March 17, 2009
Rep Loughlin's Approach to Resolving Rhode Island's Unstable Public Pensions
[Anchor Rising, along with many other print and digital media outlets, has received the following "OpEd" from State Representative John Loughlin (R). Rep Loughlin has indicated elsewhere and elsewhen that he is considering a run for higher office in 2010.]
Toward a Federal Solution to Pension WoesRhode Island’s public sector and teachers’ pensions are in crisis and it’s not a problem that we can solve on our own. Due to a number of factors, our pension systems carry huge unfunded liabilities. Rhode Island is not unique in this precarious situation. According to the Pew Center for States the total estimated state pension liabilities nationwide are approaching $361 billion dollars. That means as states struggle to meet pension commitments, fewer and fewer funds are available to support education, build our roads and schools and provide tax relief to struggling families and businesses. A Federal bailout or infusion of funds, spread over time, is needed to keep our promises and free us from this system.
But not one dime of Federal funds should go to any state pension system without mandating permanent structural changes to ensure the system is self-sustaining going forward thus limiting the need for taxpayer dollars.
Our current system is nothing more than a legally sanctioned Ponzi scheme. Those contributing to the current system pay those who have retired. To end the current system would mean breaking the funding stream for benefit recipients leaving the state with an enormous bill.
Since our public sector pension’s inception in 1940, the state has not properly funded the system. This, coupled with an increase in lifespan, and a General Assembly, which made benefits increasingly more generous, set the stage for disaster. To make matters much worse, our pension funds are invested in the stock market, which has lost enormous amounts of value in recent months. In a sense, these circumstances, regardless of where the blame lies, have created a perfect storm of financial Armageddon.
At present course and speed, Rhode Island is faced with two very unpleasant outcomes. Either our taxpayers and economic activities will be crushed under the weight of massive new taxes to fund the system, or those who have built there lives, and faithfully contributed to the system, based on the promises made, will have their promised benefits sharply reduced or worse yet be turned away when it becomes time to collect. I was raised to believe that you must always honor your commitments, regardless of the circumstances. In short, promises made – promises kept.
To understand our retirement commitments, it is necessary to differentiate between the groups of public sector employees and teachers involved. The first group is the retirees, those no longer working, but drawing their earned retirement benefits. The second group is comprised of those employees who have become “vested” in our retirement system. These are the teachers and employees who have worked at least 10 years and have now been promised specific retirement benefits when they become retirement eligible and ultimately retire. The next group consists of those teachers and employees that have not yet been in the program for 10 years – thus not vested. The last group is made up of those employees who have yet to be hired but will be in the future.
Fundamental fairness dictates that we treat each of these groups differently. Remember - promises made, promises kept. I believe nothing we do should have any effect on the promises made to those who have already retired and those who are retirement eligible. Furthermore, the promise made by vesting must also be honored, respected and adhered to. How can we say to a valued teacher or employee that has contributed to a plan for ten, twenty, or nearly thirty years in accordance with the terms the state agreed to, that they now must work a decade longer and receive a reduced retirement? In addition to quite possibly being illegal, the broader issue is that of moral fairness.
We have a moral obligation to craft a solution that structurally changes the way we provide retirement benefits in a way that our taxpayers can afford while honoring our prior commitments to retirees and those vested employees.
One very compelling option calls for a 401K style plan similar to the Federal Government retirement program. This type of plan features a very small-defined benefit coupled with a 401K style self-directed and fully portable plan. But any plan for newly hired teachers and state workers needs to include many of the measures currently being proposed by the legislative Pension Study Commission, including longer working times and reduced or eliminated cost-of-living-allowances to make the system self-sustaining going forward.
In the past year, our federal government has spent $1.5 trillion ($1,500,000,000,000) in order to stimulate our economy and bailout Wall Street - is Main Street not worth $361 billion over a period of years? An infusion of Federal funds would stabilize retirement systems in all fifty states. This would guarantee the promise of an honorable retirement to a generation of teachers and government workers while creating a system requiring almost no taxpayer funds going forward.
This would be a bailout not just for pension recipients but for all taxpayers and future generations. This type of bailout doesn’t reward Wall Street bankers, but puts our states on firm footing going forward with a fair system that we can all afford, while at the same time honoring our collective promises.
