ROSEN: Rein in PERA
By Mike Rosen, Rocky Mountain News (Contact)
Published January 30, 2009 at 12:05 a.m.
The Public Employees' Retirement Association is a defined-benefits retirement plan for more than 400,000 current and already retired government workers. Its members include state employees, public school teachers and administrators, judges, state troopers, county and municipal workers.
PERA faces a financial crisis which consequently imperils the state's taxpayers, mostly nongovernment workers, who are the PERA bankrollers of last resort. After too many years of inaction or tepid half-measures masquerading as fixes, kicking the can down the road, the PERA "can" is now in the lap of Gov. Bill Ritter and the state legislature. It's time to act decisively.
And that means rejecting some questionable premises and assumptions that have blocked meaningful PERA reform in the past. The first of these is that this kind of defined-benefit pension plan must be a permanent fixture for government employees. The private sector has been eliminating such plans for years in favor of defined-contribution plans, like 401(k)s, which don't guarantee retirement benefits or index them to inflation. Such guarantees are no longer practical. With 401(k)s, future payments are dependent on the accumulated assets in each worker's vested account. Government should do the same.
At the very least this means that PERA's defined-benefits plan should be phased out for all future government hires - immediately.
The second premise is that promised benefits for current PERA members, not yet retired, are sacrosanct and unalterable. This has been the self-serving assertion of the PERA board. This cannot stand. It will be up to the legislature or the courts to invoke the exception for "actuarial necessity," enabling some modification in promised benefits. This could include repealing the irresponsiblly lavish 1997 PERA benefits increase; cutting the annual cost-of-living increase (which has routinely exceeded the official inflation rate); and extending the retirement age.
PERA's portfolio has lost $13 billion - 30 percent of its market value - in the last year, sinking its funding ratio to below 60 percent. The current PERA burden on taxpayers is already too high. Raising it yet again to make these losses good and hold PERA members harmless is unacceptable. Especially when those very same taxpayers have seen their own 401(k) retirement plans savaged by the falling stock market and the prospect of their retirement benefits sharply reduced.
PERA's plight is even grimmer when you consider that its 2006 long-term forecast of an 8.5 percent annual return on plan assets was wildly optimistic. (In 2006, Warren Buffett assumed a 6.5 percent return for Berkshire Hathaway retirement plans.) When I describe the PERA board's pronouncements about their untouchable benefits and their determination to have the taxpayers bail them out as "self-serving" it's because 80 percent of those on the PERA board are, themselves, PERA members and beneficiaries.
This glaring conflict of interest is shared by state legislators who are also PERA members.
Another weak premise is that PERA's current plan is essential to attract people to government employment, and that if it's pared down or phased out, there will be a mass exodus of government workers to the private sector. Nonsense. Among the things that attract some people to government employment are greater job security and lower pressure and performance standards than in the private sector.
As a matter of law and policy, Colorado government monitors the private sector to ensure that compensation for government workers is competitive. It's not as if, in the absence of PERA, a public school music teacher will bolt her job to earn fame and fortune in the recording industry or that the Ford Motor Co. is dangling lucrative senior executive positions in the faces of Department of Motor Vehicles supervisors. It's a jungle out there in the private sector, especially in this economy.
There's no reason government workers shouldn't have a retirement plan as good as those in the private sector. But why should it be far better? Perhaps this is what Winston Churchill meant when he spoke of civil servants becoming "no longer servants, no longer civil."
Mike Rosen's radio show airs weekdays from 9 a.m. to noon on 850 KOA. He can be reached by e-mail at mikerosen@850koa.com.
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January 30, 2009
6:57 a.m.
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Mike_In_Hartsel writes:
Amen.
January 30, 2009
7:05 a.m.
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taoistblockhead writes:
Rein in PERA (and shut down the Pentagon while we're at it)
http://www.salon.com/opinion/greenwald/
The American Empire = The Bankruptcy of America
“It's precisely our endless and direct involvement in all of the various Middle East conflicts that plays a vital role in enabling the prevailing climate of militarization and the ever-expanding Surveillance State in the United States. It's clichéd at this point, but nonetheless true, to point out that it is our involvement in foreign conflicts and the maintenance of external threats that uniquely justifies infringements on core liberties and the expansion of state power. A nation involved in foreign wars will inevitably act like a War Nation at home. That's just a universal truth. ….
