The insanity of cutting pensions


The New York Times has picked up the pension-reform banner, promoting the issue to the lead story on the front page of the June 20th issue.

If, as the Times reports, some of the reformers want to cap pensions – that is, go for the folks at the very top of the pile – it’s worth discussing. But most of the “reform” ideas involve either cutting the take-home pay of existing employees, cutting the take-home pay of pensioners or making sure that future workers don’t get as much of a pension.
The problem with that is simple: We’re in a deep recession. And the last thing we need to do is cut paychecks and encourage people not to spend money.

Let me quote from a brilliant blog post on from the always insightful Robert Cruickshank:

Cutting pensions would be like taking a shotgun, aiming it at our feet, and pulling the trigger. It would cause a cascade of economic problems that would dramatically worsen our economic crisis...

And yet the solution being proposed - slashing benefits - will do absolutely nothing to make state government fiscally solvent. It will mean there's less money available to spend, meaning less sales tax revenue. Less consumer activity means there'll be less jobs available, meaning less income tax revenue. With fewer jobs available, and wage stagnation, and now the added financial burden of paying the costs of retired family members that used to be borne by the pensions and other state services that have been cut, younger folks won't be able to sustain the economy. Retirees and baby boomers will have to sell their homes for the cash, and in a recessionary environment where the young aren't able to afford the present market value, home values will spiral downward, causing further economic ripple effects as well as reducing property tax revenues.
... The notion that ‘everyone needs to give back’ just doesn't make sense given our economic distress. We've already given back too much. We gave back our wages. We gave back our ability to afford health care and housing and transportation. We gave back the robust public sector services that created widespread prosperity in the 1950s and 1960s. We gave back affordable, quality education. And too many of us have given back our future.
No, it's time for someone else to give back. It's time for the wealthiest Californians, and the large corporations, to give back. For 30 years now they have benefited from economic policy designed to take money and benefits from the rest of us and give it to those who already have wealth and power.
We are now experiencing the predictable outcome of such policies - the worst recession in 60 years, an intractable downturn. The way out isn't to worsen the crisis by slashing pensions. The way out is to return to the sensible tax rates of the 1950s and 1960s and make the rich pay.

That’s what I’m talking about.


well over 50% We're in large enough and long enough wars now, to go back to that.
If we want a war President, we should truly embrace the entire notion of a war President.
Work forces out doing public works, and large corporations being taxed at rates high enough to pay for the war. We have huge multinationals that we didn't have before, so it's not like the resource to tap isn't there. We do it underground, why not above ground, just look to the Skyscrapers, they're bursting with funds. Because really, after your first Billion, what couldn't you buy if you wanted it to? Countries? Well, we could tax them and consider it the money we're behind on paying to the U.N., but more local, now that we're acknowledging our 3rd & 2nd world troubles, here.

Posted by Josh on Jun. 21, 2010 @ 10:35 pm

...."And yet the solution being proposed - slashing benefits - will do absolutely nothing to make state government fiscally solvent."

Reducing public employee benefit expenditures does nothing to make our state government fiscally solvent??

Quite simply the dumbest statement I have read at SFBG. I am sad to learn that the four state employee unions that just agreed to increase their pension contributions have done nothing to make the state more solvent. You should write the governor and tell him the state would be more fiscally solvent if those four unions reduced their contributions.

Posted by c.j. roses on Jun. 21, 2010 @ 10:59 pm

Social Security is solvent if those dollars are not hijacked to pay for profitable wars.

A comfortable retirement is available for all if the income cap on FICA tax is lifted.

These are political choices, not economic choices.

Once the hyper entitled boomer generation hits retirement in full stride and it turns out that less than half of them won the defined contribution retirement financing race, I think we'll see some changes on that score.

In addition to being crappy community economics in the short run, the lack of retirement security was a primary instigation for the real estate bubble, as people believed that they could all depend on inflating real estate prices for a nest egg.

There is plenty of wealth in the economy to finance retirement security for all, but so long as the banksters are allowed to control the money supply by being granted a corner on the market of providing credit by the Federal Reserve, we will continue to see relatively tight money from a money supply perspective.

Even though interest rates remain low, the M3 measure of money in the economy is at a lower level than even the great depression. The Fed does not print money, it grants that right to credit generating banks. Those banks are generating small amounts of new money for the economy, preferring to plow cheap fed money into government bonds to make a little money.

This economy is a game, the game is rigged, and it is being rigged to swindle the vast majority of Americans. Against this backdrop, efforts by well meaning folks like Adachi (who I still admire) are ill timed and politically, progressively ill considered. Progressives should not be encouraging the tsunami of privatization of individual security via health insurance individual mandates and casino based retirement, rather confronting the enclosure on the public sector from a progressive perspective.


Posted by marcos on Jun. 22, 2010 @ 7:43 am

The Reaganist libertarian tax whining is absurd when evaluated against the history of the "greatest generation" having beaten Hitler and Tojo in 4 short years, returned to the US to pay a marginal tax rate of 70%, and setting the stage for the one of the greatest advances of humankind in history.