Ultimately, we will pass on a legacy of honor and affordability in a context where we as a society kept our word. Integrity is no small legacy to pass on to our children.
State Representative John J. Loughlin II
Minority Whip
District 71 Little Compton, Portsmouth, Tiverton
Isn't this what Laffey said, except Mr. Loughlin wants the federal government to eliminate the unfunded liabilities by printing more funny money?
Bring on hyperinflation.
Posted by: Donald Botts at March 17, 2009 1:21 PMThis is unspeakably disappointing coming from someone who is supposed to be a Republican.
Taxes paid to Rhode Island are not the only form of “taxpayer dollars” - federal money, bailout money or otherwise, is still taxpayer dollars. Representative Loughlin’s concept that the Feds should bail out the General Assembly’s mismanaged pension plan is no answer, it just means that it will come out of a different pocket from us taxpayers.
The “promises” that he refers to are nothing of the kind. The state pension system is the result of political pandering by the General Assembly to this state’s most powerful special interest, the public sector unions. Like any other special-interest with power and money to spread around, they have been successful - but we taxpayers owe no moral obligation or promise to the beneficiaries of that special-interest politics.
Unaddressed by Representative Loughlin is the fact that those of us in the private sector who are trapped in the “promise” of Social Security continue to see those “benefits” reduced through higher payroll taxes, making the “benefits” subject to income tax and the increasing of the retirement age (to well beyond the minimal reforms proposed in the state system). Further, those benefits will inevitably be further reduced by future Congresses, perhaps by a vote of Representatives Loughlin himself should he get there.
Had Representative Loughlin and his colleagues in the General Assembly fully funded the extraordinarily generous pension plan as they went along, Rhode Island’s pension plan would not be facing its current $7 billion unfunded liability. Had the union leadership held their puppets’ feet to the fire and made sure that the plan was fully funded as it went along, Rhode Island’s pension plan would not be facing its current $7 billion unfunded liability.
This is not about “promises” made to individual state employees - it’s about backroom deals made with organizations, i.e., labor unions.
Representative Loughlin would have the taxpayers of this state, through a combination of state and federal taxes, bail out that plan, and thus bail out the General Assembly and the union bosses. Just to keep the political “promise” made by the General assembly in return for political support from the unions. Why should the families of Rhode Island sacrifice their household income for such a bailout? Yes, the bank bailouts were wrong - but two wrongs don’t make a right!
To quote Representative Laughlin: “In addition to quite possibly being illegal, the broader issue is that of moral fairness.”
And what, Sir, do you say about your General Assembly’s actions in making “promises” in return for political favoritism, deliberately neglecting to adequately fund those promises year after year, and then expecting the taxpayers of the state to bail it out? Is that “moral fairness?”
Is not what you propose like the credit union crisis, in which the General Assembly was bought off and pandered to the special interest RISDIC, and then when it all blew up sent the bill to us taxpayers to fund the DEPCO bailout?
To quote Representative Loughlin again:”Integrity is no small legacy to pass on to our children.”
Indeed.
Were that the General Assembly concerned with political integrity and fiscal integrity.
Now, let’s discuss the unfunded liability for the extraordinary retiree healthcare benefits that have also been “promised.”
Posted by: Tom W at March 17, 2009 1:23 PMJust listen to this stupid clown, Loughlin:
"How can we say to a valued teacher or employee that has contributed to a plan for ten, twenty, or nearly thirty years in accordance with the terms the state agreed to, that they now must work a decade longer and receive a reduced retirement? In addition to quite possibly being illegal, the broader issue is that of moral fairness."
What is this jack@ss talking about? Who is going to replenish my IRA's and 401k so that I can retire next year, like I planned??
No wonder the Republicans in this state are so screwed. With people like Loughlin, who'd want to join them. What an absolute moron!
This coming from a "republican leader" in the assembly? I guess he's to the right of Minority Leader Watson, but that leaves a lot of left for hime to reside in.
Posted by: Phil H at March 17, 2009 4:10 PMShear Genius! Get the Feds to bail out the public sector unions!
