One of the biggest ongoing debates we have with have with conservatives is the issue of public employee pensions and the concept of unfunded liabilities. One of the easiest ways to grasp this concept is for those who still hold a mortgage on a house. You make payments every month and at some point, your loan is paid off. If you’re in the third year of a 30 year loan, making regular payments, and the bank suddenly wants you to play the balance and you can’t, that’s an unfunded liability. And like this example, the idea that all public employees will retire at once and extract the full benefit from their pensions is also as unlikely as the bank calling in your note.
In his Voice of OC commentary Jon Fleishman tries to paint the serious issue of unfunded actuarially accrued liability (UAAL) into a political box of Republican vs. Democrat, Conservative vs. Liberal and Unions vs.Taxpayers. Both Democrats and Republicans agree that responsible recognition of pension liabilities and their funding is necessary. Fleishman, however, ignores that fact and looks at the issue as an opportunity to “Starve the Government Beast.” And what’s worse, to make his point, he makes stuff up.
Fleischman’s editorial advocates using ridiculously low earnings assumptions in order to artificially exaggerate unfunded liabilities. He also promotes significantly reducing the period to pay off those liabilities, trying to make contribution rates for pensions so expensive that employees will be willing to trade their pension security for a cheaper option, such as a 401k-type plan with little or no employer contributions.
Fleishman claims the “current, massive unfunded liabilities are largely due to two reasons. The first — ongoing ‘rosy’ predictions of investment income that have fallen short. The other — a series of tragic votes at the state and local level by politicians increasing retirement benefits for workers retroactively. So new commitments are made in the latter years of someone’s employment, but are made retroactive to when that employee started.”
Both of Fleishman’s assertions are false. The so-called “rosy” projections have only been missed a few times in recent history, primarily due to the global financial collapse. The truth is that OCERS’ annualized average return for the past ten years is 8.25 percent, well above the current assumed rate of 7.25 percent, and average returns for 25 years – which is the most appropriate horizon to consider – is similarly solid at 9.11 percent.
And while unfunded liabilities have risen in part due to benefit changes since 2000, Mr. Fleishman fails to point out that 100 percent of the cost of funding the 2004 change in benefits for the County’s general employees is now, and has always been, paid solely by employees and NOT taxpayers.
Fleishman also neglects to disclose that OCERS’ UAAL has been artificially inflated due to overly conservative actions taken by the current Board majority. If OCERS were to have reduced the assumption rate by the more modest 0.25 percent to 7.5 percent, which was proposed by the OCERS actuary, the funded percentage of the OCERS plan would be 67.45 percent. This would have been an improvement of 0.42 percent over the previous year.
Fleishman attempts to belittle the concerns of cities affected by inflated pension costs by comparing them to people living on a fixed income, running up a credit card and then complaining that the payments are too high. That’s both an overly-simplistic and completely false comparison. If Fleishman wants an accurate credit card analogy, unnecessarily raising rates and shortening amortization periods is as outrageous as a credit card company suddenly changed the terms of your contract, requiring you to pay off your balance in five months.
Mr. Fleishman fails to point out that every plan sponsor who addressed the amortization rate issue at the June OCERS board meeting, as well as representatives of every city in attendance, advocated for the balanced approach (no amortization period change for current liabilities, including liabilities that resulted from the change in assumed earnings to 7.25 percent), which was approved by the OCERS Board that day.
OCERS amortization policy should set minimum periods that balance the need to pay down UAAL while controlling contribution rate volatility for plan sponsors and active plan members. Should the plan sponsors wish to pay additional amounts towards the reduction of UAAL that option should remain under their control. OCERS should not be in the business of forcing plan sponsors to pay down UAAL more rapidly than absolutely necessary. It’s really a matter of local control.
But Mr. Fleishman would rather have four unelected conservative political appointees dictate extremist funding policies and impose those unreasonable expenses on elected leaders.
The appointment of David Ball to the OCERS board is just one more step in the imposition of an extremist political ideology by unelected ideologues – in this case using their influence over the future political careers of the members of the Board of Supervisors — on the backs of pension plan sponsors, members, affected cities, and other local entities who contract with plan sponsors.
