Wanted: Wise solutions to Georgia’s pension gap

Got a common sense solution to these big pension deficits?

Most of us are not actuaries. But we can understand when major liabilities are bearing down on us.

AJC reporter Russell Grantham writes that the state’s two largest pension plans — the Teachers Retirement System and the Employees’ Retirement System — were under water by at least $10 billion in 2009.

Remember, these are legal commitments made by Georgia to employees who expect them to be honored in good faith.

The state has tried to do something. Grantham reports that the Employees’ Retirement System radically changed the game for new hires as of 2009: They will receive a much smaller pension — half of what their older co-workers will get — and be enrolled in a 401(k)-style retirement plan.

The teachers plan, meanwhile, changed its rules so the state can cut its contribution to the fund when times are bad, as long as it catches up when the market recovers, Grantham reports.

Still, the shortfalls are stratospheric, Grantham writes. Senate Retirement Chairman Tim Golden, R-Valdosta, said the Teachers Retirement System is paying out about $3 billion a year in benefits — nearly twice as much as the state and other contributors are pumping into the pension fund.

Any ideas?

For example, Grantham says former House Speaker Newt Gingrich is suggesting a change to federal law that would enable the states to declare bankruptcy, if necessary, to get out from under their pension obligations.

But that would break a promise to employees — many of whom traded higher wage increases for better pensions years ago.

What do you think?

- Henry Unger, The Biz Beat

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12 comments Add your comment

Buzz G

March 28th, 2011
7:11 am

As usual politicians find it easy to promise future goodies. Someone else will have to pay for it in the future. Why, oh why, do we keep electing numbskulls to public office? What do we have to do to get good people to run for office?

Shadow7071

March 28th, 2011
7:22 am

Can you just imagine the social unrest, marches, riots etc. if States declared bankruptcy and defaulted on pension obligations? This weekend I think it was reported that 700,000 people marched and demonstrated in the UK and London to protest government cutbacks and layoffs. I’d predict that if States took such actions (defaulting on pensions) we would witness public demonstrations that would dwarf London’s. Just look at the demonstrations in Wisconsin, and that was over collective bargaining rights. The social unrest that would result of defaulting on pensions could not be contained.

Gingrich is a smart guy but ideas like this will not get him elected.

Mishap

March 28th, 2011
7:44 am

Newt’s idea just won’t work. How can the Republicans be considered the party of personal responsibility if their plan is to shirk all liabilities and start over b/c it got screwed up ala Donald Trump? Is that considered savvy business these days? Are all those deadbeat homeowners just mini Donalds in the making? Where do the pension liabilities fall if you dump them? Oh that’s right, back on the gov’t that shirked them. As long as we’re not letting retired teachers rot in the streets, the liabilities just falls onto another gov’t entity somewhere.

The real solution is to shorten teacher life expectancy. Free cigarettes in lounges, catered McDonald’s Big Angus burgers daily, and hoverounds to make sure they’re sedentary. Bump the class sizes and tie more of their pay to student performance to raise the blood pressure and I’m sure you’ll move the needle a few degrees in your favor. Remember, we don’t have a revenue problem, we have a spending problem.

Ron

March 28th, 2011
7:48 am

There are no quick and effective solutions to this problem. We’ve destroyed our economy. Wall Street greed (and friends, that’s you and me and everyone who has a 401k and demands a healthy return) has sent industries and jobs overseas. Businesses trying to hand on to the American dream are hammered by high taxes and government regulations. In essence, we’ve killed the goose that laid the golden egg. Again we’ve destroyed our economy. Moreover, we continue to inflict damage, that is to say, we allow speculators to drive up oil and gas prices that in turn drives up the price of everything else. At some point we’ve got to stop this madness. And, until we stop this madness, start rebuilding our economy and restore common sense to business and government we’ll not able to solve problems like this pension deficit. There are no quick and easy solutions.

Road Scholar

March 28th, 2011
8:06 am

If the state hadn’t reduced there contribution to the State Employees retirement Fund in 2002, it would be totally funded. The teachers and judges retirement funds are fully funded because the state didn’t reduce the amount of their pay in.

The state made the commitment; they must honor that.

TnGelding

March 28th, 2011
9:06 am

Neuter Newt! He knows better.

It’s nothing that a recovering and growing economy won’t fix. Looks like they’ve already addressed the problem with new hires. I would think the agreement with the teachers might need further revision.

