Some astonishingly stupid decisions by the Washington Legislature in 1998 have left a $4.9 billion deficit in the state public pension system. The problems are partly attributable to a handout called "gain-sharing", where unexpectedly large investment gains are distributed to beneficiaries, instead of banked to mitigate the risk of unexpectedly large losses in the future. The legislature has also failed to adequately fund its pension liabilities, preferring instead to spend more money than it was entitled to spend. When a private corporation engages in comparable pension fraud, indictments are issued.
The solutions to this mess aren't likely to be easy and will only fall on the citizens through higher taxes and/or reduced services. The obvious first steps, (a) balancing the irresponsible "gain sharing" handout with "loss sharing", and (b) transitioning public employees from defined benefit plans to defined contribution plans, aren't likely to be acceptable to the public employee unions, which, for all intents and purposes, own the government.
Posted by Stefan Sharkansky at December 13, 2005 12:26 PM | Email ThisToo bad, fellas, was the State's position.
The Legislature may just end up with a default, stuck between the proverbial rock ( the unions ) and the hard place ( taxpayer unwillingness to bear the burden ).
Actually, maybe a fine result-after all it works for the airlines and soon GM.......
Posted by: THS on December 13, 2005 12:36 PMI mention this because one of the arguments Marsha Richards made into sinking/vetoing 884 alongside Lynn Harsh was that early learning did NOT work.
Posted by: A Watchdog on December 13, 2005 12:37 PMOtherwise, high caliber citizens would stay away from the public service.
Posted by: A Watchdog on December 13, 2005 12:39 PMIn any event, the defined benefit plan will fail, and if nothing is done, the participants will get nothing. Move the assets to a defined contribution plan now and head-off disaster in the future. At least with a defined contribtution plan the workers will own their assets and not be relying on a "promise" from state government.
The same idea should be applied to social security.
Posted by: Libertarian on December 13, 2005 12:46 PMThen, of course, it will be impossible to reduce the benefits as they are too costly.
Bottom line - the government should have to, at the very least, live up to the standards it enforces on the citizens, and take the consequences as well.
Posted by: fred on December 13, 2005 12:47 PM1. I don't know the history of the legislation that created this "benefit" but I would guess that it was a payoff by the Democrats to the unions for their support.
2. It's very dangerous to create a new long-term obligation out of a one time windfall.
3. The article didn't mention that if the return of the state's investments is less than eight percent the state, i.e., taxpayers, will have to make up the difference.
2) The Dumbo-crat who sponsored the legislation was all surprised this was the end result, like giving away free money costs nothing.
3) She will get re-elected BECAUSE she is from the left, and in this state, being on the left means never having to say your sorry...
Posted by: dano on December 13, 2005 01:05 PMThis gain sharing is what got San Diego to the point that it may have to file for bankruptcy and default. The danger is that when you share a one time gain the expectation on the part of the reciepiant is that this will be an on going payment and with the strength of the unions at government level no elected offical will tell them differently.
There is an interesting article tying this issue to Social Security in the Wall Street Journal today.
Posted by: dennis on December 13, 2005 01:12 PMWe'll see that across the board, private industry as well as government.
Posted by: South County on December 13, 2005 01:14 PMIn 1998 was Gregoire doing damage in Ecology or was she already in the AG office doing damage?
And what was Rossi's position back then? He was in the legislature. Let's not give him a free ride just yet.
Posted by: swatter on December 13, 2005 01:17 PMGM, Verizon Wireless, Most airlines, just to name a few have recently cancelled their defined pension plans.
So why are the taxpayers of this state still continuing to offer these huge cadillac defined pensions to retirees.
Gregoire isn't adding money to the defined pension bucket, she refused to fund it last year, so as her Enron budget goes, where she sees fit to give 10k raises to everyone around her, thus adding to the defined pension plan of those individuals, why not just stop the defined pension altogether!
Maybe she could then find the money she needs for all the choo choo trains she wants to build without piling on all the huge taxes.
Posted by: GS on December 13, 2005 01:28 PM- San Diego (Enron by the sea) is a good yard stick for how corrupt managed retirement systems are, even in supposedly transparent gov systems. This is the tip of the iceberg.
