARD RIDER on OCTOBER 2, 2013 ·

    There are many implicit rationalizations justifying paying generous government pensions. Here are my nominations for the top ten bogus excuses:

    1. “Public employees deserve high pensions because of their low pay.”
    FALSE. Perhaps true at one time, but not anymore. In many instances, today’s government employees are earning 10%-30% more than their true private sector counterparts — with far better job guarantees and more holidays.

    2. “Government employees should not have to save for retirement.”
    FALSE. They can use retirement accounts to add to their nest eggs — just like the rest of us. They can invest in stocks, bonds, real estate, annuities — just like the rest of us.

    3. “Government employees deserve to retire earlier than private sector employees.”
    FALSE. If they do “need” to retire early, they can get another job to supplement income (as do most military retirees).

    4. “Government employees and their families deserve to live and retire comfortably from a single 40 hour a week job.”
    FALSE. Today most private sector middle income and upper middle income couples fully expect to generate multiple incomes — working over 40 hours and/or both working.

    5. “Government workers deserve guarantees because they are ‘public servants’ not motivated by greed.”
    FALSE. As a group, public employees, thanks to their their unions, are as greedy as they come, and they rely on the force of government to get what they want. The REAL “public servants” are the TAXPAYERS.

    6. “No matter how many or few years a public employee works for government, their only source of retirement income is (and should be) their government pensions.”
    FALSE. Downright ludicrous. Yet government pension apologists will point to a 10 year government worker’s relatively modest pension, bemoaning the worker’s poverty-stricken plight at retirement. They include such workers in their “average government pension” propaganda.

    7. “Many government employees don’t get social security.”
    LARGELY FALSE — or at least misleading. While many public employees don’t pay into social security, most can qualify for at least a minimum social security income from other jobs.

    8. “Without guaranteed pensions, many government employees would retire in poverty.”
    LARGELY FALSE — or at least not the fault of taxpayers. This assertion is based on the absurd assumption that, unlike private sector employees, government employees would (and should) otherwise save nothing for their senior years.

    9. “Many government employees should be able to retire with essentially the same income they earned on the job.”
    FALSE. This is the “90% pension at 30 years” common in public safety jobs — and for too many other government employees (including all San Diego County government employees). Indeed, given that a retired employee no longer pays for pensions, union dues, Medicare, or commuting costs, a 90% pension is actually HIGHER than the net salary received while working.

    10. “We have to pay top pensions to attract ‘the best and the brightest’ to government work.”
    FALSE — and a bad idea to start with. We DON’T want to attract “the best and the brightest” to government work. We need such folks in PRODUCTIVE employment in the private sector. All that government pensions do is to assure that government employees STAY as government employees – regardless of work quality.

    ABOUT THE AUTHOR: Richard Rider is the chairman of San Diego Tax Fighters, a grassroots pro-taxpayer group. Rider successfully sued the county of San Diego (Rider vs. County of San Diego) to force a rollback of an illegal 1/2-cent jails sales tax, a precedent that saved California taxpayers over 14 billion dollars, including $3.5 billion for San Diego taxpayers. He has written ballot arguments against dozens of county and state tax increase initiatives and in 2009 was named the Howard Jarvis Taxpayers Association’s “California Tax Fighter of the Year.”

    • Tough Love says:

      Richard, nice list, but you forgot to mention something that makes many of your listed item MUCH more valuable in PUBLIC (vs Private) Sector pensions.

      That is, while virtually all PUBLIC Sector pensions are COLA-increased annually, PRIVATE Sector pensions (for the few that still have them in the Private Sector) VERY VERY rarely include COLA increases …. and CERTAINLY not contractually and granted annually.

      That difference between Public and Private Sector Pension Plans ALONE is HUGE in it’s financial impact because adding annual COLA to an otherwise identical Plan w/o COLA increases it’s “value” by about 35% (for pensions starting at about age 55) to about 25% (for pensions starting at about age 65).