The "greatest generation" won the war, and in conjunction with their boomer progeny, lost the peace.


Posted by marcos on Jun. 22, 2010 @ 7:45 am

Corporate taxation of 70% was on profit, in the case of a fair amount of corporations not a whole lot of money. If you were going to hand over 70% of the money you had at the end of the year on hand to the government, wouldn't you find something better to do with it?

Also the numbers are different depending on who's study you follow, but even union studies show billions in unfunded retirements for public employee's, all these plans were built on terrible fiscal dreaming and the tax payer is left holding the bag, again.

And the progressive response is more of this stupidity, the fear likely here is that progressives will lose their huge public employee union slush fund.

This whole fiscal mess is such a tail chasing exercise.

Posted by mr matlock on Jun. 22, 2010 @ 9:16 am

I tried to respond to your June 18th article about City employee pensions, but the form wouldn't accept my comment, but my comments also fit with this current article.
Here is my letter:

I am a public sector employee (who is not in management, public safety, firefighter or police categories) and I agree with Tim. I don't get the argument that "we don't have a secure way to finance our retirement, working in the private sector, so you shouldn't either."

I am a public sector employee (who is not in management, public safety, firefighter or police categories) and I agree with Tim. I don't get the argument that "we don't have a secure way to finance our retirement, working in the private sector, so you shouldn't either."

Why wouldn't I? When I started working for Wells Fargo Bank and other private companies many, many years ago, everyone got a pension. It appears to me that corporations have slowly eroded retirement security for the middle class over the years, without much notice. After all, the stock market was doing well, overall, for many years, and people seemed to feel they could count on their 401K's plus savings. Remember when savings, CD's and money market funds offered a decent amount of interest? (I do).

What will those who work in the corporate sector count on now to support their retirement, unless the corporations kick in their fair share, instead of forcing their employees to rely on the stock market and other unreliable or very low interest investment products? Meanwhile, the CEO's of these same companies retire in very good shape.

Now that we see the instability in the Wall Street-based economy, I believe we should be fighting to get the corporations to pay THEIR fair share to insure loyal employees have a decent retirement, instead of trying to blame those of us who work in the public sector for making the choices we did. While many of those who work in the corporate sector (and even some in the federal public sector) were bragging about their bloated 401K's, City employees were plugging along with investment options that only we pay for (not matched by the City) and with confidence that our pensions plus Social Security would be there to make up for what we would need when we retire.

Our union just made a deal for us to pay the amount for our pensions that the City previously paid in order to accommodate these economic times. We took a hit on our salaries and now have furlough days. What is the business sector doing to help out the City? I think City workers are being made the scapegoat of a society that is dominated by greedy capitalists who could care less about their employees. (I don't include in this category small businesses who try to do right by their workers). I think there are many business and development entities in the City who could pay more revenue but are under the protection of our pro-development Mayor.

Finally, without pensions, what are workers expected to live off of during our retirement, given the volatility of the stock market and overall instability of the economy? Social Security? If we are not homeowners and have no inherited wealth, are we supposed to end up under the protection of agencies like the venerable Salvation Army and other non-profits? What do those of you are against our pensions expect to live off of? I think that's the question public employees should be asking those who work in the private sector.

Incidentally, I'm sure Jeff Adachi earns alot more than the majority of us who are public servants in the City and County of San Francisco. Maybe he can afford a decent retirement without his pension, but many of us can't.

Posted by Grace on Jun. 22, 2010 @ 2:57 pm

Jeff Adachi has jumped on the pension reform bandwagon.

He points out that fully 20% of the SF city budget now goes to pay pension/healthcare for retired workers. The budget office expects this to rise to 30% within 7 years.

Public employees are locked into defined pension plans that pay out no matter happens in the stock market. They get their 8%-a-year raise no matter how shakey city finances are. If you got raises based solely on inflation (like Social Security), SF would not be going bankrupt.

As Adachi points out, you (public employees/retirees) aresteadily taking more money away from money on the street-for recreation centers, schools, police, street repair, etc.

You are dragging us toward bankruptcy. Don't think it will happen? It has already happened in Vallejo, which then gutted your retirement pay.

Public employees should jump on the reform bandwagon, or you will be broke after SF declared bankruptcy down the road.

Posted by Barton on Jun. 23, 2010 @ 8:50 am

"Finally, without pensions, what are workers expected to live off of during our retirement, given the volatility of the stock market and overall instability of the economy? Social Security?"

That's what the rest of us retire on. You should, too.

The sweet deals that publc employees get are bankrupting San Francisco.

Adachi points out that fully 20% of all city revenues are now used to pay public worker pensions and this is set to rise to 30% in a few years.

We reform public sector defined benefit plans, or we go bankrupt. It is that simple.

Adachi is right. Please support his ballet initiative.