“Even those who recognize the existence of that rarest of entities - a just war - should acknowledge that constant involvement in an endless series of wars, as our Middle East policies currently ensure, causes "America's soul to become totally poisoned." It's just not possible to make real progress in the domestic aims of restoring the Constitution and reversing our military and intelligence expansions if we are simultaneously enabling and blindly supporting Israel's various wars (and therefore dragging ourselves into those wars), while we ourselves continue to wage our own never-ending conflicts in the Middle East. All of those issues aren't merely related but are completely intertwined.”
January 30, 2009
7:19 a.m.
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7Dave7 writes:
These suggestions make too much sense, which is why liberals hate them. Put them on social security like the rest of us if they think they're getting the s**t end of the stick.
January 30, 2009
7:31 a.m.
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7Dave7 writes:
The American Entitlement Programs = The Bankruptcy of America
At least we get results from our "endless" wars and military presence throughout the world. What return on our investment do we get from entitlements? A worse problem than we had before! How many World Wars would we have had if we just turned a blind eye and wait for the inevitable attack on our soil. Carter tried this America stand down approach and you saw how effective that was.
January 30, 2009
7:37 a.m.
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Lowtaxequalsfreedom writes:
"This glaring conflict of interest is shared by state legislators who are also PERA members."
Enough said.
January 30, 2009
9:50 a.m.
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Eagle5 writes:
PERA should have gone into Social Security the first time it got into trouble long ago. While Social Security was never designed to be the only retirement program needed, it may have been not quite in the trouble is in today had it been a mandatory program for all government entities. A voluntary supplemental program patterned a bit like the feds Thrift Savings Plan might be a good idea (perhaps, not as generous since the feds contribute a great deal to it).
January 30, 2009
10:06 a.m.
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mytwosense writes:
In many ways, the government - our democratically elected government, I might add - serves as an employment model to the private sector. That's one reason why they offer better retirement plans, allow their workers to unionize, provide safer working conditions, and have wage increases in line with cost of living. All things that Rosen and his ilk despise, of course (including democracy).
And 401Ks have turned out to fall far short on their promise as a better retirement plan than traditional pensions. The average 401K at retirement has about $35K in it, and that number is probably far less now. Typical of Rosen to suggest a solution that has already been proven a failure. Man, this guy has it in for Americans.
January 30, 2009
10:20 a.m.
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mytwosense writes:
Rosen writes: "There's no reason government workers shouldn't have a retirement plan as good as those in the private sector. But why should it be far better?"
Ha! At least he admits private sector retirement plans are significantly worse than PERA. Leave it to Rosen to suggest a good plan emulate a vastly inferior one.
January 30, 2009
10:43 a.m.
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jay writes:
does this mean that rosen also supports terminating all gov't military pensions for new recruits? how about police and firefighter pensions?
http://colorado.mediamatters.org/item...
January 30, 2009
11:02 a.m.
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fntsymtn writes:
You know, I generally agree with Rosen when it comes to economics, but I have to disagree here. While I agree that PERA needs to do something to shore up it's funding, I highly disagree that dismantling PERA is an acceptable solution.
All retirement plans have taken a significant hit recently, why would Rosen expect PERA to be any different? What has happened to PERA is not a reflection of the benefits offered or the failures of the plan, or conflict of interest from it's members, but a general failure of the overall financial system that backs all retirement plans in this country.
It is highly misleading to simply state that PERA has slipped its "funding ratio to below 60 percent" without quantifying what that actually means and it's a tactic that Rosen generally frowns upon. But I suppose it supports his general claim so it's ok to do it.
January 30, 2009
11:17 a.m.
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Elwood writes:
PERA hasn't taken a hit. When it gets so underfunded that it can't support current retirees, the taxpayers will have to pony up to make it whole. PERA needs to be converted to a defined contribution plan immediately and retroactively (no I don't know how exactly, but the "great" minds that are running it now should have an idea). Just wait until next year, after the board has had time to let things fester for a year (they don't know how underfunded it is now), and you see the amount taxpayers will have to donate to the fund to keep it whole.
