Shades Of Things To Come: The Check Is Not In The Mail

[Madeline]

That Illinois pension check may not be in the mail - chicagotribune.com

Uh oh.

http://www.csg.org/knowledgecenter/docs/TIA_PublicPensions.pdf

Should public employees accept less than they had been promised?

 

[Pepe]

Good post.

Most knowledgeable folks have understood that State and Local Pension Fund Managers have been grossly overestimating "returns on investments" and underestimating "liabilities."

Hence the calls by SEIU and the others for "Guarantees" by the State(s) of these Obligations.

In the current financial climate, I can't fathom any State or Local Gov't foregoing all Fiduciary Responsibilities save pay its Pensions.

Not going to happen.

I have often stated the worst is yet to come.

What the average Sheeple is witnessing is the tip of the financial iceberg.

 

[Barb]

That Illinois pension check may not be in the mail - chicagotribune.com

Uh oh.

http://www.csg.org/knowledgecenter/docs/TIA_PublicPensions.pdf

Should public employees accept less than they had been promised?

Politicians' and public labor unions' assurances aside, there's another, not-well-publicized school of thought that says if the pension funds go bust, the state has no obligation to step in to pay the benefits. This runs contrary to the popular view that the Illinois Constitution, on its face, guarantees that all public employee pension benefits will be fully paid.

This belief is based on Article 13, Section 5 of the Illinois Constitution: "Membership in any pension or retirement system of the state, any unit of local government or school district … shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

Sounds solid, doesn't it? It's not, according to a legal opinion from the Chicago law firm Sidley Austin, provided to me by R. Eden Martin, president of the Civic Committee of the Commercial Club of Chicago.

That's simply shameful, to get the lawyers to weasel up an out.

 

[topspin]

I agree and even corp managers can over estimate returns etc.
Which is why I'm likely to take a lumb sum vs letting them manage my pension money.

 

[The Rabbi]

That Illinois pension check may not be in the mail - chicagotribune.com

Uh oh.

http://www.csg.org/knowledgecenter/docs/TIA_PublicPensions.pdf

Should public employees accept less than they had been promised?

Politicians' and public labor unions' assurances aside, there's another, not-well-publicized school of thought that says if the pension funds go bust, the state has no obligation to step in to pay the benefits. This runs contrary to the popular view that the Illinois Constitution, on its face, guarantees that all public employee pension benefits will be fully paid.

This belief is based on Article 13, Section 5 of the Illinois Constitution: "Membership in any pension or retirement system of the state, any unit of local government or school district … shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

Sounds solid, doesn't it? It's not, according to a legal opinion from the Chicago law firm Sidley Austin, provided to me by R. Eden Martin, president of the Civic Committee of the Commercial Club of Chicago.

That's simply shameful, to get the lawyers to weasel up an out.

Which is what they get paid for.

There is a move afoot in CA to make pension obligations enforceable even when the municipality files bankruptcy. That would be an unprecedented move on property rights and the rule of law.

 

[goldcatt]

This has been coming for a long time. On one hand, if there's no money there's no money. Can't get blood from a stone. But on the other hand, these are benefits the employees worked for, earned and reasonably planned their retirement around. Reducing them will leave a lot of people high and dry who had every right to count on them. There's no easy answer.

 

[The Rabbi]

This has been coming for a long time. On one hand, if there's no money there's no money. Can't get blood from a stone. But on the other hand, these are benefits the employees worked for, earned and reasonably planned their retirement around. Reducing them will leave a lot of people high and dry who had every right to count on them. There's no easy answer.

Nothing is risk free. Life isn't risk free. Pensions are certainly not risk free. It sucks, but tell that to the people who worked for Enron and lost all their retirement money when that fell apart.

 

[Baruch Menachem]

California can't change the bankruptcy rules on the pensions. Bankruptcy is totally a federal matter.

What can the Illinois state workers do? In GM's case, the pensioners were first in line at the bankruptcy, and after the reorganization the pension plan got the lions share of the equity. What assets does Illinois have that the pensioners can attach? The jails?

 

[goldcatt]

This has been coming for a long time. On one hand, if there's no money there's no money. Can't get blood from a stone. But on the other hand, these are benefits the employees worked for, earned and reasonably planned their retirement around. Reducing them will leave a lot of people high and dry who had every right to count on them. There's no easy answer.

Nothing is risk free. Life isn't risk free. Pensions are certainly not risk free. It sucks, but tell that to the people who worked for Enron and lost all their retirement money when that fell apart.

That's certainly one argument. But on the other hand people who work for State and Local government (usually anyway) take anywhere from 20 - 40% less pay, depending on where they work and the job they're doing, than those doing comparable work in the private sector. In a few positions the disparity can be even greater, such as a public defender vs. a defense attorney in private practice.

Oh, I know there are the exceptions and horror stories, but for the most part those benefits are to make up for the lower salaries. Who would take some of these positions without some sort of equalizer? Competent professionals? And more to the point, is it their fault the States misjudged their returns?

I'm not completely unsympathetic, but there are two sides to the story here.

 

[Madeline]

But the gap is so ginormous, goldcatt. Illinois' annual revenues are projected to run around $20 Billion. The shortfall in funding its pension is estimated at $200 Billion. See the problem?

Virtually every state and local pension is in the same boat. Personally, I think these pension funds should be converted to individual accounts, like 401(k)'s, and people paid whatever there is to pay....which in the case of Illinios appears to be almost nothing.

I also think some people need to go to prison. Someone has been signing off on these funding levels as adequate. Time for the signatures they've been so richly paid for to matter, and legal liability to arise.

