Friday, March 13, 2015

America's Attack on Public Pensions?

Tim Reid of Reuters reports, California pension reform measure to target Calpers:
A ballot measure campaign to cut California's public pensions will be launched in May by a coalition of politicians and business people led by former San Jose Mayor Chuck Reed, with the state's largest retirement system a prime target.

The measure would take aim at California's $300 billion giant Calpers, which has a near-iron grip on the state's pensions. Calpers, America's largest public pension fund and administrator of pensions for more than 3,000 state and local agencies, has long argued that pensions cannot be touched or renegotiated, even in bankruptcy.

"Calpers has dedicated itself to preserving the status quo and making it difficult for anybody to reform pensions," Reed said in an interview. "This is one way to take on Calpers, and yes, Calpers will push back."

Calpers spokeswoman Rosanna Westmoreland said: "Pensions are an integral part of deferred compensation for public employees and a valuable recruitment and retention tool for employers."

The measure will be closely watched by reformers and their union opponents in other states, in an ongoing national battle between those who say public pensions are putting intolerable strains on budgets and those who argue pension cuts unfairly penalize retirees and workers.

For most California cities, their largest debt is pension liability, a significant factor in the recent bankruptcies of Vallejo, Stockton and San Bernardino. Calpers has said it will increase pension contributions for most cities by up to 50 percent in the coming years.

Reed, a Democrat, abandoned a similar statewide ballot initiative in 2014, claiming that Kamala Harris, California's Democratic attorney general, had approved wording of the initiative that was biased and union-friendly.

But he vowed to fight on after leaving office in December, and in an interview with Reuters confirmed for the first time the launch of the initiative and its timing, while noting that a major motive was to challenge Calpers' grip.

Reed says the push will seek to place a simpler, more legally watertight pension reform measure on California's November 2016 ballot, giving mayors and other local government executives the authority to renegotiate contracts.

To win a place on the 2016 ballot, backers of the initiative will have to obtain the signatures of 585,000 registered voters, or 8 percent of the number of voters in California's last gubernatorial election, in this case 2014.

Reed and his allies have been huddling with legal advisers for months to devise a voter initiative that is simpler and less vulnerable to court challenges than last year's effort.

They have also been buoyed by a ruling in the recent municipal bankruptcy of Stockton, whose judge said California's public pensions are not inviolate.

As San Jose mayor, Reed helped pass a pension reform measure for his city, parts of which have been struck down after union lawsuits.

Reed is working with other pension reform advocates, including former San Diego Republican council member Carl DeMaio, the primary backer of a pension reform initiative in San Diego that was approved by voters in 2012; and the Ventura County Taxpayers Association's David Grau.

"We have done a lot of legal work to make sure this initiative is bulletproof," DeMaio said. "Because the unions are going to throw the kitchen sink at us."

The group is talking to potential financial backers, Reed said. Last year Reed took $200,000 from a group funded by Texas hedge fund billionaire John Arnold and they could partner again this time round, he said.

Karol Denniston, a public finance attorney and pension expert at Squire Patton Boggs in San Francisco, said voters should be working for legal change to provide more options than municipal bankruptcy: "Right now Calpers has no program for financially distressed cities," Denniston said.

Dave Low, executive director of the California School Employees Association, said the group would campaign to defeat the measure and was "confident we can defeat it."
What is this all about? Pretty much more of the same. Attack U.S. public sector pensions using a flawed logic in order to make an asinine ideological point that everything run by the government is by its very nature doomed to fail.

I'm not saying we don't need to reform U.S. public pensions. As I debated with others in the New York Times, we most certainly do. But when you read about a Texas billionaire hedge fund manager, John Arnold who runs Centaurus, backing a measure to weaken CalPERS, you have to wonder what is going on here (Read more on Arnold's agenda here. Maybe he's pissed off CalPERS nuked its hedge fund program but that will help the giant pension save some very hefty fees next year).

