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fay- the State pays both the social security employer contribution and pension contributions for teachers. They did this to offset property taxes for towns. The towns do not contribute to the pensions.
Frmlybrk- your information is incorrect. The unions did rail against the pension raids but the union itself has no legal standing with pensions. The pensions existed before unions and they apply to union and non-union worker alike. They are not union pensions.
The pensions were funded at 105% prior to the missed contribution. They would be adequately funded if the State made the contributions and did not do other games to make the case that they could miss them. For example to sell the lie that the pension funds were fine they had 2 early retirements.
Also State pensions can not be compared to Detroit. States do not have a bankruptcy provision plus State assets could be liquidated to cover the shortfall. For example some estimate the Turnpike could be sold for $80 billion. Also look at operating expenses in NJ they are about $5 billion and the budget is $33 billion. How you allocate the $28 billion if you could go bankrupt means debt and pensions get paid.
In NJ they missed over 20 years of making the employer contributions. It was supposed to be 4% of an employees salary for teachers and government workers These pension funds are in tough shape. It is about 14% for police/fire- most of those payments were made. Those plans even with greater benefits are funded adequately.
The employees always made their contribution. Now the funds are in bad shape but no one will say where the funds would be if those contributions were made. It would be easy to calculate.
New Jersey also borrowed money to invest in its pension plans - because it thought the costs of borrowing would be less than the returns. Don't think that turned out too well (although I haven't followed the situation closely over the years). Many governmental entities have been doing the same in recent years/decades. Robyn
Governor Whitman borrowed $2.8 billion dollars to make the pension contribution at the same time she cut income taxes 30%. The 30% cut was exactly $2.8 billion.
In terms of this kind of stuff - I don't spend my time on general theory - or who's to blame for this/that/the other thing or anything similar. In general.
A person who currently receives a pension and perhaps other benefits from any source (whether government - private - whatever) should keep on top of his/her person/benefits situation.
Anyone thinking about municipal bonds - or - to a much lesser extent - corporate bonds - should look closely into the pension obligations of those entities (government entities are way behind the curve today - most corporate entities are keeping up with the times).
Anyone working or planning to take a new job today should consider whether promises that are made can be kept.
I think a great many municipalities won't be able to keep their pension promises even 20 years down the road. But I'm 65 - and I smoke - and I'm not buying crummy municipal bonds - so I'm not losing any sleep. Robyn
New Jersey also borrowed money to invest in its pension plans - because it thought the costs of borrowing would be less than the returns. Don't think that turned out too well (although I haven't followed the situation closely over the years). Many governmental entities have been doing the same in recent years/decades. Robyn
It hasn't and the cities in many cases were intellectually mismatched against Wall Street. A number of California cities are suing Investment Banks who they entered a complicated protection plan of Interest Default Swaps they didn't understand. As Robyn knows the floating rate Muni market has exploded . In exchange the cities paid a fee that added up to a chunk of change. It was as Investment Banks do and government shouldn't bet money. Needless to say bond rates fell and the cities were and had spent money that wasn't providing a return. Their citizens are ticked and now they want out of the deal saying they didn't fully understand and they didn't. They were given a sales pitch by a fund representative who made 7 figures and their 90K reps ( if that much) were a mismatch. So how do you explain that to your tax payers?
Five years after a once-in-a-lifetime global financial collapse and the Great Recession, many American cities now caught in a financial bind can rightly blame forces beyond their control.
In some cases, though, the damage was self-inflicted.
Nowhere is that more apparent than the ongoing budget drain from hundreds of billions of dollars' worth of failed bets known as interest rate swaps. These complex financial derivatives—highly profitable for the investment bankers on the other side of the deal—were supposed to help cities lower the cost of selling municipal bonds to finance everything from new schools to underfunded pensions.
Instead, these deals have turned into municipal bombs with long fuses. City officials now digging through the ashes of these failed financings have learned the hard way that—in many cases—Wall Street's wizardry cost taxpayers much more than the plain vanilla, fixed-rate bonds that have funded public projects for generations.
"The banks made five times more money on the swaps than (they) did on the underwriting of the bonds—it was a gold mine," said Andrew Kalotay, a public finance consultant who advises local governments. "The transaction costs upfront were horrible, but (local officials) didn't understand that."
