Monday, October 18, 2010

Indiana State Pension Fund Among First Headed For Insolvency

Indiana's unemployment trust fund was among the first in the nation to go bankrupt, causing the state to borrow $2 billion to date from the federal government to pay the state's unemployed. According to Business Insider, Indiana will be one of the first states in the nation to see its public pension funds dry up. Neighboring Illinois' pension fund is just 8 years away from insolvency, leaving a $14 billion a year hole the state will have to make up to meet pension obligations, an amount equal to 32% of the state's revenues. Behind Illinois in second place is Connecticut followed by Indiana in a close third place. In just 9 years--2019--Indiana's pension fund is expected to dry up, leaving a $3.6 billion hole that will have to be filled yearly to meet pension obligations. That's 17% of the state's revenues. The unfunded pension liability is even worse for many of the country's largest cities.

I think it's time for the public sector employees to understand the taxpayers simply cannot afford to fund separate retirement systems for them. Many private sector employees have lost employer-funded retirement systems and self-employed persons can barely afford to buy health insurance, let alone set aside money for retirement. Governments will never be able to rein in spending unless public retirement systems are scrapped; otherwise, private sector employees will simply be taxed into servitude to fund lavish retirement benefits for public employees.

31 comments:

Cato said...

This is awesome! The State will simply create a bond issue or sell off (I mean "lease") more assets to keep the ruling class in the opulence to which it is accustomed.

It will engage in protecting the gilded lifestyles for its own while everyone else can't find a job and has no retirement plan.

If you aren't government, you're little people. The message is clear to today's worker: the private sector is for those failures who can't find a real job - a government job.

Maine said...

As an Indiana public employee and one who is a fews years from retirement, I do not agree that Indiana's public pension is excessive. The state contribution to PERF is 3% of salary and the employee also contributes 3%. The problem is not that the paln is exesssive, it is that the state has not kept up with its share of contributions to the plan. The vast majority of state employees will receive a pension from the state of $1,000 or less per month after 20 or more years of service.

James said...

I have to agree with Maine:

For one thing, most State employees are paid crap. Really. When I left my non-profit job I looked at positions with the state... they were only paying 66% of what the private sector was paying. In addition, when money gets tight they are the first to get their salary frozen. They will go for years without any kind of increase - and then be behind the cost of living indefinitely.

Maine's point about 3% is spot on. The problem isn't that it's excessive, it's that they balance the budget by playing games with the employee's pensions.

Look, we bitch about the competency of government employees yet state and local government typically offers a compensation package that's far lower than what private industry is paying - and then we are surprised at the quality of people that sometimes fill those jobs.

Only when you compare total compensation with market rates am I going to listen to nonsense about excessive retirement benefits of State employees.

Advance Indiana said...

Many government employees are paid better today than their counterparts in the private sector. They tend to have better health benefits as well. We can't afford to be paying full-time salaries to retired firefighters and police officers, who are also eligible to draw social security. Some of these folks start retiring after they hit 50 and draw benefits for decades. Those systems were never funded or structured to support paying benefits to people for that long of a period.

James said...

I can't address police and fire pensions: Those were underfunded for decades by the cities and the Indiana just picked up responsibility for them, if I remember correctly.

You are making general statements that don't jibe with what a couple of us are seeing in the real world. Several family members were state employees at times also in human services field - they were way underpaid. Same thing for friend that are engineers, IT, and other professionals.

The only state-local government employees that I know that are paid comparable or better than private industry are very high level administrators... and even that's questionable.

Again, you can't single out one aspect of their compensation: You need to look at the entire package. There's no way that I would work for the State or local government.

BTW: How much does a cop make after a few years on the job? $39-40k without overtime?

The Urbanophile said...

Advance,

Lavish benefits exceeding the private sector average may be common elsewhere, but outside of a few municipal corporation type entities, I am not seeing them in Indiana.

Most department heads in state government barely make over $100,000. That's far below market. The city of Indianapolis hires junior planners in the low $30's - and I've seen openings wanting people with master's degrees for that. The average cop in Indy only makes about $45K IIRC. Contrast with California.

My mother is a retired state employee and I can tell you her pension is hardly lavish. That's why she's still working at a private sector job right now. We both know Illinois and Indiana, and Indiana is a far cry from the Land of Lincoln in terms of public pay and benefits.

Having said that, Indiana should switch to a defined contribution system. In this era, there is simply no way to properly fund a defined benefit pension system.

Indeed, most independent sources have said that Indiana's pensions are badly underfunded. I'm stunned this is not something that is discussed in the state. It's front page news everywhere else.

Concerned Taxpayer said...

