September 30, 2007

Speaker Murphy Supports Loughlin's State Pension Reform

Marc Comtois

In a press release, Republican State Rep. John Loughlin II touts House Speaker William Murphy's support for Loughlin's pension reform plan:

State Representative John J. Loughlin II ( R ) Tiverton, Portsmouth, Little Compton today applauded an announcement made Sunday on WJAR’s 10 News Conference that House Speaker William J. Murphy (D) West Warwick supports his idea to eliminate defined benefit pensions for newly hired state workers. Loughlin introduced House Bill 5447 {PDF}, February 27, 2007, an act that would require newly hired employees to belong to a 414(k) retirement plan, (the government’s version of the 401K plan) and not to the current retirement system under chapters 8-10 of title 36.

Loughlin says he introduced the bill because of the unsustainable current retirement system. He contends that only through moving to a defined contribution plan and away from a defined benefit plan would workers have more control over their retirement while providing taxpayers relief from ever-escalating pension costs.

“I am extremely pleased that Speaker Murphy has listened to the arguments made by me and the Republican co-sponsors of this bill and recognizes the need to be fair to current state employees and build a system for all newly hired state employees that is beneficial to them and fair to Rhode Island’s taxpayers,” Loughlin said.

As to whether he felt the Speaker had co-opted his initiative, Loughlin said, “I once had a Battalion Commander in the Army who told me ‘it’s amazing what you can accomplish if you don’t care who takes credit for it.’ I look forward to working with the Speaker to move my measure into law, regardless of who’s name appears on the bill.”

“With all the news about Republican’s becoming Democrats and Independents, its very gratifying to see one of our state’s most prominent Democrats becoming a Republican, at least in his approach to affordable government,” Loughlin said.

Not sure if I'd go that far! And I'd add that real "initiative" would've been exhibited if it was passed the first time around and wasn't still languishing in the House Finance Committee. Nonetheless, it is still promising.

Then again, like so many other good ideas proposed up there on the Hill, I'll believe it when I see it.

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Before that idiot Walsh gets on here and says this plan won't save us money I'd like to pre-empt him by asking this simple question.

How can not adding additional strain on the existing pension system (and the taxpayers that ultimately fund it) possibly lead to MORE spending than leaving the system the way it is?

Even if we have to fund BOTH the pensions and the 401(k) we've solved the problem for our children and their children and put the state on track to not have to deal with state employee pensions at all in another 30 years.

Bob's just mad because he's beginning to see it all crumble under his feet. The party is over. The unions went too far, insisted on too much, and now they're going to get what the people who pay their salaries get.

The real losers here are Florida's real estate agents who won't be able to make all that money off of RI state employees who get their pension and get the Hell out of here as fast as they can so the state doesn't steal it all back in taxes.

Posted by: Greg at September 30, 2007 11:08 AM

Well, Greg is still in time out because he cannot participate in an adult conversation, but for the rest of you, this is what I posted on RI Future on the topic:

(Explanation in detail - part 1)

Well, this is an essay question which will be answered, but here are the basics:
Most folks who compare public pensions to private pensions forget that private pensions are non-contributory for employees. In Rhode Island, teachers contribute 9.5% of salary, and state employees 8.75% of salary, toward their own pensions.

At first glance, it seems that the state could save money versus the 20% plus contributed by state (and local government for teacher pensions) into the system, even if they matched the employee contribution dollar for dollar in a 401(k) type system.

Of course, that is WRONG! - because most of the 20% plus management contribution is related to the unfunded liability which exists already, and is not related to the new individual employee's retirement needs account. (In other words, if Gio got his wish and they got rid of 5000 state employees, the management contribution per remaining employee would increase significantly to deal with the unfunded liability.)

SO, switching new employees out of the pension system saves NOTHING in the short term and costs MORE in the long term. In fact, this is fairly well known, as the Governor's own Pension Study committee, and the Retirement Board, both have noted that when the pension system is fully funded, the management contribution for teachers will drop to less that 3.5% (YES - 3.5%) and for state employees to less than 1%, saving the state and local communities millions of dollars.

Ask the folks in West Virginia about this - they switched, and have since switched back.

