Episode 158 of the Tim Corrimal Show is now up. This week, Tim and I were very fortunate to have as guests Jay of the Best of the Left podcast (@BestOfTheLeft on Twitter) and stand-up comic and radio host Jimmy Dore of the Jimmy Dore Show (@JimmyDoreComedy on Twitter). As you might imagine, hilarity ensued.
Initially we discussed the potential shut-down of the federal government and Tim gave us a primer on how the government appropriations process works – which is the kind of thing we all should have learned in middle school, but a lot of people seem to have a hard time grasping it. Like Michele Bachmann, who appeared today on Meet the Press and said that somehow Pres. Obama managed to “sneak” a $105 billion appropriation into the Affordable Care Act, which she repeatedly demanded the President “return” to the American people.
Dear Rep. Bachmann: Your House – the House of Representatives – originates appropriations bills; the President doesn’t magically “insert” appropriations provisions into bills without Congress’ knowledge. And by the way, you members of Congress had a good six months or so to read the various drafts of the Affordable Care Act before it came to a vote. If you didn’t bother to read it, or you don’t know what’s in it, please turn in your law degree and resign your seat.
Anyway, on the show today we also talked about the ongoing labor disputes in Wisconsin and the GOP’s war on unions; and we briefly discussed Sarah Palin’s blessed absence from the media the past month or so – which led Tim to play a great clip from Jimmy’s show in which the half-term governor of Alaska addresses the real victims of Tucson shootings – herself, “and to a lesser extent, Glenn Beck.” Brilliant stuff, that.
On the labor disputes in Wisconsin and elsewhere, I provided my views earlier in the week (here). But Tim raised an issue on today’s show that I haven’t had a chance to address so far, which is the supposed cost of public employees’ pensions to tax payers. At Forbes.com, Rick Ungar attempts to answer that question, quoting tax reporter David Clay Johnston as follows:
“Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to ‘contribute more’ to their pension and health insurance plans. Accepting Gov. Walker’ s assertions as fact, and failing to check, creates the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not. Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.”
Does that mean the tax payers do not pay anything towards public employees’ pensions? Well, not exactly. As Ungar explains, as an initial matter, public employees’ pension accounts are funded by contributions directly from the employees themselves:
The pension plan is the direct result of deferred compensation- money that employees would have been paid as cash salary but choose, instead, to have placed in the state operated pension fund where the money can be professionally invested (at a lower cost of management) for the future.
Check out section 13 of the Wisconsin Association of State Prosecutors collective bargaining agreement – “For the duration of this Agreement, the Employer will contribute on behalf of the employee five percent (5%) of the employee’s earnings paid by the State. ”
But the state’s pension plans don’t work like 401(k) plans, where the employee is allowed to take a pre-tax portion of his or her income and put it in an investment account, but the employee bears the risk that the value of that account will increase or decrease over time. Rather, public employees’ pensions typically are, in ERISA-parlance, defined benefit plans, meaning that the employee is guaranteed a certain benefit upon retirement. Again, Ungar explains:
Because the pension plan is a defined benefit plan – requiring the state to pay the agreed benefit for however long the employee may live in retirement- if the employee lives longer than the actuarial plan anticipated, the taxpayer is on the hook for the pay-outs during the longer life.
But is this the fault of the state employees? The pension agreements are the result of collective bargaining. That means that the state has every opportunity to properly calculate the anticipated lifespan and then add on some margin for error. What’s more, the losses taken by the pension funds over the past few years can hardly be blamed on the employees.
Take a look at what Sue Urahn, an expert on the subject at the Pew Center on the States, has to say about this when describing the $1 trillion gap that existed between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.at the end of 2008-
To a significant degree, the $1 trillion reflects states’ own policy choices and lack of discipline:
• failing to make annual payments for pension systems at the levels recommended by their own actuaries;
• expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
• providing retiree health care without adequately funding it
So, yes, the tax payers are on the hook when the state’s pension obligations exceed the amount contributed by its employees; but no, as Ungar says, employees are not responsible for that shortfall.
Moreover, whether public or private, union contracts are just that – agreements reached by two more or less equal parties after arm’s-length negotiations. Why should the state have any greater right than you or I to disregard contractual agreements because they turned out to be less advantageous than the state initially anticipated? And why should Scott Walker be lionized – as he is by the GOP – for reneging on contracts the state already agreed to?
Who knew refusing to pay your bills could make you a hero to the GOP.
© 2011 David P. von Ebers. All rights reserved.