First, retirement for an Indianapolis police officer after 20 years is ONE-HALF of a PATROLMAN'S pay, even if they retire as CHIEF.
Second, Social Security deducts a "windfall" of up to 60% of our social security because we are getting so rich off our "public" pension.

Advance Indiana said...

Illinois' public sector jobs are definity better paying than Indiana's overall. Federal workers are way overpaid. The federal budget will never even come close to being budgeted unless federal retirement plans, including those for Members of Congress, are scrapped. Many state workers are underpaid, but there are many who are quite well paid. I was shocked when the Star published the salaries of state employees online to see how many were earning more than $80,000 a year, and how many more were earning over $100,000 a year. Many police and firefighters have schedules that permit them to earn substantial income from second jobs while they are working as public employees. If they want to contribute to a 401(k) and get a small match from their employer, that's fine. Study the math. The taxpaying public simply cannot afford the looming burden of these public pension systems.

Advance Indiana said...

I should add that I was working for the Illinois legislature when the legislature snuck into a pension bill a provision that got no public airing that allowed for automatic cost of living raises in state pensions. When I asked our pensions staffer why the hell the cost of the provision wasn't even mentioned in the analysis, his response was--"You're a state worker. Don't you think it's only fair that we get a COLA just like social security beneficiaries? I responded by telling him there would have to be a major tax increase just to fund that added benefit, and the state was already only putting aside about a third of what it needed to properly fund the pensions without the COLA. The chickens have now come home to roost and the state will have no other choice than to drastically increase taxes, cut other basic services drastically or simply take-away benefits that should have never been promised to begin with. The problem is made worse in Illinois by the practice of getting one's salary substantially boosted during the worker's last few months on the job simply to boost their retirement benefit, since it is based on their ending salary.

Cato said...

James, what?!

Many state/city/university employees make excellent salaries, especially for this market.

Add in iron-clad job security, reduced performance expectations compared to the private sector and benefits far better than the private sector, and the government employees are an overclass.

Urbanophile, outside of perhaps the Governor, there is no job at the state that should pay $100K. $60K for the top scale, earned by only a few, seems about right. I'd pay cops little more than $35K. It's not like most of them are ever going to select another occupation, so we're not letting the public bargain for the lowest wage.

Further, comparisons to California and Illinois are specious, as those states are Exhibits A and B in the case against runaway government and are hardly legitimate benchmarks.

Here's the inescapable fact: the public servants are better off than their masters, and the masters can't afford this, nor should the masters be required to slave for the benefit of another.

Cato said...

Hey, Concerned Taxpayer, if you don't like the public pension for cops, I'll be the first one to help you out and stick you on a 401k.

How does that sound? You feel like getting in the same boat with the rest of us? Oh, I misspoke. Only a few Americans even have a 401k. Most Americans earn to support themselves and have no retirement plan, whatsoever.

interestedparty said...

You know, you often have good points that could stand up to debate, but then you throw in words like "lavish" that you know are insulting, negating your argument. Do you do that on purpose in order to provoke responses, or is it just your style?

James said...

AI:

Okay... the subject of this post looks like a moving target. Are you talking about Indiana, Illinois or Federal workers?

I don't have a problem with a defined contribution plan for public employees as long as there's a match and the total compensation is adjusted accordingly. In fact, it would prevent pension funds from being a political football - either being underfunded (the real problem in Indiana) or being too generous (automatic COLA in Illinois).

HOOSIERS FOR FAIR TAX said...

Umm...the people with 401k's have risk. Look at the Enron employees who got stuck with their 401k plan they couldn't touch until it was worthless. Meanwhile the execs cashed in. Did the government protect these people?

Government pension funds are a mess because of the mortgage meltdown. It's all related. And government did nothing to protect Americans.

I've never looked to anyone to take care of my retirement except me. I know there won't be social security, I won't have a pension, and I don't trust that wealth stored in a 401k will be safe from the jackals in government in bed with the banksters.

James said...

Cato:

Look bud, I know that it's great sport knocking public employees - but put a little bit of research behind what you are saying. I know from personal experience that the professional jobs that I looked at with the state had salaries that were far lower compared to private industry. In addition, the qualifications were higher. I didn't even bother applying.

Take a look at the engineering jobs at INDOT - you will see why the good ones get a few years of experience and then jump ship to private consulting firms.

Same thing with accounting positions.

Really... $60k top salary... good luck with that. Ditto $35k for cops (I suspect that your "screw them if we can" attitude is why there police, fire and teacher's unions). I just hope you don't ever need one.

Alan said...

To Hoosiers for Fair Tax:

No Social Security for you?

No pension for you?