Consider the alternatives. (1) Cut welfare spending to boost the pension contribution. No can do. Don't have the votes on Smith Hill -- Kate Brewster and the Poverty crew would never stand for it. (2) Boost taxes and sell state assets. Again, no can do. Kate and crew would want their share of the loot, and raising taxes still further would only drive more taxpayers from the state (see National Journal article, or consult RI diaspora). (3) Issue the mother of all pension funding bonds -- problem is, (a) it would eliminate RI's debt capacity and trash our bond rating, and (b) likelihood that pension earnings will exceed bond funding costs is statistically very low. (4) Raise retirement age, cut COLAs, post-retirement health care benefits and take other steps to reduce the size of the unfunded liability to a more manageable level. Of course, there's also (5) the Tom Sgouros solution: play accounting games, and extend the period to fund the pensions to 40, 50, 60 years, etc. Hell, why not just run down the balances to zero while we're at it, and make the whole thing a PAYGO system? Problem with Tommy's answer is that it is based on some very aggressive assumptions about pension fund returns, longevity, future inflation, and future health care costs. Problem with Paygo is it invites benefit cuts, as Americans have seen with Social Security, which is funded the same way.
Hence the brilliance of Loughlin's proposal: have the Feds bailout the public sector unions, so everyone can retire early and move to Florida, while leaving Kate and crew to their own little playground back up north. Genius, I tell you!
I can't wait to see Loughlin on Meet the Press and 60 Minutes -- or interviewed by big fans of RI like the NYT or National Journal -- selling this proposal to taxpayers in the other 49 states. It will make the payment of bank bonuses with TARP funds look like a Sunday School picnic...
Posted by: John at March 17, 2009 5:14 PMWell of course it will never happen. Senators from the 35 or so fairly responsible states will never approve a trillions of dollars bailout for the 15 or so "progressive" pension states.
What the commitee approved last week actually would come pretty close to solving the problem if they went all the way to TOTAL 401 k's for new workers-not some hybrid plan.
>What the commitee approved last week actually would come pretty close to solving the problem if they went all the way to TOTAL 401 k's for new workers-not some hybrid plan.
That's pretty minimal, restricting changes to new hires, or even those not "vested" with less than ten years.
The solution is an across the board pension freeze and conversion of all to a 401k type plan.
Anything less is a financial and political insult to the taxpayers.
Posted by: Tom W at March 17, 2009 8:49 PM"That's pretty minimal, restricting changes to new hires, or even those not "vested" with less than ten years."
Oh no. The changes proposed last week would affect anyone not eligible to retire now. 65 minimum age plus reduced benefits and COLA's.
These measures, if COMBINED with a "total" 401 k for all new workers would be a sustainable syste.
Next up would be similar changes to cops and firemen and 401 k's for all new cops and firemen.
The facts:
teacher's can't decide to throw in 10 percent of their pay into the retirement system--they must--no choice.
it is not portable, so if you leave your position you only get back your own contribution, no interest either.
401k loses will bounce back when the economy improves. retiring after 44 years on the job (age 65)entitles me to MAYBE the money that I alone contributed, sans the state's contribution if I live to be 75.
If I started to invest 10 percent of my pay during the flush 80's when I first started teaching, even if I lost half due to the current down turn--I would have a great deal more cash than when I withdraw my money from the retirement system. They won't give me the state's contribution you know, I will be stuck getting what I contributed without any interest. Do you like that scenerio?
Oh the crocodile tears.
If you don't like the program, complain to your union.
Funny if it's so bad then why are the unions fighting tooth and nail to keep the system as is?
If you were teaching since the 1980's then you're a pre-1995 hire, meaning that you have what, something like @ 30 years service 80% of your final three years average earnings for a pension formula, and no minimum retirement age?
So please dispense with this 44 years of service / retiring at age 65 / I won't start collecting state money until I'm 75 red herring nonsense.
Posted by: Tom W at March 18, 2009 9:49 PMOf course our unions need to defend the system as is, it is funding retirees and continual contributions are needed to see that it will be there for the future--remember--no 401ks. In fact states cannot legally contribute to 401ks either. Did you know that?
It is 35 years at 80%, but believe me, if you worked in the PPSD middle schools or high school, you would find it hard to make it to that age. Read the PROJO RAG lately?