January 30, 2009
12:39 p.m.
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mmannino writes:
The legislature is acting recklessly by not addressing the crisis in the PERA portfolio. PERA is essentially bankrupt. The pension fund has very little chance to pay its benefits in the long-term. Waiting will only make the problem worse. The legislature needs to declare an emergency and take drastic action.
The major problem with PERA and similar plans is highly subsidized early retirement. Almost all private sector plans and Social Security penalize and restrict early retirement. PERA provides full retirement benefits (2.5% per service year plus inflation protection) after 30 years at age 50 (55 for employees hired more recently). In Social Security and private sector plans, early retirement is penalized 4% to 7% per year and early retirement age is higher (62 in Social Security). The early retirement subsidy in PERA is equivalent to a lump sum payment of more than $500,000 per retiree at his/her retirement date. For administrators and higher paid professionals, the value of the subsidy is typically much higher, $1,000,000 to $2,000,000. PERA members are given huge golden parachutes so they can retire much younger with much higher levels of replacement income.
PERA is in a fiscal emergency. The subsidies for early retirement should be ended especially for those not close to retirement. The PERA retirement age and early retirement age should match Social Security. Early retirement should be penalized similar to Social Security. If reforms are not made soon, taxpayers will face very difficult choies about reductions in state services and layoffs of state workers. Taxpayers should demand action by the legislature this session. Demand to know if state workers deserve highly subsidized early retirement while retirement in the private sector is very difficult. Demand to know why state workers cannot work to normal retirement age just like the private sector.
PERA members have not earned their golden parachutes in any conventional sense. The combined contributions (employee/employer) plus earnings are not nearly enough to pay for promised benefits. PERA has misled the public and legislature about projected pension fund returns and consequences if the funding levels did not materialize.
January 30, 2009
12:54 p.m.
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Logical writes:
twocents and fantasy - What Mike was saying is that PERA should not continue to be a guaranteed-benefits plan. Did you not see the explanation that we, the taxpayers, will likely have to foot the bill for the losses in the PERA investments? Who will pay me for my losses in my retirement plan? No one, that's who.
I agree with Mike that PERA should not be a guaranteed benefits plan, unless it is completely self-funded. I don't want to have to pay to make them whole, when my fund has diminished so greatly. Does that make sense?
As for 401(k) plans being vastly inferior to the PERA plan; yes, they are inferior. But only because we have to pay attention to our investments, and the outcome of our investments are not guaranteed. I would prefer that no government retirement plan funded with investments in the markets be guaranteed. If you want guaranteed investment safety, put it in a savings account and draw interest. At least that way you wouldn't lose your principle, and have to rely on taxpayers to make you whole.
January 30, 2009
2:54 p.m.
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Gonzopozo writes:
Mike says "As a matter of law and policy, Colorado government monitors the private sector to ensure that compensation for government workers is competitive."
That's a misleading half-truth.
While it is IS monitored, it IS NOT ensured. In fact, salary increases to State employees are routinely axed partially or completely in time of tight budgets. As in this year - and many others in the past.
He's right about the music teacher. But what about the IT Professionals, the Engineers, the highly skilled nurses and social workers? They WILL be gone.
So Mike, dumb-down the State workforce even more and then cry incessantly about inefficiency and waste. Still another bad idea from Mr. Rosen - he's on a streak.
January 30, 2009
2:58 p.m.
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fntsymtn writes:
Logical, it's an interesting pretense ... "likely" ... playing on fear of the unknown. Something that republicans and Mr. Rosen chastise democrats for doing. Any chance you can turn that "likely" into a certainly or a guarantee?
I do agree that PERA needs to make adjustments to cover it's shortfall, but alarmist reactions (which Rosen continually despises) are nothing but ... alarmist.
January 30, 2009
4:09 p.m.
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mmannino writes:
fntsymtn,
There is a PERA crisis. Rosen is being reasonable. The Democrat controlled state government and the PERA board are negligent if reforms are not made this session. Fundamental reform is needed now. It is time to tell state employees that the taxpayers can no longer subsidize their golden parachutes. If you and others refuse to make serious reforms, you had better identify all of the other programs that you will reduce and eliminate to pay for these outrageous benefits.