Your 401k is unsafe for you?

You might as well take the hemlock.

The Urbanophile said...

Cato, so you're saying people responsible for running billion dollar budgets should make less than $100K/yr? Is that what you really want? I can assure you that private sector managers with comparable scope of responsibility make far more than that.

$80K/yr is a nice salary to get people who earn the median wage worked up over when they read it, but this is far below market for good managerial talent, even in many middle management positions in specialized fields.

As yourself this, if you are a top manager who could run a state agency with a huge budget, what reason could you possibly have for taking the job at only around $100K/yr? Think about it for a while.

HOOSIERS FOR FAIR TAX said...

Question? Why should I work my whole life in private sector jobs, paying lots of tax to give to government employees so they get a pension?

Are government employees going to buy me a pension?

Because they are a government employee are they more worthy of retirement income than me? And if so, what makes that government employee more worthy than me?

Cato said...

"Cato, so you're saying people responsible for running billion dollar budgets should make less than $100K/yr? Is that what you really want?"

Absolutely. $100K is a lot of money. A lot. A ton. A king's ransom. Very few people make that much money, and it's horribly unfair to force 99.9% of Hoosiers who will never see a salary that high to pay for someone at that excessive rate.

If you think you can land that kind of money in the private sector, go for it. Enjoy your move to Chicago or New York. You won't do it in Indiana.

"Most department heads in state government barely make over $100,000. That's far below market."

Oh, bull. They were lucky to get the state job, in the first place, and they'll hold onto it until the day they get forced retirement - or the revolving door takes them back. Further, what market? The state department head market? There is no such thing. There are many department heads in private companies who have far more responsibilities than a bureaucrat making in the 40's and 50's.

"$80K/yr is a nice salary to get people who earn the median wage worked up over when they read it, but this is far below market for good managerial talent, even in many middle management positions in specialized fields."

I know MBAs who are working hourly retail jobs, so, please, let's not delude ourselves about what "top" talent is, what it demands as salary, whether any is found in Indiana or even wants to work for the state.

"Top" talent is only found in entrepreneurial companies where the guy has started his own firm. We don't need to pay Peter Schiff or Ross Perot to run a state desk. A $45K salary is more than enough to attract employees, especially when 20% of the population is out of work.

I don't know what fantasy economy you think exists out there.

HFFT said it perfectly: "Are government employees going to buy me a pension?"

John said...

Cato:

I think that Florida vacation condos shouldn't cost me more than $20k, new cars shouldn't cost more than $5k and a new 50" flat screen shouldn't set me back more than...$50. The market, however, doesn't agree with me.

You have a pretty jaded idea of what jobs are worth - and the willingness of people to take those jobs.

We all understand that defined benefit pensions are going away. Most private employers provide matching funds towards a 401k - but avoid the liability of defined benefit programs.

Government has been slow about making that change, in part, because they often pay less.

I'm a little curious as to why so many people are eager to race to the bottom - and push each other there too.

To answer the question that HFT raised: She made her choice about the type of work, compensation mix, financial security, etc. that she wanted. If she wants a pension, then I would suggest she goes to work for a company or a public employer who has that as part of the compensation package.

Salary was more important to me- hence I went to work for a private firm... and I do better than your imaginary pay scale.

guy77money said...

I agree we will have to cut out all defined benefit plans for employees. With people living into their 80's and 90's it is no longer economically feasible to ask taxpayers to fund these plans. 401k matches are cheaper and can work well with good financial planning. One of the main problems is that most people spend more time planning a one week vacation then planning their retirement. This is the new reality and we better figure it out at both the Federal and State level fairly quickly or we will have to start raising taxes to cover these expenses. Ask the English how well that worked for their economy. We can no longer use our houses equity as bank machines and with the huge decline in well paying factory jobs it cuts down on the number of well healed consumers. Less new cars and houses will be purchased causing this to be a very slow and jobless recovery. Lets throw in the declining revenue from gambling (Ohio and KY casinos will be opening soon) and the State Of Indiana will be tightening the old budget belt even more.

The only other out I can think of if someone can come up with a very cheap source of energy to power our industry's, households and vehicles. This would spur economic growth and prosperity. Hey I can dream can't I! :)

Cato said...

No, John, the free market sets prices, and government intervention always corrupts the market's ability to set prices.

Lower-level government jobs frequently see 200-300 applications for every position.

In economic terms, that means the government salary isn't low enough to reach its market clearing price.

So, yes, governmental salaries can go much lower, and this is economic realty, not cynicism. When a state manager job is posted at $50K, instead of $100k, and there are no applicants at $50k, we'll know the price is too low.