MY point is that if changes are made that include retirement at age 65, I could have easily stuffed my 10 percent contribution under my mattress for all these years and would have about the same amount of money I will have if the pension C. recommendations prevail. Have the cobwebs cleared yet?
There are 403b's and the like for the pubic sector.
The unions like the current system because it is "golden handcuffs" to the job, and thus to paying union dues.
While no doubt your job has its aggravations - for 180 days, 6 hours and something less than that actually in the classroom - I don't think that you should expect any sympathy from those of us who work 12 months a year, 8+ hours a day and who get no pension whatsoever.
Your "10%" contribution is equivalent to my 10+% FICA / self-employment tax (i.e., Social Security), which is capped at about a 24k benefit (and averages about 12K). If I could have put that in a 401k all these years I'd be much better off.
And given all of the teachers I know of who retired in their fifties, please don't expect me to cry over your perceived injustice.
On a macro level, if teachers contributions (and the investment earnings thereon) met or exceeded the payouts, then there wouldn't be a several billion dollar unfunded liability in the system (on top of the monies that taxpayers have already put into the system).
So the teachers are scheduled to get BILLIONS of dollars more from the taxpayers than they put into the system.
Posted by: Tom W at March 19, 2009 3:35 PMI also pay into Social Security.
Seven and a half hours "online" with the students. My "real" work: grading AP and other essays (130 of them), lessons plans, etc. begins "after hours." 10 minutes an essay X 130, you do the math...BTW, 20 minute lunch and corridor duty between classes (4 minutes), and...do you go to the bathroom when a bell rings? Oh yeah ,almost forgot, in your line of work does the Projo, woman at the bank, man on the street, parrot back to you the party line that the schools are failing, "you teachers," blah, blah, blah...Do you make $70,000 a year with two MA's in academic subjects (neither one in education, in case you are wondering), and 27 years on the job? Is that seem like a lot of money to you. Don't even get me started on the gender equation. Why it it that you guys are never complaining about the pensions of police, fire, correctional officers, and judges? Gender considerations perhaps? The fact that the primarily male dominated aforementioned professions do not get bashed in the Projo and blogs like this one, show that these exceptions do indeed prove the rule.
Why it it that you guys are never complaining about the pensions of police, fire, correctional officers, and judges?Tanya, allow me to offer an gentlemanly welcome to Anchor Rising, because it's obvious that you've only recently started visiting this blog.
Posted by: Andrew at March 19, 2009 6:26 PM
>>Oh yeah ,almost forgot, in your line of work does the Projo, woman at the bank, man on the street, parrot back to you the party line that the schools are failing, "you teachers," blah, blah, blah...
Welcome to the big leagues. The schools are failing, and as part of a collective you are judged based on the average performance produced by the collective, not your own efforts or results.
>>Do you make $70,000 a year with two MA's in academic subjects (neither one in education, in case you are wondering), and 27 years on the job?
Prorated for your 180 days a year, plus extra-market level benefits, you're at the equivalent in excess of a six figures in full time job.
Your non-education MA's are irrelevant. Your union demands that you be paid based solely on seniority and perhaps a kicker for an education masters. In a non-union setting your two MA's and performance would count for something.
>>Don't even get me started on the gender equation. Why it it that you guys are never complaining about the pensions of police, fire, correctional officers, and judges? Gender considerations perhaps?
I advocate for a defined contribution plan across the board. I might consider some extra consideration for police and fire, simply because the physical nature of their jobs does limit their effective years ... but not a full retirement, for they are not disabled, just aging to a point where it legitimately diminishes their ability to perform those particular jobs.
Posted by: Tom W at March 19, 2009 11:24 PMThere are some elected officials that are trying to help taxpayers (Rep. Loughlin) and others that are not. Warwick Rep. Al Gemma has introduced legislation (H-5251) that would pension off a police officer or firefighter at 80% of their pay if they injured in the line of duty. Unbelieveable. Also, Warwick Sen. Mike McCaffrey has co-sponsored a bill (S-0713)that would require school districts to work under the terms of an expired teachers contract until a new agreement is reached. People need to pay closer attention to the bills that are being considered. The Democrats have ruined this state.
Posted by: Al at March 20, 2009 9:42 PM