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Old 06-01-2017, 06:13 AM
 
Location: Metro Detroit
1,786 posts, read 1,941,009 times
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While the point about Detroit's bankruptcy being the cause of this is totally valid, I think we're discounting the impressive state of the balanced Wayne County budget (given the county's past troubles, and AFAIK Wayne Co. didn't declare bankruptcy..) and just how bad the situation in Detroit really was.
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Old 06-01-2017, 06:44 AM
 
292 posts, read 205,530 times
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Quote:
Originally Posted by Geo-Aggie View Post
While the point about Detroit's bankruptcy being the cause of this is totally valid, I think we're discounting the impressive state of the balanced Wayne County budget (given the county's past troubles, and AFAIK Wayne Co. didn't declare bankruptcy..) and just how bad the situation in Detroit really was.

Actually Wayne County's budget is balanced on the backs of the retirees and current employees. Once the Federal courts ruled that the COD retirees contract was not a secured contract and they were indeed unsecured creditors under bankruptcy laws, it left the door open for Warren Evans to say to WC retirees and employees look at Detroit, either you voluntarily take healthcare and income reductions or we will file bankruptcy and your contracts will be classified as unsecured also. Ficano didn't have this option
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Old 06-01-2017, 07:36 AM
 
Location: Grosse Ile Michigan
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Like almost all public agencies the City and County over-promised employees retirement benefits that were never sustainable. That was the draw for government positions - low pay, but limited demands on your time and sweet requirement benefits. The problem was, it was easy to promise good retirement benefits, but it was always impossible to deliver on those promises long term.

However the county was sticking it to the employees in order to try to balance the budget long before the Detroit bankruptcy. (Not the retirees, but the current employees). At times, the unions would make deals to preserve the full time workers pay and benefits, but throw the part time workers to the wolves (because part time workers do not get to vote in union elections), and the County took full advantage of that opportunity.

The government surplus/deficit roller coaster never makes any sense to me. They have a deficit one year, then a surplus for two years, then a deficit the next year. Sometimes they have a deficit or surplus for part of a year and then suddenly a massive swing. Because "surplus" or "deficit" is based on their budget, all they need do to change from one to the other is modify the budget. Budget more than you are likely to need and you will have a surplus. Budget less than you need and you will have a deficit.
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Old 06-01-2017, 09:43 AM
 
12,637 posts, read 7,643,605 times
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Quote:
Originally Posted by Coldjensens View Post
Like almost all public agencies the City and County over-promised employees retirement benefits that were never sustainable. That was the draw for government positions - low pay, but limited demands on your time and sweet requirement benefits. The problem was, it was easy to promise good retirement benefits, but it was always impossible to deliver on those promises long term.

However the county was sticking it to the employees in order to try to balance the budget long before the Detroit bankruptcy. (Not the retirees, but the current employees). At times, the unions would make deals to preserve the full time workers pay and benefits, but throw the part time workers to the wolves (because part time workers do not get to vote in union elections), and the County took full advantage of that opportunity.

The government surplus/deficit roller coaster never makes any sense to me. They have a deficit one year, then a surplus for two years, then a deficit the next year. Sometimes they have a deficit or surplus for part of a year and then suddenly a massive swing. Because "surplus" or "deficit" is based on their budget, all they need do to change from one to the other is modify the budget. Budget more than you are likely to need and you will have a surplus. Budget less than you need and you will have a deficit.
Good points.
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Old 06-01-2017, 12:27 PM
 
Location: Metro Detroit
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Pensions in general are unsustainable and, though it goes against my typically-liberal POV, I'm not a fan of them.

They're easily exploitable for employees to become entitled to pensions well above what the would have been earning based on the majority of their career wages, and they serve to subsidize those who have had plenty of time to build their wealth through depressed wages of those just entering the workforce.

There may have been a time when people had life expectancy of 70 years when this model made sense, but as people are regularly living well into their 80s or 90s now this model isn't sustainable. It's sad seeing the amount of damage this has caused to those depending on pensions, but when I look at how much money is paid into a pension by my employer on my behalf (rather than these funds going toward higher wages or better benefits for myself), into a pension from which I'll never be able to draw a cent from (because my compensation plan has already been converted into a 401k plan-they simply track employer-pension-spending on a per-employee basis), I really don't have a ton of sympathy for this. I understand it sucks, and I understand that promises were made that aren't being kept, but when an individual spends their entire working life spending everything and saving nothing, plus they receive social security (something I again will likely not receive much from), well, the writing has been on the walls for decades. The idea that pensions ended up/are ending up being unsustainable should not come as a surprise to anyone. If someone didn't plan for this, that's their own fault.