Of course, you and I both know that there are a surfeit of applicants for government jobs, at almost any price, due to the in-kind benefits government workers receive.

P.S., Kudos to you on your remunerative success, but a sample of one is not an economy. I wonder if the people with "good" jobs appreciate just how perilous their station is if this recession deepens, even a little.

Bradley said...

I just wanted to throw this out there for people who believe average government jobs, at least under this governor, are well-paid (although as you will see, the upper management do much better):

I worked for as an adjudicator and earned $23,700 per year. Then, as an oversight auditor, I earned $26,200 per year. My boss, who with 30 years' experience was more knowledgeable in my area than perhaps anyone else in my agency, earned about $42,000 per year.

Now, my agency has one commissioner and seven deputy commissioners (with two being DCs being recently created within the last two years). They all earn between $85,000-$105,000 per year, but not a one of them had worked with my agency for more than four years. Directly under them, there were at least twenty-four "Director" (or "Broad Band Executive") level positions, each earning between $48,000 to about $81,000 per year. Most of these people, likewise, have not worked with the agency for more than four years.

One of the people, a "Communications Director" who is seen on television frequently, is a political appointee (former Daniels staffer) who made $75,000 last year, but this year is earning over $81,000 (not sure how he got a raise, though). He was given a "deputy" communications director/press secretary (a new position specifically created for him), who was also a political appointee, who earns over $40,000 per year (you will note this amount is almost as much as my boss with over 30 years' experience makes).

There used to be three commissioner-level people running my agency not more than maybe ten years ago; under this governor, the numbers have increased dramatically to the detriment of taxpaying Hoosiers. Daniels is the gift that keeps on taking.

Anyways, all told with the 8 commissioners/deputy commissioners and at least 24 directors, my agency budgets over $2 million per year for people with relatively little experience where it is actually needed. At least five of these people are political (i.e., of the Governor's party) connections (and I know, to the victor belong the spoils -- but when some of these positions are created out of thin air and given to people either associated with the Governor or his party, I have to believe there is a problem).

Also under this governor, whose underlings rule with a culture of fear (propaganda, intimidation, retribution and demand of silence or not speaking out for what is right for taxpayers), there is no such thing as "iron-clad job security". Performance evaluations are only enforced amongst the lowest ranks; kiss-asses and those in higher positions rarely are punished for poorly-running the agency.

Take it as you may; I understand there are a decent amount of overpaid state employees, but the only ones I know are at the top ruining everything for people below them.

Cato said...

Bradley, I absolutely agree with you that the salaries of department heads and other questionable "managers" and "directors" have exploded under Daniels.

There are now a lot of people making very good money at the state, and there doesn't seem to be a lot of qualifications in these people's backgrounds, nor was there ever an open posting on the state job site for the job they hold.

I know people who made phone calls to the right people and got state jobs at great salaries created out of thin air.

It's hard to feel much compassion for the downtrodden state worker when so many of them are making big money just because they are party loyalists, are wired in to the power elite or are simply sexually attractive.

Cato said...

Just saw this on Drudge:

http://www.myfoxny.com/dpp/traffic/traffic_news/audit-excessive-perks-for-nj-turnpike-employees-20101019-apx

MYFOXNY.COM - Auditors say the New Jersey Turnpike Authority wasted $43 million on unneeded perks and bonuses. In one case, an employee with a base salary of $73,469 earned $321,985 when all payouts and bonuses were included.

Must have been some of that "top talent" they needed to attract. The base salary was twice as high as it should have been.

James said...

Cato:

Look bud, you clearly have a chip on your shoulder. You use terms like "opulence", "gilded lifestyles", "ruling class"... Let me guess; you have all of the answers but you've never actually held a responsible position in your life.

You think because there are multiple applications for a job in a recession that the salary isn't low enough - above the market clearing rate -- Really?!? It doesn't work that way in private enterprise either. You should have taken an HR class along with that intro to economics class.

You had to go all the way to New Jersey to find an example of mismanagement? If it was rampant in Indiana, shouldn't you be able to find multiple examples a little closer to home?

I'm tired of public employees being demonized - at least in Indiana, the average government worker isn't paid well, raises are politicized and their pension is underfunded. The result is that the best and brightest avoid government work or jump ship - to private employers if not out of state entirely.

The low pay isn't just my experience, it's the experience of virtually all of the people commenting here who have some experience with the matter.

You parrot the lines about government intervention in the market - yet you advocate for using the power of the government to set artificially low labor rates "I'd pay cops little more than $35K. It's not like most of them are ever going to select another occupation..." I think you should arrange a ride-along with a cop for a night and then explain your plan to him.

