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Old 10-12-2009, 09:20 PM
 
29,764 posts, read 34,848,700 times
Reputation: 11675

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A lot might depend on who is in the Oval Office at any given time and their interest in federal legislation to give states flexibility.
Romney favors pension system changes
Under the Romney plan, the existing system would be replaced by a plan through which public employees would be required to contribute to a pension plan that would be invested in stocks and bonds. Such plans are subject to market fluctuations, but are essentially self-funded by individual employees.

While many private employers contribute to 401(k) plans, Romney administration officials said it has not yet been determined whether the state would match employee contributions.

This plan not passed in Mass would have been grandfathered in. Those were better economic times then.
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Old 10-12-2009, 10:21 PM
 
Location: Sacramento
13,784 posts, read 23,798,899 times
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Quote:
Originally Posted by TuborgP View Post
Won't disagree at all and think the COLA for pensions is most at risk. Especially if we get into a serious inflationary environment and the plan doesn't have a COLA cap. Once added in they stay in and that is a structural problem. Since you are out there let me ask you what happens if Calif continues to skid. In the absence of bankruptcy for states how orderly will the process be if California is unable to pay all their obligations? Who is first in line for payment bond holders or pensioners? What about other creditors or pensioners? The pension fund has money and it will pay their obligation for a number of years. I assume they are not paid out of the general fund each year. I know their state pension system is on the skids but they have funds to payout current retiree's for how long?
I believe the bond holders are first in line, the place where we may see this whole thing come to a head is the ongoing struggles of a municipal gov't, the city of Vallejo:

City of Vallejo - Appeal Key Pleadings
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Old 10-12-2009, 10:31 PM
 
29,764 posts, read 34,848,700 times
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Originally Posted by NewToCA View Post
I believe the bond holders are first in line, the place where we may see this whole thing come to a head is the ongoing struggles of a municipal gov't, the city of Vallejo:

City of Vallejo - Appeal Key Pleadings
Yesssssssssss that city is in a number of articles on the topic and I was hoping you could discuss. Yes I believe bondholders and creditors are ahead of pension funds. That is why I am trying to say we are not as safe as we might be if the Pension Tsunami hits and is not prevented. California is well ahead of the curve, well ahead of. You know better than I. I try to follow events in the LA Times but you are living them. Part of the potential problem I see is that state pension funds are hitting wall street hard over the meltdown. Especially Illinois and a few other industrial state pension funds. Bond holders are still ticked about Chrysler and if they wanted to push back against state pension funds the political support for them is there. Are states following wise fiduciary policy and protecting the interest of bondholders in making wise fiscal decisions. Since states can't file for bankruptcy what guides and creates an orderly process if they go into default as Calif is on the verge of? Will it be one free for all? What is your sense?
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Old 10-13-2009, 07:38 AM
 
Location: Sacramento
13,784 posts, read 23,798,899 times
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Difficult to tell. What is happening out here in California is they are making some of the difficult decisions and funding reductions, but not in the core areas most significantly creating long term financial problems.

Schwarzenegger, who I have frequently disagreed with in the past, has actually been taking the lead over the past few months in trying to get our long term financial house in order. He is looking at a few items, including changing the state pension plan towards being more of a hybrid type plan, with a lower defined pension benefit augmented with a defined contribution aspect too. He also is looking to fix the economy in two significant ways, altering the tax system to be less volatile (current one is heavily skewed towards income tax on bonus payments and capital gains) and to more effectively and efficiently distribute water through the Central Valley so we can get farming, our #1 income stream, to be more productive again.

The tax proposal is in this report (executive summary, then the full report itself):

http://www.cotce.ca.gov/documents/re...esentation.pdf
http://www.cotce.ca.gov/documents/re...nal_Report.pdf

Here is a brief summary about how he wants to change the defined benefit side of the equation:

http://www.sacbee.com/politics/story/1987929.html (broken link)

Interestingly, a report by a group concerning municipality pension benefits also highlighted some locality problems. Now the group itself isn't an objective organization, however their report contains some statistical information that I have independently verified as being accurate, so it may at least provide some insights as to the root cause of the long term pension concerns:

REGION: Report slams city pension programs


Overall though, I would summarize my view as the state has taken some actions, but not nearly what is needed to fix long term financial problems. Some of the "tricks" being done to kick the problem down the street, and hope it goes away, include increasing withholding by 10% for the next fiscal year (just resulting in bigger refunds the following year), and paying state employees one day later at the end of the fiscal year, counting the expenditure against the subsequent year.
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Old 10-13-2009, 09:39 AM
 
29,764 posts, read 34,848,700 times
Reputation: 11675
Quote:
Originally Posted by NewToCA View Post
Difficult to tell. What is happening out here in California is they are making some of the difficult decisions and funding reductions, but not in the core areas most significantly creating long term financial problems.