Posted by Barton on Jun. 23, 2010 @ 8:59 am

The United States, despite its current economic problems, is a very rich country. The wealthy in America have vast resources, far beyond the upper classes in most western democracies. Over the past 30 years, we have followed the Republican model -- cut taxes on the rich, cut programs for the poor, cut regulations on business -- and it's just made the economy worse.

I agree with Grace -- if corporate CEOs routinely get multiples of tens of millions of dollars in compensation, those companies can afford to pay their lower-level workers decent pensions. If the wealthy and big business paid anywhere near the taxes they paid during the 1950s and 1960s -- great boom years for the U.S. economy -- the nation could afford health care and decent pensions for everyone. So we're asking the wrong question here, fighting the wrong fight.

Posted by tim on Jun. 23, 2010 @ 10:25 am

The US has plenty of money for a decent retirement for all, what we've also got is a long term structural unfunded military obligation.


Posted by marcos on Jun. 23, 2010 @ 1:52 pm

What is it about progressives that makes them base their world view on how things should be according to them, and then complain about the rest of us not living in it?

Posted by mr matlock on Jun. 23, 2010 @ 5:41 pm

I wholeheartedly support unions in the private sector. Anybody who works full-time should make a living wage. And private-sector unions negotiate in good faith knowing that if their demands are too high, their employers will lose out to the competition and eventually die. Like GM.

But the public sector?

Police and fire dept. unions know they cannot be fired and replaced. They, and other public-sector unions, get sweat deals when times are good. And when times are bad, elected officials sweeten their retirement pots instead.

This is why we face a fiscal train wreck down the road. Weak elected officials (like the SF board of supervisors now) are afraid to stand up to public-sector unions.

Vote for Adachi's amendment and the MUNI reform measure in November.

Posted by Barton on Jun. 24, 2010 @ 9:40 am

"City Hall double standard

Speaking about the San Francisco police officers’ negotiated salaries, Supervisor David Campos said, “We all believe that they should be well compensated. But, do they have to be the highest paid in the country?”

In contrast, neither Campos nor any of the board’s majority has uttered a word about the Muni drivers non-negotiated salary that is second-highest paid in the country. There is a double standard at City Hall.

Howard Epstein, Chairman, Republican Party, San Francisco"

Not that the republicans are all that great, but SF's progressives are the obvious property of some unions, and they are man children to boot.

Posted by mr matlock on Jun. 24, 2010 @ 10:24 am

I am not saying anyone must live in the world according to me (?, see above Wow).

Just pointing out the exorbitant CEO and stock options being OK (taxed less?) and higher wages and pensions that were negotiated are wrong scenario.

I get that folks don't like paying for others, but in reality we live in a society that depend upon each other at some point.

Most people want to work, providing a service for wages. When the wages are higher, job security a bit more reliable, people go out shopping, buy a home a new car, put kids through college. All those things benefit the larger society. Buy goods, keep someone working, go to school, get next generation educated so they can invent things and sell things and open companies, etc.

The economic ball has to keep rolling. It seems to me that the Great Depression was stretched out a long time because people didn't spend, but saved. Then have to lay off more people. Then the war came and we needed to make uniforms, guns, vehicles, etc.

Military Industry put my family through life, so defense is good, but we do spend quite a bit in "good economic" times that could be trimmed back.

We might acknowledge that people CAN be fired if they are in a union. Gross incompetence or negligence should be weeded out, not rewarded. Sounds like the manager did not do their job if incompetence is allowed.

I just fail to understand the idea of low wages being good, unless perhaps a temporary thing which would be proven to be the last solution to keep a business alive.

GM workers did that, so now you think they should give up/cut pensions after recovery?

California is doing that, furloughs for "union" folks too.

If people insist on lowering incomes and maintain tax cuts for CEOs, they are asking for continued middle class get poorer and less spending in private sector goes with it, exacerbating the economic downturn.

Posted by Guest on Jun. 24, 2010 @ 10:40 am

I took a public sector job in I.T. for about half of what I was offered in the private sector with the promise that I would receive a pension and be able to retire 10 years earlier than the norm. This was a fair trade-off to me. I didn't get bonuses or stock options during the good times, and got 2% raises while everyone else was getting 4-5%.

The pension was also a good deal for the State. During the boom years, CalPERS was "superfunded". This means they paid NO EMPLOYER CONTRIBUTIONS for their employees' pensions. If we had all been in Social Security, they would have had to pay the 6%.

In addition, public employees who are vested in Social Security (10 years of S.S. payments) lose their Social Security for every year they work in the public sector. Of course, this is the part they don't tell you about.

Now, suddenly, times are bad and the State wants to vilify and reneg on the deal as I get closer to retirement? NO WAY. It's bad enough that we've taken a 10% pay cut (via furloughs) while our workload continues unabated (on some very antiquated equipment, I might add).

Posted by Scott on Jun. 28, 2010 @ 12:58 pm