Quote:
To hedge the risk that higher interest rates might drive up future floating payments to investors, Oakland also bought an interest rate swap from Goldman Sachs. That instrument requires the bank to cover Oakland's floating rate payments to investors. In return, Oakland agreed to pay Goldman Sachs a fixed payment—of 5.7 percent—until 2021.
That turned out to be a very bad deal for Oakland.
School administrators & teachers have sick day cash outs capped at $15k. It is in law. Police, etc. do not. THOSE are the big cash outs you read about. Any from school admin are dinosaur contracts as reforms hit new contracts in 2009. Also note, sick day cash outs are at the pay rate at retirement. Given how high some of those police salaries can get, you can figure out how those pay outs get so large!
biscman- what you stated above is the problem. Your information is incorrect- and no I am not a teacher. Teachers do not walk away with $400,000 sick leave. That is supers and other administrators. Number 2 the cost to local governments to a teachers pension is zero. The State was supposed to pick up the cost of 4% of a teachers salary. The State did not make the payment.
The sole problem with NJ pensions was the State not making the contribution for over 20 years.
Eskort- my problem is people base their animosity to the pensions on misinformation. They see articles of pension outrages and think that applies to the regular guy. What they do not know is that situation was not fixed but the changes were made to the guy playing by the rules.
Christie blamed teachers for NJ's pension problems in the same way Hitler blamed Jewish citizens for Germany's problems.
One other distinction between public sector pensions and private sector pensions- in general private sector pensions are funded by the employer where a NJ teachers pension is funded mostly from the employee with a percentage from the employer.
Thomas,
2 years ago a middle school principal in monmouth county had 454,000 of unpaid sick pay. Hard to believe but big article in the Newark Star Ledger and Asbury Park press. Police chief in Essex county left last week with 360,000 unpaid sick leave.
You are correct with no payments for 20 years to the nj pensions, you can thank Governor wittman for that. She and I think it was Gov. McGreevy who added to this dilemma.
Christie didn't blame "Teachers" he blamed Education Administrators for the pension problems. Including Principals, Assistant Principals etc.....
I wouldn't exactly say the NJ Teachers pension is funded "MOSTLY" from the employee or teacher. They just started contributing a fair share 2 years ago.
At the end of the day the main reason nj is in such bad shape is they probably have 400 towns or cities in the Garden State and they all want their own police depts, fire depts, every school no matter what size needs tons of administrators etc. They need to look into the novel concept of "Shared Services" amongst towns. We just can't afford every little town or hamlet or village with their own public departments.
We pay the highest taxes in the USA today and retirees who are lucky enough to pay off their mortgages are still stuck with 15-25k Real Estate Taxes every year.
Not wanting to contribute to getting away from Escorts good OP, I do need to make the following point. The laws of employment supply and demand for many public sector employees (especially teachers) is very different than most situations in the private sector. In the private sector increased demand for employees is usually associated with increased revenues and profitability. That is not really relevant with many public sector positions especially safety and teachers. The economy can take a hit and tax revenues decrease but the amount of crime and most importantly increases in student enrollment can increase and require more employees or a decline in safety and class size and certified teachers etc. None of which is what most of the public want. So what is a government to do when it has a growing need and diminished current revenues? Well years ago especially with us Boomers hitting the schools and needing class room space ( Remember split school days ?) They can promise future compensation instead of immediate compensation as many did and that was called retirement benefits. This need for growth in safety and education employment continued and now it is time to pay the piper or admit it was a false promise to keep people in the profession and expose the system as being what it is for what you hope will be the next wave of new teachers. Oh yeah teacher training enrollment in many states is down and shortages have started. Have fun America the Chinese and major manufacturers are watching to see if you can produce the employees needed or if they need to look overseas for more talent. Escort can you imagine LA with a shortage of competent certified teachers and competent law officers with guns and badges?
School administrators & teachers have sick day cash outs capped at $15k. It is in law. Police, etc. do not. THOSE are the big cash outs you read about. Any from school admin are dinosaur contracts as reforms hit new contracts in 2009. Also note, sick day cash outs are at the pay rate at retirement. Given how high some of those police salaries can get, you can figure out how those pay outs get so large!
Which state are you talking about? It sure would be helpful to state that.
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