- The legislature voted to defer pension funding this year (despite a surplus)- this was incredibly irresponsible and part of the "spending emergency"
-Current pensions are being pulled out from under us by corporations and government like Lucy yanking the football from a Charlie Brown kickoff. "Sorry, it sucks to be you" is what you will be getting in your golden years.
my advice- get your pension money out of the hands of your employer and manage it yourself if at all possible. If you are a union employee, demand pay raises now, because they will definately screw off with your retirement and health care later.
Posted by: Andy on December 13, 2005 01:45 PMGain-sharing "seemed like a good idea at the time. For some reason, we did not understand it was going to cost us," said House Appropriations Chairwoman Helen Sommers, D-Seattle"
And
"Given my background and experience, I must say I don't know how I could have ever believed that it wouldn't cost something. ... It's expensive," said Sommers, one of the sponsors of the law creating gain-sharing and an expert on the state pension system"
I need say no more.
Posted by: GS on December 13, 2005 01:50 PMOnce again, you die hard repulicans are bashing only part of the people responsible for the 'shared-gain pension' snafu.
a little research by Stefan (and an honest attempt at the truth and non-partisanship) would have provided the following info:
DINO ROSSI VOTED TO APPROVE THIS PLAN! The link below is from the state senate archives, and shows that a 48-0 vote in the senate.
http://www.leg.wa.gov/pub/billinfo/1997-98/house/2475-2499/2491_rollcall.txt
So, let's hear the same diatribes against saint dino. Not on this board!
wha?? Is Stefan saying that Dino Rossi makes astonishingly stupid decisions?
Why, yes, yes he is!
Posted by: rossi too on December 13, 2005 02:46 PMRossi voted for it and in fact it was a 48-0 vote. I assume the AG office bought off on it, as did all the agency managers. Probably sounded like a good idea at the time, and in fact, it was.
The stock market was doubling every two days it seemed. It, if I recall, seemed foolish at the time to stick with those boring 3-4% investments, didn't it? So, they decided to invest in the stock market? Sounded good, but did they quit doing it when the market crashed during the Clinton administration- year 2000? Lots of questions.
Again, both Rossi and Gregoire are advocating using the surplus (or some portions of it) to refund the pensions.
Posted by: swatter on December 13, 2005 03:21 PMThat's what I love about this place...they follow Ted Nugent's line of thinking "when in doubt, I whip it out..." IT'S CLINTON'S FAULT!
The ONLY reason rossi is BEGGING for Gregoire to use the reserve is to cover his ass.
It is time to can the defined pension plan in this state.
Posted by: GS on December 13, 2005 03:36 PMThanks for pointing out that fact. I'll criticize Senator Rossi for casting this vote. I don't like every vote and every position any politician has taken, and I'll speak up when I agree or disagree with them.
I can't speak for the senator, and I don't know why he voted the way he did. Perhaps it was based upon lies and misrepresented information from the executive.
I'm sure you'll accept that explanation.
As far as politicians being self-serving, I believe that all politicians are inclined that way. Take a look at just this one article if you are not of the opinion that Republican Pols are just as likely to be corrupt as Democrats. The facts are the facts and they speak for themselves. My mom says it is the system; that 'they' are clean when 'they' enter politics but they get caught up in the system. I say that, with few exceptions, those who go into politics do so with designs on enriching themselves (either monetarily or in terms of power) and are indifferent to the citizenry at large and should never be trusted. I never give any money to the Party, only to individual candidates that I have personally vetted and, and I throw them over the side at the first sign of their acting in any way self-serving or corrupt. I have helped to 'pay for the rope that was used to hang me' in the past and I am sure that I will again, but not nearly to the degree than if I were to give money to the Party to distribute at their discretion.
I'm glad you realize you can't speak for Rossi. However, the second part of your quote is intriquing...
Wasn't Rossi Chair of the Senate Ways & Means Committee in 1998? Of a Republican controlled senate? Isn't it his job to ferret out "lies & misrepresentations?"
I hardly accept your explanation. Rossi is a follower, not a leader...a 48-0 vote in the republican controlled senate proves that.
I don't follow WA politics that closely, I pay more attention to national and international politics.