    • Arlene says:

      As a recipient of a public pension I wonder why you did not back up your statements with fact. I am not against pension reform, in fact I completely understand the need for it. Do you understand a pension is not a gift? Public sector employees pay into the pension as does their employer. You pay into soc. sec and so does your employer. Is that a gift too? I know many private& public sector single income families. Being a stay home parent is a compromise to live on less income that a dual income family. A jobs pay rate is determined by education and experience not whether or not their spouse works. I know both public and private sector people who have prepared and not prepared for retirement. All employees want the best salary they can get. Did you refuse your last pay raise? You reference a 10 year pension I don’t know anyone that has only worked 10 years of their life and expected a cushy retirement. Most people that have worked in the public sector only 10years have worked in the private also and paid into social security at the same rate as you and are entitled to that benefit as well, but theirs is reduced. Unlike the private sector the public sector does not get a Xmas bonus, 401k contributions or stock options. Perhaps as a consumer I should lobbied against these benefits? While you might have some valid points you have substantiated nothing and appear to be very bitter. Oh and keep in mind public employees are taxpayers just like you, but since their salaries are so enormous they pay much more in taxes.

  4. Andrew Szakmary says:

    I wonder why nobody seems to call for bondholder coupon interest reform. After all, states have issued Trillions of Dollars in bonds, usually at much higher coupon interest rates than prevail currently (thank you, Federal Reserve). If states could unilaterally reduce these interest payments, they could probably save more money than by reducing pensions. Additionally, it should be noted that given the federal income tax exemption on municipal bonds, they are held almost exclusively by relatively wealthy individuals who don’t really “need” these interest payments.

    Well, obviously we don’t advocate for coupon interest reform because these interest payments are CONTRACTUAL OBLIGATIONS that cannot legally be reduced as long as we live under a system that upholds the rule of law. But here’s a news flash for you: in many states, pensions are similarly contractual obligations, and cannot be legally reduced because state constitutions explicitly rule that out. You know, life would be so much easier if I didn’t have to pay my mortgage, credit cards and student loans, but I do not believe a capitalist system can function if contractual obligations can be disregarded just because they are inconvenient.

    • Tough Love says:

      While it sounds likely that you are a Public Sector worker/retiree riding this Public Sector pension/benefit gravy train, you sound quite clueless as to how Public Sector pensions are funded and designed to operate ….. and equally naive if you think laws, guarantees, and promises will turn into actual cash annuity payments when (not if) MANY of these Public Sector plans fail.

      Suggestion …. have a “Plan B” when the sh** hits the fan.

    • Shelby says:

      Try Federal Bankruptcy Court where contracts are broken.

  5. Shelby says:

    Try Federal Bankruptcy Court where contracts are broken.

  6. Douglas47 says:

    Richard,

    Number one, simply put, is wrong.

    I’ve never heard number two, implicitly or explicitly. Many government workers have separate retirement accounts.

    Three, NEVER heard anyone say public workers “deserve” to retire early. In the case of safety workers, generally speaking, they SHOULD retire earlier. Most military retirees I have known start their “second career” at age forty or less (many of them in the public sector) Much more difficult to find a new job when you’re 55.

    Four. Are you kidding me? My wife and I both worked, as well as most of coworkers I have known. We ARE reasonably “comfortable” with my pension and her Social Security. For now.

    Five. Not sure what you mean by “guarantees”. We’re all a bit greedy, I suppose, and I WOULD like to feel confident that my pension is secure. But I have seen what occurred to pensions, as in serious reductions for some airline pensions. It “could” happen here. I would like to avoid that, if possible. Does that make me a bad person?

    Six. Richard? Where do you even dream up this stuff? The average state worker retires with 20 years service. He has Social Security and, hopefully savings from other employment. I haven’t found California statistics, but in other states, about HALF the workers don’t even stay long enough to vest in retirement (typically 5 years). As I recall, only about 20% of public workers retire with 30 years or more. And, no, 30 years is NOT a full career (except for safety). Nobody expects to retire on ten years service. “Average pension” IS often used in a misleading way, but “propaganda”? There’s a LOT of that going around on both sides of this debate. (Hint)

    Seven. Social Security? Contentious subject, I suppose, some people believe we should ALL be in it, some believe it shouldn’t even exist. Where it’s important in this context is that, usually, those NOT in Social Security have better pension formulas. The kind people tend to be shocked when they hear them. Personally, I am all for safety officers having MUCH higher pensions in lieu of Social Security. (I’m not LE or fire, by the way) It allows them to retire earlier than possible with SS, and the money saved on SS contributions offsets the higher ARCs.

    Eight. Looks like 2 and 4 restated. More Bee ESS, in other words.

