Home > finance, rant > Is a $100,000 pension outrageous?

Is a $100,000 pension outrageous?

June 29, 2012

There are lots of stories coming out recently about how public workers, typically police or firefighters, are retiring with “outrageous” pensions of $100,000. Here’s one from the Atlantic. From the article:

That doesn’t frustrate Maviglio, who insists that “people who put their lives on the line every day deserve a secure retirement.” But do they “deserve” more than twice the US median income? Do they “deserve” the sum the average California teacher makes, plus $32,000? Do they “deserve” pensions far higher than the highway workers whose jobs are much more dangerous? These aren’t idle questions, given the public safety worker retirements we can expect in the near future.

Okay, let’s go there. If the median income in the country is 38,000, then $100,000 is a lot. But the median income in the communities where these retired firefighters live is sometimes much higher. For example, in Orange County, where the pension system is getting lots of flak, the median incomes can be seen here. In only one community out of is it below $50,000, and in 8 it’s above $100,000. So if you look at it that way then it doesn’t seem so outrageous.

And maybe we should be paying our teachers and our highway workers more, for that matter.

Point #1: California is a rich state, and it costs a lot of money to live there.

Now let’s move on to articles like this, which frame the issue in a very specific way. The title:

Police and Firefighter Pensions Threaten Government Solvency

How about all the other things that have contributed? Why are we blaming these guys, who have worked all their lives to protect their community? Why aren’t we blaming the mafia behind the muni bond deals, or sometimes even the local politicians as well?

Point #2: This is all a political blame game, trying to manipulate you from thinking about who are the actual crooks behind the scenes here.

My momma always said double down, and this is the ultimate double-down opportunity. Instead of looking for where the money went, or why it was handled so badly, we are going to blame the guys on taking the boring public servant job, and doing it for their adult lives, and trying to retire. Basically, we are blaming them for being right, for making the better choice between public and private.

Point #3: They made the right choice and we can’t swallow it because we thought our whole lives they were suckers for working in public service instead of in finance.

And what about that? Why do we compare $100,000 pensions to median incomes but not to golden parachute retirement packages of failing CEOs? Where’s the real outrage? Here’s another list of some seriously outrageous golden parachutes.

Maybe it’s because we feel like private pay is not our business, as taxpayers. It’s a different arena, and we have no right to judge. Let me remind you then that we taxpayers paid for bonuses at too-big-to-fail banks:

Point #4: These pensions don’t look very big when you compare them to what happens in the private sector.

And yes, I’m talking about the extreme cases, but so does everyone else when they talk about “outrageous pensions”, so it’s extreme-case apples to extreme-case apples.

Categories: finance, rant
  1. dyro11
    June 29, 2012 at 7:57 am

    my sister’s husband was/is a cop. he retired at 50 with about a 100k pension. He’s now working in another county as a patrol officer and after, I believe, 5 or 7 years he can retire with a second pension, but I’m sure that isn’t playing any role in the poor state of the area’s finances.

    • June 29, 2012 at 11:56 am

      Oooh!! I am really glad you brought this up, because I’ve planned a response to everyone with a comment where they cite a specific example of someone working the system. For my very first example, I bring you JP Morgan’s Chief Investment Officer Ina Drew’s retirement fund (http://www.bloomberg.com/news/2012-06-29/jpmorgan-cushions-drew-s-retirement-with-21-5-million.html) which has just been raised to $21.5 million dollars by Jamie Dimon, and who has recently lost $9 billion through her office’s risky bet disguised (as in “called”) as a hedge. Keeping in mind this is all backed by taxpayer money, we may as well have given Ina this money ourselves through a “incompetent financier pension fund” run out of the Treasury.

      So let’s compare these two examples. Your friend – ooh, sorry, brother-in-law – is 50 years old, and is maybe rolling in 150K (tops) per year. Say he lives to be 80. Then that’s a total of 30x$150K = $4.5 million. That’s still about 5 times less than Ina Drew gets. Ina Drew is 55 though, so that’s not exactly right. Although women live longer than men, so it kind of is.

      Do you think Ina’s retirement fund has anything to do with our deficit conversation?

      Update: Ina Drew’s total retirement package actually comes to $57.5 million.