Whatever the case, the coming war on pensions is just getting started in the United States of Pension Poverty. On Thursday we found out that U.S. household net worth posted its biggest gain in a year but when you look behind the numbers, you see massive inequality is fueling these gains.

America has a retirement crisis which is being exacerbated by a serious pension problem. Vipal Monga of the Wall Street Journal reports, Multiemployer Pension Participants Set for Benefit Cuts:
More than 35,000 workers in multiemployer benefit plans will suffer benefit cuts when their plans go bust, according to a new study by the Pension Benefit Guaranty Corporation.

The government’s private-sector pension insurer found that more than half of 78,557 workers in plans already insolvent, or projected to do so in the next few years, would get less money after the PBGC begins supporting their plans.

The agency had a $42.4 billion deficit in its fund to back the plans at the end of its 2014 fiscal year on Sept. 30. That means the agency doesn’t have enough money to fully support the 1,400 multiemployer plans it guarantees.

Of all those plans, 109 are either insolvent or are on the way to insolvency, according to the PGBC.

A 10% cut was typical for multiemployer pension recipients, but the reductions are “likely to become deeper and more frequent for retirees and workers in plans that require PBGC assistance in the future,” said the PGBC.

Multiemployer plans are run jointly by unions and employers. They are negotiated through collective bargaining and typically financed by several companies. They are designed to provide defined-benefit pensions, which promise retirees a set payout.

The plans cover a wide range of unionized employees in industries from retailing to casino workers. But as employers in these industries run out of money or downsize, it puts a bigger financial burden on their peers, sometimes threatening the solvency of the plans.

This year, for example, casino company Caesars Entertainment Operating Co., sought bankruptcy protection, throwing into doubt its continuing contributions to fill a $75 million pension liability.

Congress passed a law in December that allowed pension funds to cut benefits to current retirees. It also doubled companies’ pension-insurance premiums.

That law could allow funds to last longer, but it won’t help save benefits for those plans that succumb to financial pressures, said a PBGC official.
I've already discussed how Congress nuked pensions. U.S. politicians are completely ignorant on the benefits of defined-benefit plans and worse still, they're all clamoring to switch public sector employees to defined-contribution plans which will virtually ensure more pension poverty down the road, a weaker economy and skyrocketing debt.

And as a sad testament of the pension debate in America, a judge in Detroit bankruptcy is now calling for dismantling public employee pensions nationwide:
In remarks this week at a luncheon sponsored by the publishing conglomerate Crain Communications, federal bankruptcy Judge Steven Rhodes said that pension cuts imposed as part of the Detroit bankruptcy, should be used as a starting point to completely eliminate defined benefit pension plans nationwide.

Rhodes, who in late 2014 ruled to approved the city’s plan to slash pensions and other retirement benefits, predicted that state governments nationwide would soon force workers onto defined-contribution plans, citing estimates that US municipal pension funds face collective shortfalls of some $4 trillion.

“I think that solution across the country, including in Detroit, has to be at some point defined contribution plans,” Rhodes said.

Only days earlier, Rhodes told the Detroit Free Press in an interview, “The political reality of pension obligations is there isn’t a real strong political constituency for them.”

He added that he believes Detroit’s Chapter 9 filing should have been used to eliminate defined-benefit plans for retired Detroit city workers and that he viewed the failure to do so as a “missed opportunity.”

“I regret that the City of Detroit did not take the opportunity that this case offered,” Rhodes said.

Rhodes’ comments come as yet another confirmation of the analysis made by the World Socialist Web Site at the time of the Chapter 9 bankruptcy filing in July 2013. “Detroit will serve as a precedent for other cities across the country that have been financially crippled by the economic crisis,” the WSWS declared, two days after Emergency Manager Kevyn Orr submitted bankruptcy papers on behalf of the city.