The four unelected appointees of the OCERS board are likely to continue to run roughshod over local control. Appointed OCERS Trustee, President of the right-wing Orange County Lincoln Club, Wayne Lindholm is likely to continue his political threats against Treasurer Shari Freidenrich should she fall out of line again and not march in lock-step with the appointed members as Supervisor Moorlach has instructed her to do.
Fleishman is right about one thing, this really is all about politics. It’s about the politics of Tea Party extremists, and it has no business in pension plan administration.
So how far have Republican strayed from the Party they used to be. I have been directed to look at the 1956 Republican Party Platform for President Dwight Eisenhower and his running mate, Orange County’s own Richard Nixon. It would be considered downright Liberal by today’s standards.
So read this portion of the GOP platform on Labor is see if it bears any resemblance of what the party stands for today:
Under the Republican Administration, as our country has prospered, so have its people. This is as it should be, for as President Eisenhower said: “Labor is the United States. The men and women, who with their minds, their hearts and hands, create the wealth that is shared in this country—they are America.”
The Eisenhower Administration has brought to our people the highest employment, the highest wages and the highest standard of living ever enjoyed by any nation. Today there are nearly 67 million men and women at work in the United States, 4 million more than in 1952. Wages have increased substantially over the past 3 1/2 years; but, more important, the American wage earner today can buy more than ever before for himself and his family because his pay check has not been eaten away by rising taxes and soaring prices.
The record of performance of the Republican Administration on behalf of our working men and women goes still further. The Federal minimum wage has been raised for more than 2 million workers. Social Security has been extended to an additional 10 million workers and the benefits raised for 6 1/2 million. The protection of unemployment insurance has been brought to 4 million additional workers. There have been increased workmen’s compensation benefits for longshoremen and harbor workers, increased retirement benefits for railroad employees, and wage increases and improved welfare and pension plans for federal employees.
In addition, the Eisenhower Administration has enforced more vigorously and effectively than ever before, the laws which protect the working standards of our people.
Workers have benefited by the progress which has been made in carrying out the programs and principles set forth in the 1952 Republican platform. All workers have gained and unions have grown in strength and responsibility, and have increased their membership by 2 millions.
Furthermore, the process of free collective bargaining has been strengthened by the insistence of this Administration that labor and management settle their differences at the bargaining table without the intervention of the Government. This policy has brought to our country an unprecedented period of labor-management peace and understanding.
We applaud the effective, unhindered, collective bargaining which brought an early end to the 1956 steel strike, in contrast to the six months’ upheaval, Presidential seizure of the steel industry and ultimate Supreme Court intervention under the last Democrat Administration.
The Eisenhower Administration will continue to fight for dynamic and progressive programs which, among other things, will:
Stimulate improved job safety of our workers, through assistance to the States, employees and employers;
Continue and further perfect its programs of assistance to the millions of workers with special employment problems, such as older workers, handicapped workers, members of minority groups, and migratory workers;
Strengthen and improve the Federal-State Employment Service and improve the effectiveness of the unemployment insurance system;
Protect by law, the assets of employee welfare and benefit plans so that workers who are the beneficiaries can be assured of their rightful benefits;
Assure equal pay for equal work regardless of Sex;
Clarify and strengthen the eight-hour laws for the benefit of workers who are subject to federal wage standards on Federal and Federally-assisted construction, and maintain and continue the vigorous administration of the Federal prevailing minimum wage law for public supply contracts;
Extend the protection of the Federal minimum wage laws to as many more workers as is possible and practicable;
Continue to fight for the elimination of discrimination in employment because of race, creed, color, national origin, ancestry or sex;
Provide assistance to improve the economic conditions of areas faced with persistent and substantial unemployment;
Revise and improve the Taft-Hartley Act so as to protect more effectively the rights of labor unions, management, the individual worker, and the public. The protection of the right of workers to organize into unions and to bargain collectively is the firm and permanent policy of the Eisenhower Administration. In 1954, 1955 and again in 1956, President Eisenhower recommended constructive amendments to this Act. The Democrats in Congress have consistently blocked these needed changes by parliamentary maneuvers. The Republican Party pledges itself to overhaul and improve the Taft-Hartley Act along the lines of these recommendations.
In a letter to his brother written in 1954, President Eisenhower wrote: “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are…a few…Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.”
When reviewing the points made in Jon Fleischman’s editorial, I completely agree.