      • Matt Hooper
        January 6, 2013 at 12:06 pm

        Your examples though individually spectacular are a mere drop in the Ocean compared to the fleecing ( $ Billions, Trillions) that the unrepresented Tax Payer is getting when Union Thugs and Union Thug Elected Politicians divvy up the pie while Mr Tax Payer shlub is at work. Who represents the Tax Payer when a San Diego Fire Chief retires at age 50 with a $30K a month Pension and hands the Invoice to some shlub that will work til he’s 80 dreaming about such a deal ? Loading my Wood Stove on cool nights I face more danger than the average Fire Fighter in a Month. There I said it. These Cops & Firefighters do not apply for Jobs- they know up front they are applying for a winning lottery ticket. These Pensions pay out $ MIllions $ over an average life span. Outrageous. I DONT CARE how much they make- as long as I get to sit in on the negotiations since I am stuck with the Bill.

  2. June 29, 2012 at 8:37 am

    Sanctity of contract. Why is it OK to insist these people (firemen, police) can’t strike, can’t really complain and must take the risks all their working lives for a promise and then take that away from them.

    The government offered higher pensions to compensate for low pay in the present. If they keep pulling down the pensions, no-one – once the economy recovers – will accept a future benefit instead of cash now because they will know the government can’t be trusted to deliver. It would take a lot for me to put my life on the everyday knowing there was no future security.

    • FogOfWar
      July 2, 2012 at 8:54 pm

      Those contracts get washed in bankruptcy–see Stockton.

      However I agree with the spirit–pensions are the draw that brings people into these positions & they’ve been underfunded for decades!

      FoW

  3. JSE
    June 29, 2012 at 11:26 am

    Beautiful example of “reasoning from the extremes.” Any system you put in place is going to have some variance. Which means that the top 2% of pensions are going to seem “too large” and the bottom 2% “too small.” No matter what.

  4. Levarkin
    June 29, 2012 at 12:05 pm

    Any sensible objection to these pensions is grounded in the corrupt process by which they’re determined, one that pits public unions opposite the governments they elect at the bargaining table. The unsurprising result is that public-sector employees DO get paid considerably more than their private-sector counterparts, if we’re rigorous about it:

    http://buckeyeinstitute.org/uploads/files/The%20Grand%20Bargain%20Is%20Dead(1).pdf

    I don’t disagree with you about anything else*, but it’s hand-waving. One bullshit, corrupt government activity should be ignored because it’s outweighed by another bullshit, corrupt government activity? Should no other government activity receive our scrutiny?

    *Except perhaps your lionizing of these employees; you’re so generous with these non-90%-ers! I guess they’re still 99%-ers. But that’s bias, and I certainly have my own.

  5. Dan L
    June 29, 2012 at 1:17 pm

    The thing about pensions is that they are part of a negotiated compensation package. Like tqft wrote, if the pensions were smaller, the salaries would be larger. Pensions are just deferred compensation, and to say that they should be taken away is to say that the state should steal from them what has already been earned. I do believe that the pension system is a bit antiquated, and it makes some sense to move away from it for future hires, but it is not going save us any money (again, unless we attempt to steal what is already owed). Do people really think that prospective policemen, for example, ignore the existence of the pension when choosing their careers and whether to stick with them?

    To a lesser degree, the same is true for things like teacher tenure. Everything has a dollar value. A high level of job security makes a job more desirable. If you take away the job security, you’d better be willing to raise salaries if you want the same level of candidates.

  6. Lupita Bis
    June 29, 2012 at 2:25 pm

    Externalities should also be considered. How much of pension funds’ expectations of 7% returns relies on the IMF imposing its orthodoxy on 3rd world countries? Specifically, I am referring to many countries relying on money markets to finance development instead of creating their own credit as the US and UK do. According to the IMF, countries other than the US and UK do not have the discipline to not print money like lunatics so they must pay rent to the Anglo-American global financial system to keep them in check through high interest rates and credit ratings. If it were not for this system and the gigantic bubbles it created, pension funds would have got much lower returns during the past 30 years.

    Regarding public sector pension funds, whatever they can negotiate is fine as long as they do not continue relying on raiding other nations financial systems in search of the highest possible yield.

  7. Harley Warren
    July 1, 2012 at 3:55 am

    Regarding Point #1

    California is an expensive, almost over-priced place to live since the invention of the mortgage back security, deregulation of the financial industry, real estate industrial complex lobbying and cushioning the pockets of California legislature so they vote against laws that protect consumer from real estate fraud and the failure of banks to foreclose on people who bought too much house then they could afford, which is a good portion of the idiots of who have purchased homes in the last ten years.

    The whole argument about cops in their 50s and what not in their whenever is a great trick to divide and pit the middle class against each other, while the so-called and self proclaimed elite steal everything and institute a police state while everyone else is fighting amongst themselves.

    And if we had Eisenhower era tax rates, we wouldn’t have the budget mess that we are in now.

