Tag Archives: Social Security

To Lessen Pension Troubles Maine Looks to Social Security

In addition to collecting a pension, most public employees also participate in Social Security. A few states, such as Maine, never integrated with the program, which means their public sector workers don’t collect Social Security, nor are they subject to the 6.2% payroll tax.

Mary Williams Walsh reports that in an effort to solve their pension underfunding Maine is considering changing its Social Security holdout status. Maine’s state employees would begin paying into and collecting Social Security without having contributed to the system over their working lives. While reducing Maine’s risk of paying for large losses, the move doesn’t address the $4.1 billion hole in Maine’s pension plan (a hole already underestimated since assumes a 7.75% return on assets). And there is the instability of the Social Security program which is projected to begin running a deficit in 2017.

However, integrating with Social Security could be part of a transition to an improved state retirement system. Joshua Rauh explains at the New York Times‘ Room for Debate how the federal government might step in to head off the state pension crisis.

Is California’s Debt a Greek Tragedy?

James Surowiekci writing at The New Yorker considers whether there is good reason to think California’s fiscal plight puts it on course for a Greek-style collapse. Greece is not the only EU nation in trouble. Add in Portugal, Ireland, Italy and Spain to the massive debt club (a.k.a the PIIGS), with debt levels at 60% of GDP in 2008-2009. By contrast the most fiscally troubled states of California, New York, New Jersey and Illinois had debt-to-GDP ratios of 15% during the same period.

Surowiecki suggests this may be reason to breathe a little easier. The biggest debtor nations in the EU owe three times as much relative to GDP as do their high-debt counterparts in the US. Plus, the states can count on a federal bailout.

Yet, neither of these thoughts are entirely comforting.

First, states have underestimated their pension obligations by threefold. Official reports estimate New Jersey’s unfunded pension obligations at $45 billion. Using more reasonable discount rates to estimate New Jersey’s pension obligation reveals an unfunded liability of $137.9 billion, or 261% of total state debt. That’s before adding in Other Post-Retirement Benefits (OPEB) and health care for public sector workers.

Secondly, a half century of  intergovernmental infusions from D.C. in the form of transfers,Medicaid, and stabilization money hasn’t kept the states afloat. Quite the contrary the erosion of fiscal federalism has meant a loss of states’ control over spending and policy.

The FY 2009 stimulus has been as effective as a shot of morphine. States have now spent their education money to expand spending and avoid cuts. Fast forward to FY 2010. Revenues haven’t recovered. Pension obligations loom larger and those “saved and created” jobs are now in search of funds.

Factor in the growth in Social Security, Medicare, health care spending, and annual deficits projected to average $1 trillion over the next  decade and America 2030 looks alot worse than Greece 2010.

Class Warfare

In my recent op-ed on the structural flaws of public pension systems, I argued that politicians, union heads and bureaucrats use their positions to play taxpayers against public employees for political and financial gain. Monday, the New Jersey Star Ledger reported on a growing backlash against public employee benefits:

In internet postings and on talk-radio shows, government workers are being called “greedy” and “bloodsuckers.” Commenting on the teachers union, one writer called its members “the worst human beings on the face of the planet.” Criticizing the police, another wrote, “The typical criminal could never steal what these cops are walking out the front door with.”

As New Jersey’s unemployment hovers at 10 percent and 401(k)s are dented by stock-market losses, retired public workers find themselves on the receiving end of “pension envy.”

“I understand that I retired with a good pension and the taxpayer contributed to it,” said Tevlin, who kicked in 8.5 percent of his salary toward his pension, which is about $4,000 a month. In his mind it was a fair bargain: In exchange, the public received reliable emergency services. “I don’t apologize to anybody,” he said. “I did a dangerous job.” Continue reading