If you really think that a state job is so lucrative and secure, quit your job as an assistant manager at Hardee's and go to work for the state.

dcrutch said...

Where would you like to reduce the spending to keep us from going bankrupt, having our currency devalued, or our collective standard of living (including public pensioners) devalued because nobody can believe in a dollar insatiably printed and spent.

We've come to saying "No" to something. If public pensions aren't it, is it the other government benefits? Oh, wait- they don't want to be cut either. How about taxing "the rich" some more? Think they'll get off the sidelines and invest more in American business then? Illegal immigration, subsidized childbirth, security and foreign policy- where would you like to start?

The truth is we can't agree on where to start. Therefore, give our newly elected Congress, state assemblies, et al, 3-6 months to cut X dollars by virtue of Y percentage of reduced spending across-the-board. NOBODY will like it, and that's the point.

At least it will be a symbol. To the stock market, to foreign investors and bond holders, to the dollars waiting on the sidelines. It would show that we've finally, f i n a l l y realized the party is over and we're ready to clean-up.

It will be the least draconian in some ways, because it is across-the-board. Most importantly, it may elicit more mature bipartisan debate as far as true priorities for the next round.

Cato said...

James, I'd take one of those $80K director jobs, in a second.

Your rant is bereft of scholarship, as all police salaries are artificially set. There is only a government market for police services, and we have no private market for police. Thus, we have no market for police, at all. Indeed, if there were a private police market existing alongside a governmental police market, the price of the parallel free market would still be artificial, as it would suffer the corruption of governmental interference in that market. This is elementary.

As long as we retain a government police force, we will never know what the market clearing price is for police services. Give me the ability to choose between public, private and no police, and we'll see how much their services are truly valued. I'd frankly opt out of police, altogether. I'll cheerfully forgo their "protection," and they'll ignore me as I drive 80 up Meridian St.

As for taking a ride-along with a cop to explain my plan, my first order of business would be to demand my money back from him and insist that he look the other way when I pass. What a silly thing for you to say.

You make a further bizarre statement claiming "You think because there are multiple applications for a job in a recession that the salary isn't low enough - above the market clearing rate -- Really?!? It doesn't work that way in private enterprise either."

Actually, you're spectacularly wrong. The market clearing price for wages is exactly as I described it. I'd run a register at Wal-Mart if it paid $150K.

You conclude by making a slur against private sector employment. While I don't work for Hardee's, I want to drum this truth deep into your statist mind: everyone who enters Hardee's doors does so to engage in a voluntary exchange with Hardee's. Hardee's sets their prices and products as a result of these voluntary exchanges.

Everyone who transacts with the government does so at the barrel of a gun. I want a burger. I don't want license plates. The lowest employee at Hardee's stands on more noble libertarian footing than any government employee. I'll not lightly suffer your denigration of true workers while you extol those who steal my bread.

Cato said...

Dcrutch, it is intellectual violence to say that cutting spending and government, thus proportionaly increasing freedom is, in any way, "Draconian."

Draco was on the other side, you know?

Cato said...

Here's a terrifying story out of D.C., where the merciless tax feeders are destroying people's lives in search of revenue, rather than cutting their spending.

http://www.washingtonexaminer.com/local/Cash-strapped-governments-ramping-up-tax-collection-efforts-1277126-105384353.html

or

http://tinyurl.com/2flaafg

The comments are mostly awesome, with abundant talk of hanging the tax feeders from lamp posts. Seems many people are upset that the government employees consider themselves entitled to be feed while the rest of us starve.

Here's a great comment:

"When did government employment become a no-cut contract? If anything, government employment should be far less secure than private employment. This would encourage workers toward the private sector and away from the low-pressure, ill-managed public sector jobs."

I can't agree more.

Carlos F. Lam said...

I believe the original point of Gary's posting was that PERF (the Public Employees' Retirement Fund) is underfunded. That is true. Indiana runs a parallel defined benefit plan AND defined contribution plan. The risk (in terms of whether the plan will be able to pay its contractual obligation) is currently borne by the taxpayer on the defined benefit side. The problem is that such a situation cannot continue indefinitely: the Gen'l Assembly simply will not (and IMHO should not) tax Hoosiers to fund the retirement of public employees like myself.

PERF needs to be made a 100% defined contribution plan as soon as possible for new hires. Current employees should be given some sort of option to convert their PERF "credits" into an immediate deposit into their PERF defined contribution account to alleviate the taxpayers' unfunded liability.

Memo to my fellow public employees: DO NOT count on PERF + Social Security to fund your retirement. Defer consumption & start saving in your own IRA or deferred comp plan today.