Maggie's Farm

"Unfunded" government pensions. How did this happen? Quite intentionally actually. Many/most of the state pension plans were implemented and/or legally changed to allow state and semi-public agencies defer THEIR contribution to the states retirement fund. Imagine the federal government allowing employers to defer contributing their SS 'tax'. It was an incredibly stupid thing to do but it was intentional. Every state agency, say the DMV, requested and received a budget that included their 5% or 6% to the state retirement fund. Every state agency collected a matching amount from the employees and sent the matching amount to the fund. BUT in spite of having budgeted that 5% of payroll the agency could defer that actual deposit and use that money for something else. One of the more popular uses was to go to conferences in Hawaii or Europe. The big wigs at DMV flew business class and stayed in 5 star hotels in exotic locations to learn about... well to have drinks and party really. THAT is what "unfunded" means. Now after having done this for about half a century or so the states are having to pony up not the 5% but because of the power of compound interest the bill might be closer to 18% or 36% or even 100% of wages. The politicians would have you believe that this is because the retirement plan was too generous. There are a couple of rules that the state legislatures put into place to give more generous benefits to a small select group but most state employees retire and collect benefits under what is referred to as "money match" rules.

Money match simply means that the investment would return x number of dollars and based on longevity tables and how much money the retiring employee has in the system that they can collect "X" amount of dollars each month for life. A fair system and not overly generous. In fact given the states fiduciary responsibility to the retiree it is the only appropriate system of determining the amount the retiree collects. But now imagine a system where half of what should have been invested over those 50 years was squandered. Between the failure to deposit the 5% and the growing value of the investments the state finds itself in a huge deficit to the retirement system they set up and abused. What to do???

Well, they're politicians so they do what every politician does and blames the public or in this case the part of the public that is eligible to retire. They are getting too much retirement benefits they say. The unions have demanded higher retirement benefits they say (this is a lie of course the benefit table was set up years and years ago by the legislature and cannot be changed).

They state, the politicians, the bureaucracy screwed themselves, their employees and the taxpayers and now they are searching for scapegoats.