Stop the "spin" and tell public employees the truth
As we say on our weekly talk show, NC SPIN, it is interesting to watch the “spin” the media and politicians put on issues of the day. For example, it has been fascinating to watch what is taking place in the discussion over our ABC system. Those of us who initially favored privatizing our outdated alcohol beverage control laws thought of dismantling the current system and implementing new licensing and control laws for private establishments to sell spirits, taxing them heavily as we currently do with beer and wine. We would not presume to state the intent of others, but somehow the whole discussion was reframed around selling or leasing the current system to private operations, something hardly anyone wants and which initially appeared to kill reform efforts.
We see the same thing occurring on the subject of pension reforms in North Carolina. Somehow this topic was reframed to include the establishment of a voluntary defined contribution plan in which employees could choose to participate. No less than the News and Observer appeared to buy into that discussion in an editorial February 8th.
Let us set this issue on the more correct footing. Those who favor pension reforms do not wish to punish or take away anything from current or retired state employees. Rather the intent to do something for our employees’ benefit.
Prior to just a few years ago North Carolina’s state and local government pension plans were the envy of most states and almost all workers who worked in the private sector. Independent actuaries reported the plan was more than 100 percent funded, meaning our state could pay out every benefit promised every public employee. By comparison, we understand our neighbor, South Carolina, is only 70 percent funded, Illinois is only 54 percent and Massachusetts only 63 percent funded. But in recent years, because of budget constraints, North Carolina’s legislature failed to fully fund our pension plans resulting in less than full funding.
The inability to keep promises to employees was a large reason why General Motors and other large corporations went belly-up. Most all pension plans in the private sector and many in government have abandoned these defined benefit plans in favor of defined contribution plans. I know GM retirees who wish their company had taken this action.
Mind you, this isn’t a large problem at this time in North Carolina….and that is exactly why we are advocating reform. Here’s the reality of today’s landscape: we are in a period of smaller government, less government revenue and increased demand on expenditures for public schools, the mentally ill and other priority services. We have heard that to restore full funding would require as much as 400 million dollars or more. The likelihood that legislators will fully fund the pension plans AND make up the contributions necessary to return to 100 percent funding any time soon are small. In order to keep the promises we have made to current and retired public employees we must act now, before the unfunded liability grows to a point where, like with the State Health Plan’s 32 billion dollar unfunded liability, it becomes a monstrous problem, a problem that is so big that nobody even wants to address it.
Former State Treasurer Harlan Boyles knew back in the early 1990’s that the time was coming when we needed to freeze in place the current defined benefit plan and institute a defined contribution plan for newly hired public employees. He was privately talking with legislative leaders about this conversion while the fund was extremely healthy and fully funded, but lawmakers didn’t’ want to rock the boat with public employees.
Here is one way this could work: On a date to be established we would start the new defined contribution plan for new employees, which would act much like the 401(k) plan most employees now enjoy. For years to come North Carolina would operate two plans, separately but alongside each other. Yes, these plans are subject to the ups and downs of the markets. In boom times it is entirely possible an employee will accumulate more than would have accrued in a defined benefit plan, but it is just as possible that in declining markets the sum could be substantially less. This is a risk homeowners, investors or employees in almost any sector have to face.
The N&O’s statement that the current system, “may need a tune-up, it doesn't require an overhaul,” is wrong and most knowledgeable leaders in government know it. Tweaking won’t fix the long-term problem. Nobody wants to risk the ire of public employees, but neither do they seem willing to tell them the truths they need to hear.
I for the most part agree with your points on NC Blogger today. However I would like to add a couple of points.
On ABC reform, almost every restaurant I talk with tells me that if the whole system was turned private it would be a win all around. The competition would reduce alcohol prices at the wholesale level and result in restaurants reducing drink prices, resulting in more sales. Restaurants would make more profit, the private ABC operations would make money that would be taxed as income, the alcohol taxes collected by the state and locals would increase as well. The only reason most of them see as holding back this win/win is that there is concern by MADD and groups of that nature of increased drunk driving and such. Frankly that is a concern, but if we actually punished alcohol offenders, instead of allowing small fines and such this would not be a problem either. Not sure if all of that is so, but it is what is being said out there in restaurant land.
On the pension reform. You are correct we should ASAP go ahead and change the state employee retirement plan to a 401-k type arrangement, with the current employee 6% contribution mandatory. The state should then take the savings they get from the switch from pensions and match employees up to 6% as well. I expect the state would save money even with that high of a match. Some quick calculations here: $40000 employee making that for 30 years.. accumulates about $400000 at around 6% gains annually average...can buy an annuity age 52 that pays about $2000 month guaranteed for life..or put in AAA corporate bond fund and earn at least 5% or $20000 annually forever while having $400k in assets to pass on to children. Same employee with pension... $40000 x .018% equals $720 x 30 years or $21600. Conclusion, either more payout for annuity, or a little less and have the asset. At 30 plus years the spread FOR 401-k gets even better. No worries about what politicians would do with your pension money either, like it is now.
I do not want to hear any crap about the risks of markets etc. We already got market concerns from pension assets investments now. Besides you can earn the 6% from my scenario above in a mix of government bonds and corporate bonds, no stocks. Grown-ups take responsibility for their futures.
Frankly we are currently screwing State employees by not letting them accumulate real assets to call their own through pre-tax deductions.
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Harlan Boyles was the last great conservative Democrat in North Carolina. People on both sides of the aisle has a lot of great respect for him and I really do miss him. I still have the Cardinal pin the he gave me and as a fellow conservative, I voted for him.