So I realize that you may not have known that I was being sarcastic. You hear that "excuse" I paraphrased from Clinton, Clinton, Kerry, Dean, Murtha, Pelosi, Kennydrunk and all the others re: the vote to authorize the use of the military to enforce the UN sanctions against Iraq. "Locke lies, Taxes Rise!" (More sarcasm.)
All feeble attempts at humor aside, it doesn't change the basic fact that this bill was a poor idea, and there's plenty of blame to go around.
I'll criticize members of my party for dubious votes. Will you criticize members of your party for the same votes?
And how was this Rossi's fault???? Please explain!
Posted by: gschroe on December 13, 2005 04:27 PMDefined Benefit plans are nothing but a pledge/promise, and you can't buy beans with that if your company goes Tango Uniform.
So you've noted that Dino Rossi (and 47 other state lawmakers) voted unaminously on this. Bully for you!
Now, the question arises - what are WE going to DO about it? Who is the 'WE' in that question? Why don't we look toward our current leader - Christine Gregoire??
We can assign all the blame we want. But that won't solve the problem. And, in case you weren't aware, Dino Rossi is not the Governor of Washington State - Christine Gregoire is Governor. If you are willing to blame Dino Rossi for the problem, then you must be admitting that there IS a problem. And will you help us in demanding that Christine Gregoire - your chosen one - solve this problem?
And what has Queen Christine done to this point? As we know from gschroe's comment: "...the Current Governor of this state and both a democratic house and senate failed to fund the pension fund last year, even while giving 10k raises to all of her henchpeople and raises across the state which in turn raise the pension obligations from a non funded plan."
I don't think that was a good start to a solution. What do you think rossi too? You state that "Rossi is a follower, not a leader". Okay, point taken. The question is: Who do YOU think is a LEADER? Wouldn't it be Governor Gregoire? What have you demanded from her that would help solve this problem? Or are you all about assigning blame with no ideas whatsover on real plans or alternatives for the future (like your poster boy John Kerry)?
Posted by: Larry on December 13, 2005 05:00 PMI'm certain these dems plan to install even worse fiscal practice for the next three years. They'll pillage the entire budget and leave an impossible situation, and then leave it to Dino Rossi when he gets in (because they know he will).
Posted by: Misty on December 13, 2005 05:32 PMNo. Sen. Jim West was.
And I'm sure you'll have something smart to say about that, won't you. (liberal tolerance commencing in 3,2,1 ....)
Posted by: jimg on December 13, 2005 05:45 PM
Gain-sharing "seemed like a good idea at the time. For some reason, we did not understand it was going to cost us," said House Appropriations Chairwoman Helen Sommers, D-Seattle.
Duhhhhhh
Duhhhhhh
Who are we paying that the did not understand that gain sharing would not cost them.
Well I have two answers to this problem:
1. How about a loss sharing, meaning if it ain't there don't spend it, and decrease the Defined benefits.
2. How about canning the Defined Benefit all together. Freeze it and bring it in line with the benefit trends which are widely spread across this nation.
Posted by: GS on December 13, 2005 06:09 PMBack in 1998, when Rossi and others who voted not to use reserves for this, this information was not known, so how can you wing-nuts blame him for something noone had knowledge of back then ?? Ridiculous. However, let's see how they tackle this situation in Olympia, now with the taxpayers on the hook.
I have a feeling that I will once again be underwhelmed and the legislature will thumb their noses at their constituents.
Since 1977 the state and local governments as employers have been paying down the unfunded liablility in Plan 1 with the statutory goal of reaching full amortization of the system in 2024. It did so, biennium after biennium, for a long time.
In 2003, however, the legislature, striving to close a very large budget shortfall without tax increases, passed legislation authorizing it to "skip," or suspend, its payments toward the unfunded liability in Plan 1 for the two years of the following biennium. That was part and parcel of the Rossi budget plan, as it was the Locke and House Democrat proposals.
In the 2005 session the majority Democrats repeated that action in a second piece of legislation, taking pension savings in the budget in place of program reductions. Republicans opposed the bill (SHB 1044) that made that and other changes in pension funding for the two years of the 2005-07 biennium. So under current law we will go four years without making payments to the unfunded liability in Plan 1. That's clearly excessive, because it increases the cost of paying down that liability over the longer term. It was also unnecessary, as the budget problem was much smaller than two years before, and there was no lack of means to balance the budget without resorting to such measures again.