  8. Vince Gay
    July 1, 2012 at 10:33 am

    If any compensation is too generous, the time to deal with that is up front, whether as part of negotiation with an individual or at a bargaining table with a union. Who would seriously think it reasonable to re-negotiate their compensation package after the work is done and before the pay-out? Find me a house painter of McDonald’s employee who would put up with it. There are always at least two parties to every negotiation. Each party agrees about what it will give and take for its own reasons. I am amazed at how few have asked why this questioning of pensions is happening now. The answers are probably different in different instances, but are we discussing this because the pension agreements were unreasonable? Or because the pension funds were poorly managed, not managed at all, or just plain pilfered, and now we don’t know how to pay up? And, in back of all this is lack of understanding of the fundamentals of free-market labor, and a desire to get high-value, high-risk work done for pennies. You get what you pay for, even if the person you’re paying works for government and has no desire to gouge. Private business, which isn’t always the bastion of excellence it is so often assumed to be in these debates, strives to avoid both paying too much and paying too little because both of these types of mistakes have very real costs. Don’t overpay anyone, but don’t underpay to the extent that high quality workers can’t afford to work in government. If you do, don’t complain if the quality of work in government is poor (which, by and large, it isn’t). And anyone, liberal or conservative, who says they don’t believe in free-market labor, should think about whether they would want to be operated on by a surgeon who makes minimum wage. I’d kind of like to think that compensation was high enough to stimulate some competition for that job. BTW, it stockholders and high-ranking execs in corporations weren’t the same people, we’d see a number of salaries remain rightly generous. In a fair market, though, they’d be a fraction of what they are now. The salaries would have something to do with actual meaningful value for those with a stake in the long-term health of the businesses in question.

  9. FogOfWar
    July 2, 2012 at 9:06 pm

    I’m sorry, but I have to call a reality check here.

    Pensions for public servants are really fucking generous, have been for decades. Every cop out there knows its true, every firefighter out there knows its true, only liberal academics deny it. Pull your 20 then retire at 80% of the high and double dip–nice work if you can get it! I’m a fucking banker and I *definitely* do not have that kind of retirement security.

    But that’s the deal they were offered. I don’t begrudge any cop, firefighter, teacher or postal worker the pension they were offered as part of their job package. The person I do blame is the politician and the pension actuary who allowed that politician to fudge the numbers, keep the pensions underfunded and kick the can on funding down to the next state Congress. And I blame the negotiators who packed all the comp into a pension plan that kept getting more and more unrealistic because it was basically Enron-style off-balance sheet accounting at a scale that would make Enron blush.

    Also, as noted above, watch out for municipal bankruptcy–pension obligations get re-written in bankruptcy. Finally, while I agree with a lot of what Taibbi says on the muni space, I’m pretty sure the amount of pension deficits out there (it’s a number measured in Trillions) makes all of the muni looting in the world look like a rounding error from a municipal solvency perspective.

    Sorry if that was harsh…been watching pension shortfalls grow for 10+ years now and no one gives a shit until it’s way too late. Very frustrating.

    FoW

  10. July 2, 2012 at 9:19 pm

    Your points are well taken here, Fog. It takes nothing away from anyone’s argument to make the grown-up acknowledgement that the huge number of people in line for these pensions are–like any group that large–a mix of the good, bad and ugly. And while I’ll continue to argue for competitive compensation for public employees, there are definitely some out-of-line packages for both salary and pensions out there. Public officials of every political stripe are often willing to do anything to sidestep a strike on their watches, so lots of cans get kicked down the road. All of this, though, screams for making better fair-to-everyone deals in the future, not breaking deals already made. We should be trying to figure out how to pay on obligations, not about whether to pay up.

  11. andrew
    December 26, 2012 at 7:59 pm

    Who cares, all of this FAT needs to get trimmed. I am tired of it. What happened to working for a living. I am sick of people deciding where my money needs to go.

  12. Matt Hooper
    January 6, 2013 at 11:58 am

    You are all missing the DINOSAUR in the room. Public pensions are NEGOTIATED with sock puppet Politicians elected by UNION DUES. The TAX PAYER is NOT in on the negotiations. They are handed the Invoice to the madness. Only recently have the Tax Payers found out how outrageous the Public salaries and pensions are. Imagine if 2 strangers negotiated the cost to cut your 1/4 acre lawn. They agreed on $2000. Wouldnt you be pissed when you came home to your freshly cut lawn and whopper Invoice ? Knowing you could easily get it cut for $100 bucks ? If you dont pay- Uniformed Officers come take your property. NO DIFFERENCE.

    ps–Comparing any of this with Private Sector business is ludicrous.

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