Posted by: Bob Walsh at September 30, 2007 2:52 PM

In fact, this is fairly well known, as the Governor's own Pension Study committee, and the Retirement Board, both have noted that when the pension system is fully funded, the management contribution for teachers will drop to less that 3.5% (YES - 3.5%) and for state employees to less than 1%, saving the state and local communities millions of dollars.
Now Bob, if that were REALLY true you would be supporting the defined contribution. Since you're fighting it with everything you have it is obvious you are engaging in a spell of sophistry-not a unique occourence amongst public employee union bosses. BTW, where is the lovely (LOL) Marcia Reback-she seems to be leaving you and your noxious duck boy to carry on the fight alone?

Posted by: mike at September 30, 2007 3:51 PM

Nice try, Bob. If pensions were a cost savings versus 401(k) plans every major corporation would have come to that conclusion and we'd all have a nice retirement package.

Defined benefit packages simply so not work. If they did Social Security wouldn't be so irreversibly broken. And with unions continuing to lose membership, you're going to end up in the same failed position with too few employees paying into a top-heavy system with too many retirees collecting.

Especially since you and the idiots before you set the bar for retirement too low, too soon, and too fast so many of these employees are retiring as soon as allowed, sometimes as little as 20 years.

You sowed the seeds of your own defeat and you're beginning to realize it and it's a friggin blast to watch you flail wildly. The only thing funnier is when you let Pat out of his pet carrier and he responds to these threads.

Posted by: Greg at September 30, 2007 3:55 PM

Do your own research, fellas - the math is on my side!

Posted by: Bob Walsh at September 30, 2007 4:17 PM

The 'math' really doesn't matter. Murphy has come around to our way of thinking as where Murphy goes his cronies follow.

Pretty soon the question of "Why are we paying into a union that isn't doing anything for us?" will begin and you'll be out of a gig, too. Maybe you can be a lobbyist. They specialize in shoveling crap and issuing veiled threats to politicians. You're well qualified.

Posted by: Greg at September 30, 2007 4:42 PM

Just a sampling from the web:

Employers face high costs to switch to defined contribution plans. For example, Michigan offered early retirement to employees — at a cost of $270 million — to win support for a switch to a defined contribution plan. The high cost of defined benefit plans today is often the result of large, unfunded liabilities accumulated for years, that still have to be paid even if the employer switches to a defined contribution plan. This is why states like West Virginia, which moved certain employees to a defined contribution plan, now favor switching back.

But Nebraskans' feelings about such plans changed in the year 2000, after a large-scale study of the state pension system. The results shocked even those who already had doubts about the defined- contribution approach. During the period from 1983 to 1999, state and county workers averaged a 6 percent return on their money--versus an 11 percent return for the state's professional investors handling the traditional pension money. Faced with such a disparity, legislators acted almost immediately to change the system, ending the defined-contribution plan for new hires and giving all other workers the option to switch into a hybrid plan."We had to take a look in the mirror and think, is this really providing a true pension?" says Anna Sullivan, executive director of Nebraska Public Employee Retirement Systems. "It's really sad what they retire with. It's nothing compared to what people in our defined- benefit plan receive."

Nebraska's experience is unlike that of any other state--in the duration of the plan, the level of data collected and the abrupt shift away from defined contribution. But Nebraska's experience was a harbinger for a nationwide trend. Momentum for defined-contribution plans, which peaked nationwide with the red-hot stock market of the late 1990s, has slowed significantly in the wake of the market downturn. Since then, no states have adopted new plans and participation in optional plans is far below projected levels. "I don't think Nebraska is unique," says Sullivan, who has worked for the state pension system for 28 years. "I read every article I can get my hands on, and the patterns are very similar."

Posted by: Bob Walsh at September 30, 2007 5:16 PM

I'm not really interested in the numbers with regards to what the employee ends up with in retirement income. In a 401(k) they don't get any more money than those of us that they've been using like cattle to supply an endless supply of money.

Again, if pensions are cheaper in the long run for the employer, why isn't Corporate America switching back to them?

Posted by: Greg at September 30, 2007 5:21 PM

I've made this point previously but couldn't find it via a quick search: Bob's analysis of the numbers requires that all of the government actually puts the money away to pay the pensions. That isn't something on which we can count.

The game has been that unions help to put people in office who will create policies beneficial to the unions. Those office holders then negotiate away perks for which they will not likely catch the political fallout. And so on.

I'll believe Bob's arguments vis-a-vis pension costs when the NEA begins making noise about only supporting politicians who will be fiscally responsible and when the organization begins getting sufficiently desperate (in the face of its members' growing anxiety) to stop being so complacent about the other programs on which the government spends money it ought to be saving. (I'm thinking, here, of Bob's previous statements that our too generous government handout programs are just the policies that Rhode Islanders want.)