With the state now projecting a large budget surplus, the current occupant of the governor's office and the legislature seem agreed on reversing the 2005 legislation and resuming payments to the Plan 1 unfunded liability in the second year of the biennium. (That may take various forms, as there are likely to be competing proposals.)
Understand that the unfunded liability in Plan 1 is just a portion of the state's total pension funding obligation. The system as a whole -- which also includes separate Plans 2 and 3 for state employees, certificated K-12 staff, classified school employees, State Patrol employees, other public safety employees, and law enforcement officers and firefighters -- is funded at more than 100% of estimated actuarial liability.
This is by no means to defend the skipping of Plan 1 unfunded liability payments nor, Heaven forbid, to defend gain-sharing. It is to say that the subject is poorly understood by the public, that the system as a whole is well funded, that no one's defined pension benefits are in any way in jeopardy, and that comparisons with defaulted corporate pension plans, both here and in the MSM, are badly misplaced.
Posted by: jsa on December 13, 2005 11:53 PMI will just ask with the many many companies that are throwing out their defined pension plans today, and leaving it to their employee's (citizens of this state) to fend for themselves with regards to their own pension plans, how can the state at that same time assume that these same kicked aside citizens are willing to continue funding such a state defined pension plan, plus on top of that be also willing to fund a gain sharing addition to this pension?
Is their and loss sharing when the economy turns downward, as it did, or is there only an upside swing to the gain sharing plan?
And wouldn't we be better served to eliminate the defined pension and move the way most businesses are moving today?
I know this is a hard decision, but government employees should not expect better pension benefits then their public companies are providing to long and hard working employees.
I know very well of the so called promises that people speak of, I worked 30 years for the telephone company, who used to offer cadillac pension plans, but after 7 mergers, non of them still offer such a plan. United Airlines, and many other Airlines are not only ceasing to offer such plans, they are cancelling or greatly diminishing plans for already retired workers.
I, like you, wish it was all like it was, but it is apparently no longer affordable to businesses in this area, and I am not sure it should be deemed affordable to only state governmental agencies.
I used to work in Pension and investments for Aetna, designed the first CPI Indexed fund and sold it to Ford Motors in 1978-79. The smartest fund management people were in Corporations, the dummys all worked for states, cities, and Unions.
( An earlier comment alluded that QUALITY PEOPLE are attracted to State Jobs --- WRONG. The Lacky DUMBOS fit in perfectly in civic work. )
What happens in these state deals is some union friendly consultant comes in and throws a pixie dust blessing on the BAD idea, and the whole package is presented to the UNSOPHISTICATED legislators and Democratic union dopes who just can't wait to pass this kind of crap.
If you want to read more about the BIG PICTURE, see this Fortune article in the PBS.org web site.
http://www.pbs.org/wsw/news/fortunearticle_20040531_01.html
google search $366 Billion Outrage
This is the kind of article all taxpayers should read.
Swatter: "Sounded good, but did they quit doing it when the market crashed during the Clinton administration- year 2000?"
Dino too: "That's what I love about this place...they follow Ted Nugent's line of thinking "when in doubt, I whip it out..." IT'S CLINTON'S FAULT!"
Typical lib response. One the original statement merely stated the year of the crash and the administration. No blame assigned. Two, just saying it is a normal response without saying if the response is true or not is the normal pointless confuse/avoid the issue natter - but in left speak truth doesn't matter.
I fault the bureaucrats - if they knew about it for not being proactive and doing something about the deficit and there is probably plenty of blame to go around - and who has controlled the Legislature for the last year ? (it begins with a D)- that is assuming that this information was not known in 2003, but probably should have been, based on what was happening with State pensions in Oregon.
Posted by: KS on December 14, 2005 08:26 PMTheme: "Billion Dollar Babies"
Theme song: Same, lightly in the back ground
Screen scripts: Quotes by Summers from the article
plus big RED ink dollars, coupled with a cost
accounting of how much each taxpayer would have
to pay to make up for this blunder.
Closing line: With experst like Helen Summers
running the show, we'll be bankrupt in no time.
Isn't it time for a change?