Friday, October 1, 2010


A month ago I posted on the topic of federal pensions.

I explained how pensions should not be seen as a public burden, especially since many private corporations deliberately underfunded pensions for years - fattening profits and bonuses in the process - and then dumped their "private" obligations on the American taxpayer - the Pension Benefit Guaranty Corporation, or PBGC - when their companies went bankrupt.

Over time the Pension Benefit Guaranty Corporation ended up providing a semblance of stability for many pensioners, who might have been wiped out in retirement were it not for the federal government, and it's wise management of these bailed out "private" pension plans.

All was going well until President Bush appointed former Lehman Brothers executive, Charles E.F. Millard, to run PBGC. If you're wondering, yes, Lehman Brothers did declare bankruptcy in 2008, the largest bankruptcy in U.S. history at the time ... (funny you should ask).

Anyways, it turns out that Mr. Millard didn't like the cautious investment plan used by his predecessors. So he decided to take much of the $64 billion in federal pension money from the PBGC and dump it into Wall Street ... right before George Bush's policies helped drive the economy off a cliff in 2008 (one of the reasons the PBGC is running in the red).

It would be one thing if former Lehman executive Millard's decision simply lost billions for the PBGC. However, because PBGC is a publicly run agency Millard's failed decision in 2008 has lent credibility to the claim from the Right that "government doesn't know how to run anything" and breathes life into their argument "that pensions are underfunded because they're too expensive."

Nothing could be further from the truth.

The PBGC is running deficits because it routinely takes over the pension plans of failed private firms like Lehman Brothers who regularly underfunded pensions in order to fatten their bottom line and then dump their "private" pensions (over 22,000 for Lehman) on to PBGC,

Did I mention that Charles Millard was an executive at Lehman Brothers? Oh, yeah, I did ...

Anyways, commenting on these dynamics at the state level we have former Bakersfield City Council member (and my friend) Mark Salvaggio.

Drawing information from California's pension investment agency, CalPERS's website, Mr. Salvaggio writes:
Investments, not taxpayers, fund 63 cents of every pension dollar at CalPERS. Historically, this percentage has been as high as 75 cents on the dollar.  Public pensions are a shared responsibility, as every dollar paid to CalPERS comes from three sources:  63 cents from CalPERS investments, 22 cents from CalPERS employers, and 15 cents from CalPERS members.

Retirement benefits are paid from the CalPERS pension fund which is a trust fund that can be used only for payment of member benefits and related expenses.  CalPERS pays out nearly $12 billion in pension benefits each year to retirees and beneficiaries using investment income and cash contributions from employers and members.

Investment returns have delivered income to CalPERS to the tune of over $200 billion in twenty years; employers' income has been about $56 billion, and members, through payroll deductions, have paid in $34 billion.

Do the public pension naysayers know the average pension is only $25,000 a year for more than 20 years of public service?  The average age of retirement is 60.  Seventy eight percent (78%) of all retirees earn $36,000 a year or less in pension benefits.  Pension costs for the State of California are less than 5 percent of the State's $86.1 billion general fund budget.
Salvaggio closes with these comments:
Let's not let the "emphasis" being placed by some on the over $100,000 a year pension retirees distort what the vast majority of other retirees receive in retirement pay.  We should not forget another fact:  in terms of pension spiking abuses, most occur in top management, not among rank-and-file public employees.  The same can be said about the granting of "stress-related" disability retirements.
In a few words, whether you look at the federal level, or the state level (at least in California), the claim that "pension plans are too expensive because of 'out of control' obligations" is simply not true. Failed obligations in the private sector, federal bailouts, poor investment decisions by irresponsible appointees, Wall Street's collapse (by their own hand), and a poor understanding of pension contribution-distribution levels at the state level are to blame for "underfunded" pension plans.

Put another way, the pension debate is a red herring. It distracts voters from the fact that the private sector has failed on many fronts, and masks a larger issue that we need to address: Conservatives want to dismantle or destroy one of the key benefits that unions and labor depend on to unite their core constituencies.

My question is, Where's their indignation for the golden parachutes and payouts given to the CEOs and other corporate executives who run their companies, and the economy, into the ground?

- Mark

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