“The use of the bankruptcy court to rip up pensions and health benefits will open the floodgates for similar attacks on millions of teachers, transit workers, sanitation workers and other municipal employees. Just as Greece became the model for attacks on workers throughout Europe and beyond, the Detroit bankruptcy—which goes beyond even the brutal measures carried out in Greece—will set the pattern for the next stage in the attack on the working class in the US and internationally,” the WSWS wrote.

Rhodes’ order authorized the effective reduction of health benefits owed to retired city workers—who subsist on an average annual income of some $20,000 per year—by nearly 90 percent. For the countless retirees who pay hundreds and thousands of dollars per month in health care related costs, the ruling amounts to a death sentence.

The ruling came in defiance of decades’ worth of precedents upholding constitutional mandates—themselves the product of ferocious struggles by the American working class during the 20th century—stating in clear language that public sector pensions cannot be tampered with under any circumstances.

The Detroit bankruptcy case was orchestrated from the outset as part of a conscious, far-reaching agenda to overturn these protections. During the lead-up to the December 3 ruling, Rhodes himself attended conferences focusing on the implications of Chapter 9 statutes for pensions, and his co-conspirators from the Jones Day law firm wrote strategy papers, including one entitled “Pensions and Chapter 9: Can municipalities use bankruptcy to solve their pension woes,” detailing the ways in which bankruptcy proceedings could be used to subvert the rule of law and steal constitutionally-protected pension benefits.

Orr, himself a former partner with Jones Day, has since been appointed as “special counsel” in yet another slash-and-burn “emergency management” municipal restructuring, this time targeting Atlantic City, New Jersey.

The conclusion of the Detroit bankruptcy has been followed by a continuously escalating series of attacks on pensions by US state and city governments. In a budget plan announced last week, Illinois Republican Governor Bruce Rauner approved plans to cut more than $2 billion from state employee pensions. Earlier in February, Judge Christopher Klein approved cuts to pensions of city workers in Stockton, California, declaring with shocking arrogance that the city’s pension fund “turns out to have a glass jaw.”

All of these attacks are rationalized by the US ruling elite and its ideological servants on the grounds that “there is no money.” Even a cursory examination of the vast sums squandered every year by the US government on handouts to Wall Street and the Pentagon’s war machine is sufficient to demonstrate the absurdity of these claims. In reality, the mass seizure of pension funds now being prepared is part of the drive by the financial oligarchy to return workers to the levels of poverty and social misery that prevailed in the 19th century.
As I discussed in a recent comment looking at whether Chicago and Tampa are the next Detroit, "buckle up folks, what is happening in Greece is coming to a city and county near you and it will exacerbate global deflation and decimate pensions over the next decade."

A friend of mine, a successful entrepreneur in Silicon Valley, the true heart of American capitalism, shared his thoughts with me after reading my comment above:
You do realize that in California something like 50% revenue comes from 1% of the population. Basically the ultra rich are paying for the rest of us. And they are saying - enough. We created people who are so ultra wealthy that they view themselves apart of the state. And the machinery of democracy is in their hands.

I believe - really do believe - that eventually when there are enough impoverished people - revolution happens. In the 1930s it was a peaceful one led by FDR. I am uncertain of the shape of the one to come. The foolishness of the ultra rich can not be ignored. This will pass. The nature of its passing is unclear.
I'm afraid he's right and I'm sorry I couldn't leave you on a more cheery note for my weekend comment but the sad reality is that while we desperately need to reform U.S. public pensions, introducing shared-risk and much better governance, the asinine austerity reforms being proposed are only going to ensure more pension poverty and global deflation down the road (ie. stay long U.S. Treasurys as long as austerity for the poor and working class is on the menu!!).

Below,  Democracy Now interviews David Sirota who discusses how U.S. cities and states have been increasingly investing worker pensions in risky hedge funds, private equity and other so-called "alternative investments" which charge huge fees.

Go read Sirota's paper on the plot against pensions and my recent comments on longevity risk dooming pensions, private equity emulating Warren Buffett, overhauling New Jersey's pensions and focusing capital on the long term.

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