Thursday, November 6, 2014

Phoenix voters reject pension overhaul backed by billionaire

(Reuters) – “Voters in Phoenix have rejected a proposal, funded in part by a hedge fund billionaire, to convert the pension system for city workers to a 401k-style retirement plan favored by most U.S. private employers. 

“In a big victory for city labor unions, voters rejected Proposition 487 by a margin of 56.5 percent to 43.5 percent, according to results posted online by the Maricopa County Recorder/Elections Office.

“The measure proposed to end the city's traditional defined-benefit pension plan for new workers, shifting them to a plan dominant in the private sector, with employees pay a far greater share of the cost. Existing workers could have kept their current pensions.

“The initiative was one of this year's biggest test cases pushed by pension-reform advocates, including Texas billionaire and former Enron executive John Arnold, who have argued that traditional pension plans are an increasingly unaffordable burden for cash-strapped state and local governments…”

In Illinois: “TRS assets are held in trust and are invested for exclusive benefit of [defined-benefit] plan members.  The market value of assets increased to $45,824,382,514. during the year that ended on June 30, 2014 from the start of the fiscal year when the Teachers Retirement System had held $39,858,768,499.  TRS investments grew by 17.42% net of fees” (Bob Lyons, Elected TRS Annuitant).

Commentary: A Defined-Benefit Pension Plan 

1)  You cannot outlive your defined-benefit pension plan; you can outlive a 401 k plan or defined-contribution savings plan;
2) Your defined-benefit pension plan is more cost efficient than the defined-contribution savings plan;
3)  Your defined-benefit pension plan offers predictable, guaranteed monthly benefits for life;
4)  Funds are invested by professional asset managers in a diversified portfolio that follows long-term investment strategies;
5)  The large-pooled assets reduce asset management and miscellaneous fees;
6)  Your defined-benefit pension plan provides spousal (survivor) financial benefits;
7)  Your defined-benefit pension plan provides disability benefits;
8)  The state is responsible for funding, investment, inflationary and longevity risks;
9)  Because you are not affected by Market volatility, your defined-benefit pension plan is a more effective protection than the defined-contribution savings plan;
10) Because teachers understand the value of such a plan, they are willing to give up higher wages;
11) A defined-benefit plan encourages a long-term career and stable workforce;
12) Your defined-benefit pension plan provides you with self-sufficiency in retirement; it is associated with far fewer households that experience food privation, shelter adversity and health-care hardship;
13) Your defined-benefit pension plan is less expensive for taxpayers than Social Security – a reason why legislators, et al. had negotiated for Illinois teachers to not pay into Social Security;
14) The Teachers Retirement System of Illinois is the 39th largest in the U.S. with 366,000 members (2012) (TRS);
15) The average investment returns for TRS: 9.6% (1982-2012) (TRS);
16) Your defined-benefit pension plan has an economic impact of over $4 billion on Illinois; the effect on Gross Domestic Product is $2.38 billion; jobs that are created: 30,448 (Teachers Retirement System of Illinois, TRS);
17) Defined-benefit pension plans contribute over $100 billion to annual local, state, and federal revenue in the U.S. and provide capital to financial markets (NIRS).

Sources: the National Institute on Retirement Security (NIRS), Center for Retirement Research at Boston College, National Conference on Public Employee Retirement Systems, Center on Budget and Policy Priorities, and the Teachers Retirement System of Illinois (TRS)

Watch the 13-minute 60 Minutes: 401k Recession segment, especially an interview of a lobbyist for the 401(k) industry named David Wray (who is also president of the profit-sharing 401(k) Council of America): “What kind of retirement plan allows millions of people to lose 30 to 50% of their life earnings?” Click here for video.

1 comment:

  1. To impair the obligation of a contract is to lessen its value. "Any law which changes the intention and legal effect of the original parties, giving to one a greater and to the other a less interest or benefit in the contract, impairs its obligation" (115 A. 484, 486). State statutes which do so are prohibited by Article 1, Section 10 of the United States Constitution. There are seven states that have a legal basis for protection of public pension rights explicitly expressed in their state constitution: Illinois, New York, Alaska, Arizona, Hawaii, Louisiana and Michigan. Both "past and future" accruals are only protected in Illinois, New York and Alaska.