Why Stockton should worry American pensioners
With the bankrupt city of 300,000 allowed to restructure its finances, its once-untouchable pension fund may see cuts.
While working as a city bureaucrat might not have many perks, it's always had one guarantee: a nice pension.
But a federal judge's ruling Monday that allowed bankrupt Stockton, Calif., to restructure its finances may weaken that once-untouchable pension check.
That's because the ruling signals the city might have to cut payments, The Wall Street Journal reports. The decision also sets precedent for other cities, raising concerns that the country's once-inviolable pension funds could find their protections weakened.
Stockton, a city of 300,000, is deep in the hole because of its pension obligations. It owes $900 million to the California Public Employees' Retirement System, or CalPERS, to cover pension guarantees, according to The Associated Press. That makes CalPERS the city's biggest financial obligation.
"It's really unfortunate that it's come to bankruptcy proceedings as a way to negotiate pension promises and contracts," Jean-Pierre Aubry, the assistant director of state and local research at Boston College Center for Retirement Research told NPR.
The ruling comes after the city has struggled for years with rising foreclosures and cuts to its services. At the same time, Stockton made an effort to protect the pension fund, angering bondholders, who felt they were forced to take cuts while CalPERS was unscathed, The New York Times notes. The city's creditors include Franklin Resources (BEN) and Assured Guarantee (AGO).
But Stockton also raises questions about whether pension guarantees, often made when the stock market was booming, are excessive, given today's economic environment.
Take the case of former Stockton Police Chief Tom Morris, who got the job in 2008. After leaving the post only eight months later -- at age 52 -- he took a pension of more than $204,000 a year, according to Bloomberg.
Not only is that a startling amount of money for most Americans, whose median household income is just above $50,000, but it also represents a cushy retirement at a time when most workers aren't saving enough for their golden years.
"We didn’t have very many people looking out for the taxpayers when these deals were negotiated," San Jose Mayor Chuck Reed told Bloomberg last year.
Many of these pensions were extremely underfunded from the start. Many were set up based on assumptions of 10-15% annual ROI - good luck with that project. Many were based on assumptions of future increases in tax revenue that haven't materialized. And many were based on complete fantasy - somehow a union city bus driver will be able to contribute $75k over his working life into a gov pension plan and then he'll be able to retire after 25 years of service and get paid $50k per year for the rest of his life, and all this will somehow magically happen, according to the union contracts, even though the city will only match his contributions and leave the unfunded portion of the pension (about 90% of it) to future generations to deal with.
At the same time, some of these tax free munis aren't looking so great, either. Like everything else, do your research.
"It's really unfortunate that it's come to bankruptcy proceedings as a way to negotiate pension promises and contracts," .... what a short sighted statement. I'm betting that if the city decided before bankruptcy to cut pension payments, they would have been brought to court, pay a huge amount of legal fees, in the end lose and not be able to make any cuts. So the only thing accomplished is they would have gone bankrupt sooner. What's really unfortunate is how the taxpayer is constantly being taken advantage of, this is nothing short of corruption.
" The State is the great fiction by which everyone seeks to live at the expense of everyone else" -Frederic Bastiat
"Any man who thinks he can be happy and prosperous by letting the government take care of him--- better take a closer look at the American Indian."- Henry Ford
Let me guess, it was a politician who figured out that you could hire a government employee for $75,000/year, let them retire at age 59-60, pay them $67,500/year, until they die, and replace them with, maybe, a cheaper person. So, a position that once cost the state or city or school district, $75,000/year is now costing them, in effect, $117,500, if you figure in a replacement person costing $50,000/year. Let's say person #2 retires after 20 years, they are making that same $75,000. Throw in person #3, and the cost is now $167,500/year. for a job that once cost $75,000/year. Multiply this over and over, it gets very pricey, very fast. Then you throw in cost of healthcare. It adds up and with Obamacare, this is going to get very expensive, very quickly.
The best thing would be to stop the pension plan and move it to a 401K that corporate america has to do.
WOW $204,000 is a crap load of money. US need to put these thieves in jail. These are the people who steal our money to give themselves a golden egg for retirement.
Stealing from working taxpayers to give to bloated city pensioners. They should be thankful that they are paying their fair share. Hey its not the taxpayers money anyway, it all belongs to t he government who is just keeping your interests in mind.
People that work for the non public sector have in most cases always been at risk
of losing their pensions or having them reduced if the company went under. Kaiser
Steel in Fontana CA was a prime example of "guaranteed" union pensions.
Why are public employees protected more than private sector employees. I see people
I went to school with retiring at age 55 with 90% of the their wages. This whole scenario
has been played out in warnings over the years. No one listened and when you have cities
paying 80% of their operating budget to public employees pensions, there is no way they
are going to be able to do so.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the midweek session on a mixed note. Blue chip listings bolstered the Dow Jones Industrial Average (+0.4%) and S&P 500 (+0.3%), while the Russell 2000 (-0.4%) and Nasdaq Composite (-0.02%) underperformed.
Equity indices began the day in the red, but wasted no time regaining their flat lines. Small-cap stocks were not as fortunate as the Russell 2000 spent the day in the red.
Upon returning into positive territory, the key indices were ... More
More Market News
Do it once a year. This allows the best-performing asset classes to take off and run.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'