 

[goldcatt]

That's why I said there are no easy answers, Maddy. I get that there's no money. It's also not entirely due to the pensions, I might add. Illinois has been managed for decades by crooks and idiots who were corrupt, plain old piss poor or both, it's no wonder they're in the shape they're in. How many former governors do they have in jail again?

What possible compromise can be reached? Who's managing the funds, and was there any mismanagement or funny business on that side that could possibly be recouped? The unions are going to have to give a little to save as many of their current members' jobs as possible, but how far can they give without making some of their retirees destitute? These are all good questions, I don't know enough about the specifics to have answers. But there has to be some sort of middle ground here that takes all of the needs into account.

 

[Pepe]

California can't change the bankruptcy rules on the pensions. Bankruptcy is totally a federal matter.

What can the Illinois state workers do? In GM's case, the pensioners were first in line at the bankruptcy, and after the reorganization the pension plan got the lions share of the equity. What assets does Illinois have that the pensioners can attach? The jails?

Prior to Obama's wholesale attack on everyone but the Unions, for 100 years Bankruptcy Law has had the Debt Holders as the first in line for the assets of a Bankrupt Company.

Bondholders are Debt Holders.

Shareholders are Equity Holders.

Obama sent Grandma and Grandpa, holding GM Bonds to supplement their Social Security, to the "Poor House" and gave all the assets and Taxpayers funds to the Union Members, Active and Retired.

The Debt Holders were screwed royally.

 

[The Rabbi]

This has been coming for a long time. On one hand, if there's no money there's no money. Can't get blood from a stone. But on the other hand, these are benefits the employees worked for, earned and reasonably planned their retirement around. Reducing them will leave a lot of people high and dry who had every right to count on them. There's no easy answer.

Nothing is risk free. Life isn't risk free. Pensions are certainly not risk free. It sucks, but tell that to the people who worked for Enron and lost all their retirement money when that fell apart.

That's certainly one argument. But on the other hand people who work for State and Local government (usually anyway) take anywhere from 20 - 40% less pay, depending on where they work and the job they're doing, than those doing comparable work in the private sector. In a few positions the disparity can be even greater, such as a public defender vs. a defense attorney in private practice.

Oh, I know there are the exceptions and horror stories, but for the most part those benefits are to make up for the lower salaries. Who would take some of these positions without some sort of equalizer? Competent professionals? And more to the point, is it their fault the States misjudged their returns?

I'm not completely unsympathetic, but there are two sides to the story here.

That used to be the case. Not anymore.
The Government Pay Boom - WSJ.com

In any case they have other advantages, like good health care and job security.

 

[goldcatt]

California can't change the bankruptcy rules on the pensions. Bankruptcy is totally a federal matter.

What can the Illinois state workers do? In GM's case, the pensioners were first in line at the bankruptcy, and after the reorganization the pension plan got the lions share of the equity. What assets does Illinois have that the pensioners can attach? The jails?

Prior to Obama's wholesale attack on everyone but the Unions, for 100 years Bankruptcy Law has had the Debt Holders as the first in line for the assets of a Bankrupt Company.

Bondholders are Debt Holders.

Shareholders are Equity Holders.

Obama sent Grandma and Grandpa, holding GM Bonds to supplement their Social Security, to the "Poor House" and gave all the assets and Taxpayers funds to the Union Members, Active and Retired.

The Debt Holders were screwed royally.

I'm not sure what you're talking about. Most employee benefit funds under a collective bargaining agreement have priority over unsecured creditors in any filing, always have to my knowledge. Those are contractual obligations that receive scrutiny by the Court and a ballot by the affected parties before they can be impaired. There is, however, a process to petition the Court to set aside a collective bargaining agreement (see United States Code: Title 11,1113. Rejection of collective bargaining agreements | LII / Legal Information Institute ). Corporations and municipalities can use this.

But a bondholder is an unsecured creditor, pretty much last on the totem pole other than equity holders.

A pretty good overview of how bondholders (and stockholders) are treated in corporate bankruptcy:

Corporate Bankruptcy

But States and Municipalities don't file Chap 11, they file under Chap 9. Some bondholders will be considered secured and some unsecured, depending on the type of bond:

Chapter 9

But wouldn't it be better to try to come up with some solution to make a bankruptcy unnecessary?

 

[goldcatt]

Nothing is risk free. Life isn't risk free. Pensions are certainly not risk free. It sucks, but tell that to the people who worked for Enron and lost all their retirement money when that fell apart.

That's certainly one argument. But on the other hand people who work for State and Local government (usually anyway) take anywhere from 20 - 40% less pay, depending on where they work and the job they're doing, than those doing comparable work in the private sector. In a few positions the disparity can be even greater, such as a public defender vs. a defense attorney in private practice.

Oh, I know there are the exceptions and horror stories, but for the most part those benefits are to make up for the lower salaries. Who would take some of these positions without some sort of equalizer? Competent professionals? And more to the point, is it their fault the States misjudged their returns?

I'm not completely unsympathetic, but there are two sides to the story here.

That used to be the case. Not anymore.
The Government Pay Boom - WSJ.com

In any case they have other advantages, like good health care and job security.

An op-ed from WSJ? Really?

Anyway, health care falls under the same collective bargaining agreement as pensions. If that contract is broken health care will fall too. And talk to the furloughed State employees in Illinois (and other places) about job security.

Like I said, I'm not unsympathetic. The unions are going to have to give on this. But there are two sides to the story, and real people who are going to get hurt when they lose benefits they worked for and earned. Can't leave them out of the equation.