Public Pensions and the Brothers “B”

Are we fast approaching an era where people will talk of pensions the way they do of the rotary dial phone and the ringer washer? (I clearly remember both.)  More and more it’s looking that way.

The myth is that change usually emanates from the West Coast and flows toward the stodgy and staid easterners but last week’s pension news may mean a tsunami meeting in the heartlands.

California Governor and erstwhile hippy Jerry Brown teamed up, apparently unintentionally, with Hiz Honor, Mayor Bloomberg, to send ripples through the public pension community in the form of (re)forms that will surely alter the pension landscape.


Pensions were once a tool for providing post work income.  They were relatively modest and quite often partially paid for by the recipients during their working careers.

Decades ago, management and labor discovered that pensions were also a place to effectively obscure the costs of compensation improvements and suddenly the staid world of pensions became a center of political and negotiating activity.

Pensions were a windfall for elected officials looking for an “off the books” way to conciliate labor.  In some areas the costs could be pushed into the future through various waves of the  magic wand of actuarial science.  Employees who were paying a portion of their salary toward their pension could be charged less in what was surely a raise but one that would be flying just under the radar screen. What a wonderful world we lived in.

Labor leaders and others discovered the perks of pension boards and some have been caught up in nasty ethics scandals of alleged self-dealing and dubious decision making fraught with international travel and fancy meals.

Well, Jerry and Mike are out to change all that, or so they think.

Governor Brown has unveiled a public pension revision package that substantially alters the future of benefits in California.  He intends to succeed by going directly to the voters rather than through labor negotiations.  That’s a thorny proposition (no pun intended) for a democratic governor.

Public employees can expect to work longer and pay more for the pension they eventually receive.  Brown also intends to do away with the notorious practice of double-dipping where retirees collect one pension and then go to work for another local government to earn a second one.  He also plans on eliminating pension padding or spiking by limiting their calculation to regular wages and excluding overtime and other pay in the calculation.

In New York, Bloomberg envisions a wholesale redesign of the City’s various pension boards which have dozens of trustees who oversee  benefits for 500,000+ current and retired workers.  The plan also calls for a single board and an in-house investment staff that could be a boon or a disaster.  Either way, it probably removes power and authority from the current trustees.  Bloomberg expects to recoup as much as $1B a year under the new arrangement.


If you are a retiree sipping your Starbuck’s and thanking your lucky stars, don’t let your smugness get the best of you–these changes, as well as the train wreck in Rhode Island, are harbingers for a future where current retirees can see their benefits under attack, including the cornerstone of any pension– the cost of living adjustment.

AARP, anyone?


[Credits/Source: New York Times]

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