January 30, 2009
5:08 p.m.
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mytwosense writes:
Logical writes: "As for 401(k) plans being vastly inferior to the PERA plan; yes, they are inferior. But only because we have to pay attention to our investments, and the outcome of our investments are not guaranteed."
Yes, the average American is not a trained expert in investing, which is basically what it takes to gamble somewhat successfully in the Wall Street casino. And the people, politicians, and media who originally touted 401Ks as a better retirement plan tried to snow folks into believing the exact opposite. Now that it's proven to be a very dicey plan to depend one's retirement on, they are giving similar excuses such as your's: "Hey, who said anything about a guarantee? You're on your own here!"
Logical writes: "I would prefer that no government retirement plan funded with investments in the markets be guaranteed."
I would prefer that both private and government retirement plans are guaranteed, no matter how they're funded. A deal's a deal. Don't make it if you're going to break it.
January 30, 2009
5:10 p.m.
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woodwose writes:
Lets talk about something that is not talked about very often. We often hear about "how hard," "how demeaning," "how THANKLESS" working for the federal, state, or any government is.
Yet when times are hard, as they are now, we often hear about Sun Microsystems laying off 20,000 people, or IBM laying off 15,000 or United Airlines laying off 50,000. But how often do you hear about ANY government entity who's existence depends on takking money out of your wallet laying off ANYONE!
Oh gosh, we might have to change the retirement benefits of people that spent TWENTY DAMN YEARS leaching of the rest of us.
Wow.
TOO BAD.
Live on social security you slime.
January 30, 2009
5:49 p.m.
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Eli writes:
That was a really good link, jay. A great story about some "doctored quotes" from Bernard Goldberg. I must admit, it seems Media Matters genuinely did a good job with that one. I just find it funny that you would post it. After all, you know all about how to use doctored quotes to make your points, don't you? Some experience in that area, yes?
January 30, 2009
6:04 p.m.
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eleny writes:
Once again, the right wing slithers out to pit the private sector against the public employees who serve it.
Let's set the record straight - PERA was in great shape for many years. It's not the only financial entity in trouble these days. The world economy is struggling. I'll say that a lot of the world's economic woes are caused by thieves like Bernie Madoff who would rob his own relatives and the CEO who wouldn't resist a $1000 waste paper basket no matter how poorly their company is performing.
As someone else pointed out above, how public employees are treated is more of a model for how all American workers might be treated. Given how well PERA has done in the recent past, it's not too wild to imagine all retirees of the future entering their golden years with some security without taking the food out of Mike Rosen's mouth or the last precious coins from his pocket.
We'll get through this new American depression. Now is the time for us to stick together and deal with the ones who caused the problems - the greedy class that needs us fighting amongst ourselves over the crumbs they toss us from their bountiful tables.
January 30, 2009
9:19 p.m.
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jay writes:
eli, either stop pouting or get an education.
this childish trolling isn't helping your credibility.
January 30, 2009
9:57 p.m.
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JamesTaylorSucks writes:
you go woodwose
January 30, 2009
10:55 p.m.
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BJG writes:
I know someone who worked for the state for thirty four years and contributed a hefty sum of her salary into the PERA system, just as most of us contribute to social security. As far as I can tell, PERA was never negligent in their portfolio, in fact, the PERA system had been historically successful in their investment decisions.
Let's stop aiming our anger on each other and focus on the true culprits of this economic mess; the greed and deception of our past leaders and their friends.
January 30, 2009
11:05 p.m.
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mmannino writes:
BJG,
Regardless of the causes for the current economic situation, PERA needs major reform this session. The portfolio has very little chance to pay the promised benefits. The legislature should declare a fiscal emergency and make some difficult choices. If difficult choices are not made now, even more difficult choices will be necessary in the future.
Our current economic situation is the result of a long term pattern encouraged by government at many levels and private businesses. The blame is widespread to encompass both parties, businesses, and quasi government organizations (Fed, Freddie, and Fannie). However, assigning blame for the current situation does nothing to fix PERA. The taxpayer can no longer afford highly subsidized early retirement.
