Support MGoBlog: buy stuff at Amazon
Not wanting to get political, but saw this on NBCNews.com. One thing I liked seeing was this little snippit:
"If police and fire department retirees agree to the plan, they would receive about 90 percent of their pensions..."
From what I'd heard before, there was a fear that these valuable former employees of the city may have ended up with a lot less than 90%. If this is true, a big win for the city.
I hate to be a cynic, but how can this not get political?
And there's no reason for those employees to get 90% when retirees of private sector companies that go bankrupt often get 50% or less.
This post is a good example of what not to do to avoid turning the thread into a political flamewar.
Avoid value judgements that more or less fall on political lines when posting.
given it clearly makes a value judgment on city employee pensions that falls along political lines?
Reading the OP for the first time I thought he was trying to say something else "city [workers]" which I wouldn't say is political. If it was a value judgement and trying to say "people of Detroit" than I would say it's another example of what not to do.
"these valuable former employees of the city" should have tipped you off.
Police and firefighters aren't valuable? Clearly stated by the OP above the sentence you cherry picked.
I'm pointing out what seems to be a clear contradiction: the OP states this is great news that city employees are getting 90% of their pensions, and you don't have an issue with that; another poster says that's not fair given other employees in these situations often settle for less than 50%, and you scold that. These are flip sides of the same coin (i.e. if the second statement is political, then the first is certainly also). I don't see how you can come to that conclusion unless your own beliefs are clouding your judgment, allowing you to see nothing wrong in the first, and something wrong in the second.
The OP says Detroit bankruptcy and calls out one element of it. I don't see a problem with discussing that one element he singled out. But if you're not comfortable with someone saying he doesn't agree with it, and giving a reason (one I believe is valid - not that I've conceded his argument, but a valid point), then this should probably be taken down.
I've tried extremely hard to take pretty much all emotion out of MGoBoard, and I don't think I've given anyone a reason to believe otherwise. I thought I answered satisfactorially above, in that that's not how I read the OP originally. Joe Schmoe keeping 90% of his pension is good news for Joe Schmoe and his family, I don't feel like that's a political statement (take that logically as far as you want, I still think it's true). If someone suggests it's the good or right thing for Detroit I'm with you on the political element.
I didn't take any kind of mod action against the post I said was an example of what not to do and didn't against the OP, which very well might have been the political statement you think it is.
I think the OP is making an inherent value judgement, not by calling former employees valuable, but by stating that them keeping 90% of their pensions is definitely a good thing. There are a lot more interests holding debt in the city, not to mention the current residents and employees, who will be affected, possibly negatively, by how much of the pension debt is paid.
I agree, I wish that particular phrase wasn't in the OP.
We're not going down this road very far, but FWIW, you should familiarize yourself with the PBGC:
http://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation
PBGC benefits can and often do result in less than 50% of expected benefit of failed plans (his point).
But people are often confused by (or unfamiliar with) private sector pensions vs. public sector pensions. I wasn't trying to get into a debate or provoke an argument. I come in peace.
In my biased opinion, you can kiss my ass!
Keep it financial, everybody. Strictly financial, and we should be OK.
Hey, how that Dow Jones Industrial Average? Sure looks bear-ish as of late. This volatility is making me think I need to update my portfolio and get out of money market accounts and into a hedge fund. Buy, sell, junk bond, 401k, divestiture, Leonard DiCaprio. And I'm spent.
As were the new stadium threads despite having this as a backdrop.
Assuming most people can post like adults we'll just shun the others.
Fire Borges!
and it's all Obama's fault. Since that's what everyone on Facebook says it must be true.
Sarcasm people chill.
They deserve 100% of their pensions. Firefighters and Police Officers sacrificed so much for that city and they deserve what they were promised at the same time they promised to serve and protect their city! Public and private are not even close to the same thing.
That may well be the moral case, but contractually they're unsecured creditors (to the extent of their pensions' underfunding, anyway - i.e. they have an unsecured deficiency claim in addition to the secured claim on any pension assets) and their 90% recovery when secured creditors of the city aren't recovering par is a huge negotiating win for the retirees, even if they don't see it that way.
90% of their % that was originally planned.
EVERYONE quit bitching about the politics thing. This is a thing ith political implications, but as long as people behave themselves, the thread will be fine. It is of interest to Southeast Michigan, as well as to legal and finance nerds.
And yes, yes, we get it. Retirees are good. Fiscal responsibility is good. Puppies are good.
I happen to think that puppies are a socialist plot to weaken our defenses and make us submit to government rule. I hate puppies.
So, I'm a young professional. The idea of a pension kinda befuddles me. What entity thinks it is a good idea to promise retirement money at a future date?
It just seems like a crazy and unsustainable idea. Was there not 401k's back in the day?
Did people not at all think about saving extra for retirement?
I'm a public employee in Ohio, and through OPERS, the pension option seems to be very lucrative. I chose the employee directed option, which is basically a quasi-401k. I have a hard time justifying leaving my job for better pay, as they match my 10% with their own 14% of my salary paid into my retirement, and I don't pay social security, either.
How don't you pay social security? Are you still going to be able to collect?
to be promised: death and taxes. I'm pretty sure about the sun rising in the East though.
I'm with ya. In my work package "negotiations" the idea of a pension plan never crossed my mind.
Back in the day, people worked for the same company for a billion years, and the retirement age was much closer to the average life expectancy, so it wasn't that ridiculous to have a guy work for you for 40 years and pay him for the last 5 to 10-ish years of his life.
And as an FYI, section 401(k) was added to the tax code in 1978.