That being said the pure 401k model is broken too as it serves largely as a way to ensure wealth for and subsidize fund managers. Given the choice I'd rather see retirees well off than fund managers even more absurdly well off. A universal basic income coupled with widespread use of IRAs would create much better end results, but I don't see this happening any time soon.
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Old 06-01-2017, 06:02 PM
 
Location: Metro Detroit
1,786 posts, read 1,941,009 times
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Moderator cut: orphaned

Oakland County uses a Defined Contribution plan and has since 1994.
Washtenaw County uses a Defined Contribution plan and has since 1986.
Macomb County uses a Defined Contribution plan, but I can't find a date on this.
The State of Michigan uses a Defined Contribution plan, and has since 1997.

Wayne County and Detroit did not. They made promises they couldn't keep. This is similar to states like Illinois, Kentucky, and New Jersey. Michigan was once in a bad place, but they went from a Defined Benefit (pension) to Defined Contribution (401k) plan as Michigan did in 1997. The State of Michigan's public pension is almost fully funded at this point. Had Wayne County and Detroit had the foresight to go away from DB plans in the 90s, people could have planned better. There is absolutely fault in the city and county in what has happened, but the poor state of these funds hasn't exactly been a secret which has been kept from the public. It's not like there were winner in this (Except maybe lawyers..). This wasn't done with the intent to screw people over. It was a necessary evil due to poor financial planning coupled with a stagnant/shrinking tax base.

Last edited by Yac; 06-05-2017 at 04:36 AM..
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Old 06-02-2017, 06:31 AM
 
12,637 posts, read 7,643,605 times
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I think what has made pension, and to a certain degree social security, unsustainable is not just the fact that people live longer, but rather, a decline in birth rates.

All Ponzi like schemes peter out and collapse when the amount of new entrants does not significantly exceed the amount of existing members. Hence, such system requires ever increasing amounts of new participants to finance the benefits going to the initial participants. Therefore, a declining birth rate will always doom such system that require a 2:1 ratio between new entrants and existing benefactors. When it comes to cities and states, sustained population loss due to out migration will almost always make such schemes insolvent. Couple out migration with declining birth rates and these policies are doomed to failure.

Hind site is 20/20 however, as they say. Back then, when these policies and plans were created, who could foresee the increase in life expectancy and the advancements in medicine that made it possible? What are some of our current practices that look viable now, but will prove unsustainable in 30 years based upon the growth of technology and knowledge? Its easy to look back, now that we know, and say how dumb something was to do, but that does not require smarts. The smarts come in recognizing those things real-time. I say there are many things that we do today that in 30 years people will look back and ask "why did you not see this coming"?
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Old 06-02-2017, 07:07 AM
 
Location: Grosse Ile Michigan
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Geo-aggie this is interesting stuff that I did not know. Can you please fix this sentence? I am curious what this was meant to say. One of the "Michigan"s must have been meant to be someplace else. Where?

Michigan was once in a bad place, but they went from a Defined Benefit (pension) to Defined Contribution (401k) plan as Michigan did in 1997.

I have worked with a large number of municipalities and State agencies over my career. All of them who made pension promises are in a positioin where they cannot keep those promises. Many of them have not figured out what to do about it yet and have not reached the critical mass point where they must do something, so they just borrow or shift money and kick the can down the road for the next people to be elected to deal with. Lots of them were eyeing the Detroit Bankruptcy with great interest. Having turned out so well for Detroit, I think we are likely to see quite a few more of these in coming years. Or they will threaten to copy Detroit in order to force retirees to make concessions. Yes it stinks to not get the retirement you were promised, but some due diligence should have been done to determine whether the promise was ever a real promise or just air. Even with a private company, you need to look into whether the retirement money or benefits you were promised will actually be there. This is not just a public entity problem, look at what happened to GM retirees, or a bigger renege - the Polaroid retirees. There are probably a hundred more examples. However public agencies made much bigger unreaslitic promises and did little or nothing to fund them. Many agencies promised 75% or even 100% of the working salaries.

In one city, Santa Ana California, the police chief retired. His promised 100% salary at retirement was about $180,000. After he retired, the City did a search to find someone as good as he was. They had no luck, so they hired him back out of retirement and paid him an additional $180,000 a year. - $360,000 a year for the chief of police - not too shabby. While the promise of 100% salary for life in retirement was stupid, hiring him back was not really stupid. They got the experienced qualified person they were looking for at the price they were planning to pay. So it did not cost them any more than hiring someone else woudl have. It is just the absurd promises public agencies make for retirement that are dumb. It is a common practice, they can attract qualified people at low pay today and keep the budget balance by promising them huge retirement benefits in exchange for taking comparatively low pay today. This allows them to push their financial problems onto some politicians decades in the future. I find it difficult to feel sorry for employees who do not get their 100% salaries in retirement because they should have the sense to know something that sounds too good to be true isn't and the sense to know the deal they are offered is a deal to stick it to the tax payers of the future.

