Sunday, June 20, 2010

States Take Aim at Pension Costs; Public Employee Unions on the Defensive; Chris Christie's Freight Train; No One Wants to be Christie's Next Piñata

States are beginning to do something about insanely unaffordable public union benefits. Unfortunately, states are only at the recognition phase and current efforts are a tiny drop in the bucket of pension changes that need to be made.

The New York Times discusses the situation in States Take Aim at Pension Costs. http://www.nytimes.com/2010/06/20/busin ... nsion.html

Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits.

Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week.

But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Despite its pension reform, Illinois is still in deep trouble. That vaunted $300 million in immediate savings? The state produced it by giving itself credit now for the much smaller checks it will send retirees many years in the future — people who must first be hired and then, for full benefits, work until age 67.

Joshua D. Rauh, an associate professor of finance at Northwestern University who studies public pension funds, predicts that at the current rate, Illinois’s pension system could run out of money by 2018.

If a state pension fund ran out of money, the state would be legally bound to make good on retirees’ benefits. But paying public pensions straight out of general revenue would be ruinous. In Illinois’s case, it would consume about half the state’s cash every year, bringing other vital state services to a standstill.

Lawyers, though, are raising the possibility that those laws are being misinterpreted.

“An employer is free to move from one legal plan to another legal plan, provided that it does not diminish vested interests,â€