Public employees don't want to hear the truth. They don't want to hear that their "ride" is nearly over.
Most of them (but certainly not all) would never have survived this long in the private sector.
When I worked in state government, I saw far too many that had televisions in their offices and were just waiting to get X number of years in so they could retire with full benefits.
No wonder the state was losing money. Employees and benefits are the state's largest expense. We don't need to fully fund anything until we can get employment under control!
I have said for years, that state govt could be run on exactly half the number of employees it has now. I have a friend who, in her job at Education, only works 9 months of every 12. The other three months, she brings books to work and tries to look busy. It's frustrating and she's bored, but she cannot afford to leave in this bad economy.
Further, why do public employees get a grievance process? Private sector employees don't. It's virtually impossible to fire a public sector employee after their 90-day trial period is over. In the private sector, there is usually no such thing.
My husband works around the clock has to make himself indispensable to his company so that they value him. He has survived many rounds of cuts and still his job isn't safe.
That's the real world. Deal with it, state employees! This includes those of you in political patronage jobs. Why should political patronage people that are the Governor's pals get paid so much more, just because they raised a certain amount of money?
Frankly, I'm tired of the whining by the state employees and by their union. If they don't like it, let them go into the private sector. No one is owed anything.
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Speaking of spin I love how the author offers no data to back up his claim about pension plans being unsustainable and he also fails to address that the real problem we face today is a revenue problem which was caused by bankers and wall street, NOT public workers. Try reading some of these studies by the very conservative ICMA: http://www.prnewswire.com/news-releases/national-state-and-local-government-organizations-get-the-facts-out-on-public-pension-plans-115032269.html
Secondly to Katy, I'm not sure if you are aware but the state of NC is the least unionized state in the US (3.2%) and the state doesn't sign any contract with union workers therefore employee unions in NC are no different than the Chamber of Commerce. They are a lobbyist group. I love how you say the state could run on exactly 1/2 the number of employee's. How many cops and fire fighters would that take off the street. That would not only endanger the public, but also the lives of the public safety officers. If teacher positions were cut how many students would that put in already overcrowded classrooms? Blanket statements like that do nothing but show your ignorance. I'm glad your not an elected official who is task with making decisions that effect the entire populous.
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There are other types of state employees than firefighters, cops, and teachers. I have a nephew that was being paid $15.00/ hour for a summer job, collecting gas tickets.
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Great post, Tom.
Do we have data suggesting that the approach you propose will be sufficient to eliminate the unfunded liability?
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Joe
Thanks for your reply but read carefully. I did not say that the proposal would provide for the projected funding liability. I stated it would stop it from becoming larger...big difference.
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Since when did government employees become the elite?
You would be hard pressed to find a private benefits package (below executive compensation) that is of defined benefits nature. So why should state employees have such a cushy retirement at my expense.
Simple, they shouldn't.
It brings the USPS to mind. Some of the best jobs in the world and continues to loose money.
I disagree with a 6% match when it does change and it will change. I should be more of an average match of the private sector.
I agree for the most part with Bob and Katy. Everybody (with any sense)knows that if you want to grab the brass ring with the least amount of effort get a gubment job. Tom are you one of those state employees that has a TV in the office? Oh wait, I forgot this is the age of the internet, all you really need is a computer.
As for the teachers, I have recently achieved getting my kids through public school (thank God!). Along the way over the years there were many teachers That I think the world of. There are many that I think should have been fire on spot with no possibility of a severance package. This could be spread to administrators and bureaucrats as well. If you want some "creative" insight into education spend some time here:
http://www.newt.org/issues/education
For 2-3 decades we have thrown more money at education and with the exception of a few isolated successes it has been a miserable failure. More money is not the answer. I am more inclined to say we need the right people and not people who just want more money for a part time job.
Editor's note: I am not a state employee.
Tom Campbell
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WE SHOULD ALSO LOOK AT THE SICK PAY THAT STATE EMPLOYEE'S ARE ALLOWED TO ACRUE. I BELIEVE I READ THAT THEY CAN GET UP TO 96 HOURS PER YEAR. WHERE IN THE PRIVATE SECTOR DOES ANY EMPLOYEE GET A PERK LIKE THAT?
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WHY DON'T WE DO AWAY WITH PUBLIC SCHOOLS FOR EDUCATING KIDS FROM 8TH THROUGH 12TH GRADES AND LET THEM STAY HOME AND DO IT ONLINE?. THAT WAY IT WILL BE UP TO THE KIDS AND THEIR PARENTS TO MAKE SURE THE KIDS ARE EDUCATED. WITH THE MONEY THAT WOULD BE SAVED, THE STATE MAYBE COULD PROVIDE INTERNET ACCESS TO ALL HOUSEHOLDS IN THE STATE,AND MAYBE EVEN ONE COMPUTER.
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I agree, and would like to add to your 401k concept. All employees in the public, and private sectors should also be educated to the ups and downs of the free market. Most people do not understand that in a free market society there is a defined economic cycle. I haven’t seen this topic addressed in our schools or anywhere else. Why? People fear what they do not understand, and as a result, when the cycle progresses they call for government control to stabilize it. Therefore, if employees better understood the free market cycle, then the anxiety toward privatization will be greatly reduced.
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I think that the fact that N.C.state employees, who do not have collective bargaining power, but do have much better pay and benefits than the private sector, shows that public employees don't need to be unionized to get sweetheart deals if the right people are in power. I have no problem with the public employees. They are only getting what was promised to them by politicians who clearly should have known that the benefits were not sustainable.
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