Saturday, June 16, 2012

Handouts vs. earned benefits

Today is a complaining column.  Sorry, but sometimes I have to get it off my chest.  I love KMJ radio, both AM and FM.  But one of the things on their, and many other talk radio, bandwagon to bash is the government worker.  Not those taking government benefits "handouts", but those taking "handouts" - I mean salary for doing what the citizens of the state want. 

The Wall Street Journal reported that nearly half, 48.5%, of the American population receives some type of government benefit in the first quarter of 2010.  I don't know what the numbers are now. I'm not talking about people getting paid by the government for doing a job.  I mean people getting paid who haven't earned it or paid into the system.  Almost 50% of taxpayers don't pay federal income tax.  In 2007 it was almost 40%.  And we wonder why things are going to get worse and worse?  It's obvious that since most people receive handouts, they will be the majority to vote in more handouts. 

Programs designed to help the needy, accounted for the largest share of recipients.  They received benefits such as food stamps, subsidized housing, cash welfare, or Medicaid (here in California it's Medi-CAL).  Then there's Medicare and Social Security. 

I have an issue with reducing Social Security benefits, just like I have an issue with reducing retirement benefits for state workers.  That's the crux of my complaint today.  It's not really a union issue.  As far as I'm concerned get rid of the unions.  The state had a department to deal with pay scales and retirement scales.  Then Gov. Brown, his first time as governor, created unions for state workers.  Now there's the same department to deal with pay scales and retirement scales but they also now have to work with the unions.  While people say the unions have brought about a lot of changes, it's true, but most of those changes would have been brought about by the state's department anyway.  Those things always are evolving.

So what am I getting at?  Remember the Social Security "Lock Box" that of course we all know doesn't exist, but were led to believe it did?  Same goes for the state on their retirement system.  Everything you hear now-a-days is that the state is falling apart and it's all because of the state worker and those darn unions.  Their retirement benefits need to be taken away, or at least cut back.  

Has anyone ever run the numbers?  Well I did.  Here's what I found.  Most state workers get a defined benefit.  This means there's a specific formula you can follow to know exactly what you will receive when you retire.  Most people get what's called 2% per year with 55 the retirement age.  The percentage you can earn can go up to 2.5% if you stay until 62.  So how does it work? 

If you start working for the state at 25 and work until 55 that's 30 years.  2% per year means 60% so at the end of 30 years, when you reach 55 you can retire with 60% of your income.  How can the state sustain that?  It's easy.  Not only that but unless you live to be over 90, the state will profit from you!  Let's pretend you earn 50,000 a year.  Now I know that the first few years you won't earn that so the number may be skewed but that's OK for now.  Between what you have to put into the retirement "lock box" and what the state puts in, it comes to about $7500 a year.  

This money gets invested into stocks, bonds, real estate (not so good at the moment) and other things.  For this example I'm going to say the investment earns 5% per year average.  That's  reasonable.  Sure there are years that it's not going to earn anything, even lose, but over 30 years, the average used to be 8% so I'm super conservative with my 5%.  By the time the person retires at 55, their "lock box" will hold $498,000!  

With almost 1/2 a million dollars in their account, if they take out $30,000 per year (their 60%) and they still earn 5% interest on the remaining money, their money will last for 36 years!  Yes, until that person reaches 91 years of age!  (If it really averaged 8% you could pull out $30,000 per year forever and the state could pull out $30,000 per year forever - and never touch the principal until after you die - then the state would get an $800,000 bonus!) So what's the problem folks?  Stop blaming the state worker and their retirement income on the state's budget problems. 

But, there's a catch.  Of course, there's a catch.  During good investment years, when the state is flush with money they don't pay in their share into this retirement fund.  The state says "look how much extra is being made in the stock market, so much so that we don't need to put any money in."  The state worker still puts in their share, just the government doesn't.  That would sort of be sensible if there weren't ever down years.  In bad times, like now, it's easy for everyone to jump on the bandwagon that the state can't afford to pay their share!  They can't afford it.  This means that while the state worker has put in their required share, the state hasn't held up their end of the bargain at all.  Then when it comes to paying the retirement money, the 1/2 million that should be in the lock box isn't. 