Wayne county did something simlar with their severance promises. Those people did not even have to serve the county all the way to retirement to cash in, all they had to do was get fired.

Last edited by Coldjensens; 06-02-2017 at 07:30 AM..
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Old 06-02-2017, 07:26 AM
 
Location: Phoenix AZ
6,077 posts, read 11,850,097 times
Reputation: 9721
Quote:
Originally Posted by Indentured Servant View Post
I think what has made pension, and to a certain degree social security, unsustainable is not just the fact that people live longer, but rather, a decline in birth rates.

All Ponzi like schemes peter out and collapse when the amount of new entrants does not significantly exceed the amount of existing members. Hence, such system requires ever increasing amounts of new participants to finance the benefits going to the initial participants. Therefore, a declining birth rate will always doom such system that require a 2:1 ratio between new entrants and existing benefactors. When it comes to cities and states, sustained population loss due to out migration will almost always make such schemes insolvent. Couple out migration with declining birth rates and these policies are doomed to failure.

Hind site is 20/20 however, as they say. Back then, when these policies and plans were created, who could foresee the increase in life expectancy and the advancements in medicine that made it possible? What are some of our current practices that look viable now, but will prove unsustainable in 30 years based upon the growth of technology and knowledge? Its easy to look back, now that we know, and say how dumb something was to do, but that does not require smarts. The smarts come in recognizing those things real-time. I say there are many things that we do today that in 30 years people will look back and ask "why did you not see this coming"?

Social security is actually "sustainable" - the people who are telling you it isn't sustainable are the ones who also want you to just move those funds over to their handy 401k accounts with insanely high fees. There is a huge pile of money going into social security & stealing a bunch of dimes & nickels as retirement funds flow in is a great way to make yourself a billionaire while not working or providing anything of value to society.

Plus, having a handy underclass of serfs with no potential to ever leave the workforce means the Waltons can always find a friendly little old lady to check your receipt at the door for minimum wage.. Just enough to cover the deductible for her blood-pressure medicine.
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Old 06-02-2017, 08:32 AM
 
Location: Metro Detroit
1,786 posts, read 1,941,009 times
Reputation: 3554
Sorry, that was a confusing sentence. What I meant to express is that the State of Michigan had a pension plan in perilous shape back in the 90s, but in 1997 they switched over to a "Defined Contribution" (401k) plan and over the last 20 years the state's economy hasn't been dragged down by too many unsustainable pension promises/abuses. You can read more about these two plans here:
ORS - State Employees Retirement System

Essentially if you were hired before 1997 you have a pension, if not, you have a 401k. The 401k match is quite healthy, with surprisingly low fees, and should permit for great retirements for many who save appropriately - but for those who do not the risk is moved from the state (you and I) to the individual who made the decision to not plan. Contrast this with Illinois whose bleeding pension system has the state unable to set a budget for the past 3 years. Then you've got Michigan currently wishing to move toward a DC plan for teachers and teachers are fighting this? C'mon guys, think about how badly you're inevitably going to get screwed at some future point if you don't go the DC route. A pension sounds great, but 30 years from now when you retire, it might not work. You may be getting 20% of what was promised. Wouldn't you rather be in charge of your own future? I know this is super libertarian sounding of me, which is odd as I have a lot of socialist perspectives, but I simply don't trust these plans and I want to be in control of my own future.

Oakland, Macomb, and Washtenaw County have similar systems to the state, as do most cities within the counties (Note: Many Wayne County cities still have pensions). In fact just about every government entity that has a sustainable budget has gone away from pensions because it became quite evident in the 90s that pensions would not work as more and more employees abused the system, as in ColdJensen's post, and we began living to much older ages. Due this this, I have limited sympathy for people who have been screwed over my big pension collapses. I understand there are honest people who worked hard and simply didn't know any better, and that really, really sucks. But for these people, social security exists and will cover some retirement expenses. If they lived their entire working life not saving a penny, well, that's your own mistake. On top of this, look at what an employee in Macomb County is paid vs. Wayne County. This why Wayne County can't fill jobs. When you say "Oh, our pay sucks, but the benefits are incredible - you just have to trust that they are still incredible in 40 years." vs. "Our pay is good, and our benefits are a little above average, but you're mostly in charge of your retirement.", 90% of people are going to with the second plan. I know I would. I would never work a position that paid me 30-40% less for better retirement benefits, because quite frankly I'm probably not going to working somewhere for more than 5 years. That's the economy of 2017.

That being said, I still fully support Social Security, believe that fund to be sustainable as abuse of it is far more difficult, and would in fact like to see it expanded to higher incomes (remove the tax cap, but keep the payout cap) and to add a Universal Basic Income.
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