If even the NEA isn't going to be serious about securing the funding for its pensions, I don't see why voters and policy makers should trust that the defined benefit system will magically become responsibly administered.

Posted by: Justin Katz at September 30, 2007 7:44 PM

so west virginia did go back to the defined benefit plan... and were the retirement benefits the same as before??

typical walsh arguement.. pore rhetoric, no facts, scare tactics....its all a little wont have the welcomong committe at the state house like the old days..

i hope you keep using these arguements...they will fail miserably.
you are better off not being such a pig. start caving in and maybe you can salvage something out of this.. like your job....

Posted by: johnpaycheck at September 30, 2007 7:59 PM

I wonder if Bob W's calculations were "crunched" by the same person or persons who calculated (the apparently mythical) East Greenwich teacher "pay cut?" ;-)

DEMOCRAT Murphy is privy to all of the numbers, studies and projections that we don't see. He wouldn't be the spear catcher for a proposal guaranteed to raise major ire from the union bosses were not the situation dire, and the savings to be realized by a 414k genuine.

The very nature of these "long tail" actuarial projections is that even small changes in one variable or assumption will have a huge impact on the final numbers.

Parsing Bob's comments above, consider that he implies a employers match of 9.5% to teachers - if we revise the "assumption" to a match more in line with private sector matches, of course the numbers will change dramatically.

Ditto if we convert existing employees AND freeze pension accruals. Bob W's numbers have to be premised on the existing workforce continuing to accrue additional pension benefits (and thus the corresponding liabilities to the taxpayers).

Foe instance, because the current system's pension benefits are calculated on the average of the highest consecutive three years of salary (rather than the career long average used in private sector plans and Social Security), FREEZING NOW WOULD GENERATE ENORMOUS ENORMOUS ENORMOUS SAVINGS!!! Instead of a pension calculated on the average of the highest consecutive three years pay ten years hence, it would be calculated on the (presumably) their pay for the past three years.

Placing new hires into a 414k is a nice "tinkering around the edges" start, but the savings won't occur for several decades. Freeze the pension system (as several private sector companies have done with their defined benefit plans) and move all state and municipal employees into a 414k (with a match comparable to those offered in the private sector) and we'd generate huge savings.

Posted by: Tom W at September 30, 2007 9:34 PM

Baby steps, Tom. Incrementalism works for the Dems when they want to screw with the country. We should try it when trying to fix things, too. That way the wackos hardly notice.

Posted by: Greg at October 1, 2007 8:09 AM

Actually Bob what happened was you Looney fefters elected a governor, Joe Manchin, who forced through a new defined benefit plan
"that has achieved the dubious distinction as one of the worst-funded plans in the nation, with a shortfall of over $5 billion"
Unlike you Bob I provide a link:

Posted by: Mike at October 1, 2007 10:20 AM

Actually, raising the question about whether this move would would be good public policy, including whether if would actually save the state money, is certainly a fair question.

Since I believe I have the facts on my side and most of you do not, we will just have to let the process take its course. Next June or July, it will be easy enough to decide who was correct.

Posted by: Bob Walsh at October 1, 2007 11:06 AM

I think it's good public policy for the public 'servants' to not get a better retirement package than those they 'serve'. Especially when, as has been recently proven by such greats as Pelosi, many of them don't deserve it.

Posted by: Greg at October 1, 2007 11:15 AM

Don't believe for a minute that Murphy would have gone public with this before having permission from the union bosses.

This banana republic state's fiscal situation is dire, and deteriorating.

This is just a minor step that has ZERO impact on any existing state employee or teacher.

Yeah, the unions will huff and puff and raise a public stink - pabulum for their gullible rank and file members and superficially analytical press - but this is just PR.

Could it be that this will serve as a mechanism by which the unions can pretend that they've taken their lumps while the real budget cuts are made at the welfare industry end of the Democrat special interest spectrum?

Posted by: Ragin' Rhode Islander at October 1, 2007 2:34 PM

Always said that fiscal crisis would be what split the unnatural public sector union/welfare coalition that has dominated Smith Hill for too long, and in the process driven RI's economy into the ground. The real question will be whether it ends up being too little, too late, and they all end up losing...

Posted by: John at October 1, 2007 10:21 PM

As it turned out, it took less than two weeks for my point to be made.

Posted by: Bob Walsh at October 12, 2007 10:37 PM
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