So what's my argument?  This "benefit" that everyone is jumping on as a way to save the state isn't really a benefit.  It's part of the pay package.  The government should be putting in their share during good times as well as bad.  But instead, during good times the state government opens up their pocketbook and hands out even more money and handouts to people who haven't earned them.  Then when things tighten up nobody wants to make cuts.  Instead, it gets blamed on the state worker.

What I consider an unearned benefit is what is handed out to people who haven't earned it.  Whether it's food stamps, housing benefit, medicare, or my new favorite - government sponsored van pools.  Where in the constitution does it talk about government sponsored van pools?  Now I'm not saying that people should starve.  We are a compassionate nation.  But at some point people need to differentiate between those state workers who do a job that the citizens of this state request and those who just stand out there with their hands out.

KMJ and the rest of the media should stop trying to skew the facts. There isn't a need to change the retirement system if the state pays its share every year, not just paying when they feel like it.  If they want to change the retirement system starting today, fine.  Just leave what's in my "lock box" alone.   I'll deal with it because I too can invest my retirement money.  I'm not stupid - I'd probably have less cash and more beans, bullets, bandaids, and barter.   


  1. I didn't post an obnoxious comment but I will respond to it. I fully agree that the state has too many people working for it. Many of the positions can go to the private sector. Many should just be eliminated altogether. But as long as the people in this state continue to make laws through the proposition system and also through lousy legislators who keep getting reelected and reelected, the state will continue to keep employees on the payroll. I left the private sector to take a job that pays less, but had equivalent benefits, because I thought it would be good to have someone who uses common sense. But if the state citizens decided that my type of job was not longer wanted, then by all means the job should be eliminated.

  2. The real problem seems to boil down to responsibility. I'm a public school teacher, so after the state finishes with the Public Employee Retirement System (PERS), they will go after STRS (teachers). I think that any public employee can argue that in the past a "public" job paid less than a private sector job, but the benefits were as good or better. I could look to the future knowing the money I was contributing was being matched and the end result will benefit me in the long run. I really had no choice, but I had my pay check deducted each of the 11 months I was paid. I was figuring I was stowing something away.

    The responsibility was the State's to meet their end of the bargain. If they did, the money for retirement would be there. I think they became irresponsible by giving out money to those that haven't put in. But our State hasn't been acting responsibly for years, and that makes us who have nervous.

  3. A point that should always be remembered in discussing SS is that the government took (borrowed) about $4 trillion (including interest). We all put into that pot of money and before they begin cutting SS they need to pay back into SS what they took from it. Also the SS system provides benefits to some people who never contributed to it or failed to contribute enough to qualify. That is part of the problem.

    Regarding state retirement systems (I am in PERS); the problem is not generally the average worker and their retirement. There are four specific abuses of the system:
    1. Police and firefighters can retire 5 to 8 years earlier and still get full benefits. I love the police and firefighters but if this is necessary then it should have been funded by higher rates of contribution to the system by the individuals and the cities/counties. The burden should not have been shifted to all the other PERS members.
    2. Calculating retirement benefits based on last 2-3 years income. Again for most workers this wasn't a big deal but politcal appointees always seem to get promoted to a big paying job just before they retire. Legislative assistants are common beneficiaries of this fraud. Every retiree should have their benefits calculated based on the actual amount of money in their account (the money match formula).
    3. Disability claims. This system is so misused that in some states over 50% of retirees claim disability. I say if there is a disability then pay for it out of the general fund not by robbing PERS.
    4. When the employee gets payed 6% (typically) is taken from their pay and placed in PERS. The state or municipal employer is supposed to also contribute a matching amount but somehow the state legislator failed to "mandate" it. The employer gets the money to pay the 6% in their yearly budget but without exception they did not and still don't put the money into PERS when due. What do they do with the money? Ahh! That's the $billion dollar question. But whatever they do it is "extrabudgetry" and that may be illegal. What we need is to charge one of these department heads/managers with criminal misappropriation and maybe they would all start putting the money in PERS when it is supposed to be contributed. Where is the harm? The reason PERS is underfunded is because only half the money was in the system when we had 20+ years of "go-go" stock markets and now instead of roughly 6% being required from the employer that contribution is closer to 10-20 times that. The state blames it on excessive payouts (see 1-3 above) but in fact it is all about late payments and misappropriation of the money intended to be paid into PERS.