Schwarzenegger, who I have frequently disagreed with in the past, has actually been taking the lead over the past few months in trying to get our long term financial house in order. He is looking at a few items, including changing the state pension plan towards being more of a hybrid type plan, with a lower defined pension benefit augmented with a defined contribution aspect too. He also is looking to fix the economy in two significant ways, altering the tax system to be less volatile (current one is heavily skewed towards income tax on bonus payments and capital gains) and to more effectively and efficiently distribute water through the Central Valley so we can get farming, our #1 income stream, to be more productive again.

The tax proposal is in this report (executive summary, then the full report itself):

http://www.cotce.ca.gov/documents/re...esentation.pdf
http://www.cotce.ca.gov/documents/re...nal_Report.pdf

Here is a brief summary about how he wants to change the defined benefit side of the equation:

Schwarzenegger calls for two-tier state pension system - Sacramento Politics - California Politics | Sacramento Bee (http://www.sacbee.com/politics/story/1987929.html - broken link)

Interestingly, a report by a group concerning municipality pension benefits also highlighted some locality problems. Now the group itself isn't an objective organization, however their report contains some statistical information that I have independently verified as being accurate, so it may at least provide some insights as to the root cause of the long term pension concerns:

REGION: Report slams city pension programs


Overall though, I would summarize my view as the state has taken some actions, but not nearly what is needed to fix long term financial problems. Some of the "tricks" being done to kick the problem down the street, and hope it goes away, include increasing withholding by 10% for the next fiscal year (just resulting in bigger refunds the following year), and paying state employees one day later at the end of the fiscal year, counting the expenditure against the subsequent year.
Excellent post with excellent links. I hope all interested in this topic read. There is a way to avoid the unable to pay scenario and hopefully states will take it long before we reach that point. California may lead the way. I haven't read it in print but I am assuming that furlough days are lowering annual salaries and thus reducing pensions based on the three highest years for folks planning to retire soon. Has that been discussed much? That would save some money both short and long term.
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Old 10-13-2009, 10:04 AM
 
Location: Sacramento
13,784 posts, read 23,798,899 times
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Quote:
Originally Posted by TuborgP View Post
Excellent post with excellent links. I hope all interested in this topic read. There is a way to avoid the unable to pay scenario and hopefully states will take it long before we reach that point. California may lead the way. I haven't read it in print but I am assuming that furlough days are lowering annual salaries and thus reducing pensions based on the three highest years for folks planning to retire soon. Has that been discussed much? That would save some money both short and long term.
That is one of the core problems that haven't been addressed, though the furlough days reduce current pay cost by about 7-9%, the calculation for pension purposes is the "pre-furlough" compensation:

http://www.universityofcalifornia.ed...ough_facts.pdf
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Old 10-13-2009, 11:25 AM
 
29,764 posts, read 34,848,700 times
Reputation: 11675
Quote:
Originally Posted by NewToCA View Post
That is one of the core problems that haven't been addressed, though the furlough days reduce current pay cost by about 7-9%, the calculation for pension purposes is the "pre-furlough" compensation:

http://www.universityofcalifornia.ed...ough_facts.pdf
TY now we know what to follow. Will be interesting how it plays out and where the major actors come down on the issue. On a scale of 1-10 in your estimation how close is California to true default?
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Old 10-13-2009, 11:59 AM
 
Location: Sierra Vista, AZ
16,133 posts, read 20,812,641 times
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Quote:
Originally Posted by NewToCA View Post
I don't want to cause any alarms, and don't know how this will play out, but I think it is something that at least needs to be acknowledged:

The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees.

Within 15 years, public systems on average will have less than half the money they need to pay pension benefits, according to an analysis by Pricewaterhouse Coopers. Other analysts say funding levels could hit that low within a decade.


washingtonpost.com
Not News, it is most of the debt California owes, The people on the PERS Board did a criminally bad job of innvesting yet they still collect their half million dollar salaries.
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Old 10-13-2009, 12:22 PM
 
29,764 posts, read 34,848,700 times
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Originally Posted by Boompa View Post
Not News, it is most of the debt California owes, The people on the PERS Board did a criminally bad job of innvesting yet they still collect their half million dollar salaries.
Those are the buzz words or POSSIBLE basis for a challenge to the obligation to pay pensions to current pensioners or those already employed. If bondholders challenge in court that the legislature/state was criminally negligent in creating the size of obligation they could ask the courts to void the contractual relationship between pensioners and the state. Bondholders might be in position to do that. Whether they are successful or not is another story.
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Old 10-13-2009, 02:00 PM
 
Location: SW MO
23,605 posts, read 31,463,318 times
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Quote:
Originally Posted by TuborgP View Post
Those are the buzz words or POSSIBLE basis for a challenge to the obligation to pay pensions to current pensioners or those already employed. If bondholders challenge in court that the legislature/state was criminally negligent in creating the size of obligation they could ask the courts to void the contractual relationship between pensioners and the state. Bondholders might be in position to do that. Whether they are successful or not is another story.
Well, if whoever makes that call aspires for elective office, that would be a clear half-million "No" votes from retirees and potentially 1.1 million more from active members.

As with anything in politics, follow the money!
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