    Nine. I never heard it put that way. My impression was that the original 2%@60 formula allowed a worker with 30 years to retire with about 60%. Comfortable, with Social Security. Formulas being what they are, a much longer career results in a much better pension. There is another side to this, though. Your number one. Demonstrably, many public sector workers DO earn much less in present wages, the difference being deferred compensation which pays back as a higher pension.

    Ten. Wow. Biggs and Richwine say

    “Nevertheless, a significant total compensation penalty remains for both professional and doctoral degree holders. It is worth considering how government may continue to attract better educated employees despite a seeming compensation penalty.”

    Number one, it’s not necessarily just PhDs and professionals.
    Number two, it’s very telling that you do not consider public sector work “PRODUCTIVE” employment.

  7. SeeSaw says:

    @D47–You deserve kudos for attempting to educate RR, even though it is a lost cause with people like him–he probably even gets paid for that garbage. I started to address each point too, and then I decided its of no use, and I have more important need for my time. The man is coming from jealousy and every point he makes is an outright lie. He has lots of opinions and absolutely no facts.

    Shelby, get a clue. A public entity must be insolvent to “try” bankruptcy. Every public entity out there is trying to sustain–bankruptcy and ruining the lives of the workers is the farthest thing from their minds!

  8. Bob Loewen says:

    The Al Jazeera article is so full of misstatements that it is not surprising that the author overlooked a couple, which I am happy to point out.

    First is Professor Greenbaum’s assertion that public sector pensions still exist as “a tradeoff for lower salaries.” The anthropology professor should have a look at the data in TransparentCalifornia.com, where the astronomical salaries (with benefits) and pensions for public employees at the state and local level in California are listed. It is impossible to look at those numbers and conclude that huge pensions are justified by “lower salaries” than are seen in the private sector.

    Second is the shocking insensitivity and ignorance displayed by Professor Greenbaum’s supposed solution: “raising taxes on the wealthy to pay the costs of both public services and the pensions that workers bargained for.” Is Professor Greenbaum not aware that it is the poor and working classes who suffer the most from sustaining the outrageous pensions of public sector retirees? Persons who make a minimum of $48,942 (not much at California’s cost of living) are taxed at 9.3%. The poor suffer from two devastating regressive taxes, a $.075 sales tax, which nearly every city has increased to $.08, and there are 20 cities with measures on the ballot in November to raise their sales tax to $.09, trying to offset pension costs. Another regressive tax that hits the poor in California is the gas tax, at $.71/gal, but that will go up by $.20/gal. or more with the carbon tax on January 1, 2015.

    For the benefit of the tin-eared Professor Greenbaum, California has the highest poverty rate in America at 23.8%. It is unconscionable for Ms. Greenbaum to defend pensions in excess of $100,000 per year in the face of these figures. As cities struggle to make ends meet, they not only tax the working class and the poor, they must cut vital services that would benefit them. This struggle is real. Shockingly, Ms. Greenbaum has no clue.

    Content to demonize others as “ideological,” Ms. Greenbaum’s disease is far worse. For her condition, we shall coin the term “Marie Antoinette syndrome,” for she is so busy feeling smug as a member of the intellectual elite, that she has utterly overlooked the needs of the poor and working class when the necessity for reform stares her in the face. Perhaps we must all switch to cake.

    • Douglas47 says:

      ” public sector pensions still exist as “a tradeoff for lower salaries.” 

      Yes, it is still true. TransparentCalifornia is misleading for two reasons, at least.

      First, the default sort seems to be highest salary to lowest, so one gets dazed after the first two or three pages of very enviable salaries or pensions. These are the outliers. They are not typical of most government workers.

      Second, “comparable” private sector compensation is much higher than most people imagine. Most people, private or public, are not aware of how much their “total compensation” is. All each individual sees, often, is his own net check.

      According to the Bureau of Labor Statistics, for government workers, wages are 65% of total compensation, and “benefits” are 35%. For the private sector, the split is 70/30. “Benefits” includes paid leave, supplemental pay, insurance, health, retirement, and “legally required” benefits.

      Long story short, the consensus is, in “cash pay”, on average, state and local workers earn about twelve percent less than *equivalent* private sector workers.

      • Tough Love says:

        Quoting SDouglas47 … “According to the Bureau of Labor Statistics, for government workers, wages are 65% of total compensation, and “benefits” are 35%. For the private sector, the split is 70/30.”

        The above ONLY states the “% splits” within each group, NOT how the group totals compare.
        ——————————————
        Just more of your misleading omissions, distortions, and lies.

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