Sonny Daze

March 28th, 2011
9:16 am

The recent administration of Georgia joined the “Race to the Bottom” when they promised more competitive pay while reducing retirement benefits for new workers. Instead of more competitive pay there are furloughs. Also, they actually passed a law that prohibited any new hires from receiving COLAs IF they do retire. (HINT: Young workers, if you want a career in government in GA go to work for a local school system. They still get COLAs when they retire.)

JDK

March 28th, 2011
9:21 am

“The state made the commitment; they must honor that.”

Really? MUST?

Bryan

March 28th, 2011
10:02 am

Why not work out a deal to cut the pensions by 30% or so. That way, people are still getting some pension but not these astronomical sums that were promised by the gov’t. The rest of the American and Georgian taxpayers have to do retirement on their own yet all these government people (Teachers excluded…they deserve a pension based on time served) get this fat lump sum pension every year. It’s ludacrus. Cut the system, revamp the way money is put into and pulled from the system, and then doll out payments based on whats reasonable and affordable. You don’t have to eliminate anything just reduce.

MrLiberty

March 28th, 2011
10:50 am

Every government employee make their living off the theft of monies taken from people working in the productive voluntary sector of society. Government’s produce nothing, they only steal and spend. It is clear that the parasites that were elected by the people took advantage of their positions to expand the role and size of government while passing laws that protected their elected positions from challenge (ballot access laws, campaign finance laws, etc.). Additionally, they set up pension plans and other inappropriate long-term obligations to the benefit of government employees and to the detriment of both current and future generations of taxpayers. Unlike a private business where future obligations can be mitigated against through internal cost-cutting measures, sound investment strategies, and coordinated business strategies for growth (in a voluntary marketplace), every dollar the govenrment spends must first be STOLEN.

These committments and obligations were placed upon the backs of future generations who neither elected these jerks nor signed any contract with these government parasites. These obligations should be considered null and void.

There should never be a pension plan for government employees. They should be given a wage and should be expected to invest, save, etc. for their own retirement. It is both immoral and inappropriate to commit future generations to support the retirement of current employees when nothing can be known of future economic situations.

While many government parasites now live on retirement packages that are extremely lucrative, current productive workers are to be expected to pay more and more money to support this while facing the prospect of having to work decades longer so that these folks can retire after only 20 years on the job.

The time for government theft of the productive output of america has to come to an end.

Charlie

March 29th, 2011
5:07 pm

Pensions are not the problem. Medicare is. But no one wants to touch the elderly even though they paid in very little in their working years. Social Security is welfare for old people.

Tough Love

March 29th, 2011
7:04 pm

You asked for a WISE solution. Read the following. It’s clear what you need to do:

So let’s cut to the chase …….

Private sector employers typically contribute 3%-8% of an employee’s cash pay towards retirement, yet the total cost (expressed as a level annual % of cash pay throughout one’s career) of Public Sector Defined Benefit pensions (for a 30-year employee retiring at age 55) ranges from 29% to 58% depending on the richness of the benefit formula (with safety workers generally at the highest end).

More specifically, for the noted formulas, the level annual %s of cash pay are as follows:
2% per year of service w/o COLA – 29%
2% per year of service with COLA – 39%
3% per year of service w/o COLA – 44%
3% per year of service with COLA – 58%

Even after deducting the typical employee contribution of about 5% of pay, that still leaves the employer (meaning TAXPAYERS) contributing 24% to 53% of pay. The middle of these %s is 38.5% vs 5.5% (the middle of the range of what Private Sector employers contribute) or SEVEN (yes SEVEN) times greater.

This is completely absurd, and the very modest “tweaking” at the edges by practically begging employees for a few more percent of pay contributions will NOT even begin solve the HUGE financial problem.

TOTAL COMPENSATION (Cash Pay plus Pensions plus Benefits) should be comparable in the Public and Private Sectors for similar jobs, and with Cash Pay in the Public Sector now AT LEAST equal to (if not greater) than that in the Private Sector, there is ZERO justification for greater Public Sector Pensions and Benefits .

Not for PAST service, but for FUTURE service, Public Sector pension accruals must immediately be brought FULLY down to the level of their Private Sector counterparts. Due to the huge reduction needed, the ONLY way to do this is to freeze the current defined benefit plans for CURRENT (yes CURRENT) workers, and switch everyone into a 401K-style Defined Contribution Plan with an employer contribution in the same 3%-8% range granted Private Sector workers.

Additionally, since Private Sector retirees rarely get any retiree healthcare subsidy before eligibility for Medicare at age 65, similar restrictions should apply to Public Sector retirees.

It’s TAXPAYERS’ money and Civil Servants are NOT more worthy of bigger pensions and better benefits.