January 31, 2009
8:23 a.m.
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Eli writes:
"eli, either stop pouting or get an education.
this childish trolling isn't helping your credibility."
Look, jay, it's not my fault you did the exact same thing as Bernard Goldberg so don't take it out on me. I'm not trolling, just "making an observation" as you would say, and your response is to throw out insults and call me childish? Don't you think it's a bit hypocritical to throw out childish insults, such as calling people you don't know uneducated, and in the same sentence call them childish?
January 31, 2009
12:37 p.m.
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bluejacket writes:
Our crystal ball into Colorado's future is California. OMG.
February 1, 2009
1:46 a.m.
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SeniorMoment writes:
This commentary is beyond absurd.
1) All pension funds have ups and down. The 30% valuation loss for PERA is far less than the loss in value of my wife's tax deferred annuity, which at times during the G. W. Bush Presidency fell to the amount originally invested, whereas it should have doubled over those eight years.
2) PERA's actual long term rate of return was higher for the 20 years I worked for the state than their actuarial projected rate of return. Rate of return assumptions are limited by federal law, so that businesses, etc. don't try to cover up a failing business by jacking up the assumed rate of return and withdrawing contributions. The actual PERA investment return for my twenty years under the plan was equal to a compounded 11% annual return, which happens to be the rate of return well managed funds achieve over a 50 year period.
3) PERA is not comparable to other pensions anymore than apples and oranges are one fruit. PERA is a TOTAL REPLACEMENT for both Social Security and the usual company pensions of comparable sized businesses, which is exactly why PERA costs less to the state and employees than programs in states that joined Social Security and must pay for a pension as well to be competitive in employee recruitment. The only issue with this combination is that workers who don't make a career out of working for PERA covered Colorado governments get a triple hit on retirement income from from Social Security since they have a zero number of years for the time working for Colorado, lose money private pensions don't cause to be lost in GPO and WEP Social Security offsets that reduce income in ways that can be highly unfair even though that was not intentional in the legal purpose. Surviving spouses are injured the most by the provisions which generally reduce Social Security severely when there is both a non-Social Security government payment and a surviving spouse.
4) The legislature effectively made a withdrawal from PERA when it was fully funded in order to reduce the number of employers using unreduced early retirement, so the public can't blame PERA itself or retired employees.
February 2, 2009
10:32 a.m.
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jay writes:
anything to add of value my little pouting troll or have you resigned yourself to being irrelevant here at the ol rocky?
February 3, 2009
7:52 a.m.
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DMISSEY writes:
Hmmm...Ask Mike Rosen about his investments with Agile Funds - perhaps we can gain some insight into Mike's astute financial acumen - if he can find the investment advisors at Agile. The current rumor is that Mike has recently lost nearly his entire personal fortune in bad investments.
So - when it comes to discussing PERA, It turns out that Mike is perhaps the poorest possible example of an investment advisor.
Like so many individuals with a fine education in finance and economics (Alan Greenspan comes to mind), Mike has chosen to ignore economic and financial realities in order to pursue an agenda in economics based on political orientation alone.
This is a mistake when it comes from the left, or the right.
February 3, 2009
2:45 p.m.
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lifelonglearner writes:
Mr. Rosen is promoting a less than hidden agenda, along with Mark Hillman. They delight in spreading fear through the media that PERA will ask for taxpayer money...some 20-30 years from now. Mr. Rosen should praise PERA for its safe investment porfolio, unlike the one Mr. Rosen would follow. Being down 20% in this market is outstanding compared to 30-80% losses. PERA will continue to invest wisely and will be sound for decades to come. PERA's success will be from sound strategies, not upon the backs of taxpayers, that the spin machine would like for you to believe. Just ask yourself...who do you trust your money with...Mr. Rosen's Agile group? I didn't think so!
February 3, 2009
9:20 p.m.
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ERUDITE writes:
Mike has been nothing but a little child, note the way he treates his callers. His rant aginst PERA is only a manifestation of his jealousy aginst a time proven plan that he is excluded from. I'm glad that this fraud has finally been exposed!
February 3, 2009
11:23 p.m.
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ERUDITE writes:
Rosen is just an over educated idiot!