Thanks, that makes sense.
It's still crazy to me. Maybe I'm just cynical, but just because someone promised me future money wouldn't make me feel comfortable in actually getting that money.
Worth noting that a good sized portion of that increase in life expectancy (~25%) is just from decreasing infant mortality rates. If you get to the point where you're paying into a pension fund, the gap is still significant but less than the simple glance at life expectancy would tell you.
when companies/governments were PROMISED you a pension you didn't have to worry quite as much about your retirement income. Of course, that was back before everyone realized that the pension funds were going to get raided and that pension "guarantees" weren't worth jack. I've never had a pension, but my parents did. It's pretty bad form to promse something to someone for their entire career and then pull it out from under their feet when they retire. Of course I would never take anything like that now because I know not to trust anyone. Give me the cash up front or forget about it. No promises.
Promises that were made 40 years ago were made by a whole other set of people that knew that by the time the money would have go out they would be long gone.
Yet we, as a whole, haven't figured that out yet.
People believed their EMPLOYERS. The pensions were given to them by their EMPLOYERS, not by politicians. They had CONTRACTS. Poeple believed their contracts couldn't be just ripped up and thrown away. But they found out the hard way that contracts mean almost nothing.
...will promise anything while they are in office, especially if—like pensions—it doesn't hit the bottom line until years into the future. What's more amazing to me is that anybody would actually believe the promises of politicians and actually expect to get any money out of it in the future.
Anyhow, I'd consider it great news for any retiree of Detroit if they can manage to get 90% of what was promised. Given the reality of squeezing blood from a stone, that's gotta be considered a win.
...until I got one along with a decent matching 401(k).
In the end, the defined benefit programs (such as pensions) are going away. Defined contribution programs (such as 401k) are less risky for companies and probably more popular than defined benefit programs.
World War II was the genesis of a lot of these benefit items that are making news now . . . lifetime pensions, employer health care, etc. Wages were frozen, so companies and the public sector competed with non-wage benefits. By the time the war was over, they had become institutionalized.
We take them for granted as having always existed, but they are actually an historical aberration. Now we are struggling to adjust to a new uncharted model. But it certainly won't be World War 2.0 benefits.
A friend works for the PBGC; I asked him about Detroit some time ago. He made it clear that government entities are not part of their mission. From Wikipedia:
"...to encourage the continuation and maintenance of voluntary private defined benefit pension plans" - key word "private".
While I haven't lived in Michigan in years, I wish only the best for the city and those who work/ed there.
More money for pensions for retirees means less money for the people and infrastructure taking care of Detroit today.
It's certainly good news for the retired workers, bit is it the best for the future of Detroit? That's a harder question. Will Detroit learn from this lesson and be more responsible with how it promises and protects worker benefits in the future? That's the real rub.
I should also add that there are a lot of other people holding debt in the city, and they aren't all mustache twirling plutocrats. The more you give to pensioners, the less you give to creditors - and the less likely they'll be to ever invest in Detroit again.
That's why this is so complicated, and so painful.
It is a complicated issue that faces all of us. There are no good answers. It is really crummy for retirees who were "promised" something. The worst factor is when there were payroll deductions or the like, and the funds that were deducted from pay were misused or abused by those in power.
I myself am pretty sceptical about trusting any government or employer entities, so I have chosen to personally invest in a several 401k and 403b accounts, Roth IRA's, have a defined benefit pension, have a defined contribution account, all above and beyond Social Security, and not counting my wife's retirement income. If all of them work out, great. If the pension benefits or Social Security benefits change negatively, well, those are the least important parts of the basket. What I particularly dislike with pensions and Social Security is that principal doesn't revert to whatever entity you choose, but stays with the employer or government. While my income isn't huge, living sacrificially and setting aside for the future should mean that it will all work out, provided the whole country and financial system doesn't implode. What happened in Detroit should be a cautionary tale for everyone. I have a greater appreciation for those who kept precious metals, gems, and cash in their own storage, rather than having all their assets in paper accounts that could just vanish.
(plugs gold company here)...
corruption and greed. On a high note can't wait to see the tigers play!
People who say things are "complicated" when it comes to the intersection of good governance and sound government finance are usually just afraid to tell the hard truth.
Detroit's socio-economic past might be complicated, and the way these accountants lay everything out in their bankruptcy plan certainly is complicated... but the corruption, greed and flat-out dishonesty of politicians is really quite a simple thing to grasp. Politicians deal in power, and rarely do they want to shrink their own or give up their grasp on it. This goes for people in both current political parties.
This isn't to excuse bond holders either. If you trust a municipal bond salesman or insurer without doing your own homework, that is your fault. Live with those consequences. I live kinda near Baltimore, MD and if you promised me tax-free income on 30 year B-more bonds (and even a discount on the bond sale price), I'd say "thanks but no thanks." I have zero confidence in municipal government up there to manage public money or a debt to me. Zero. I hope that changes, I really do. Frankly I have US treasuries and I'm not super confident in those anymore either.
Sound money that actually has value. Sound finances. Little to no debt. We got away from all that as a country and we need to get back to it.
I was hoping to get a gold standard rant and possibly comparing government finances to your personal home finances ("if I can balance my checkbook, why can't the government?"). Highly disappointed.
Impressed this thread survived this long.
Honestly, nobody wins when a major city files for bankruptcy. I'm happy some retirees won't be left with nothing, but all of this feels hollow
they win, some big.
Detroit is a terrible city, makes me more proud to say I'm from Ann Arbor. I'd say AA is the best city in Michigan by far.
