The union's lack of legal status is important. It can't enforce a closed shop, nor can it negotiate a real contract. All it can do is get a widely publicized agreement from the state. That is actually an appropriate role for a union. I support this kind of "union" activity.Surprising even myself, I had something positive to say about unions. The West Virginians demanded only a 5% pay raise (which they got), along with lower medical premiums (I don't think they got that). All in all, reasonable requests.
But if you cross the Big Sandy River from West Virginia into Kentucky, the situation is very different, as described in this week's Militant by Susan Lamont. Turns out that Kentucky educators aren't primarily interested in higher wages, but rather in secure pensions.
Can't say as I blame them. The state tried to put one over on them by passing pension reform as part of a sewage bill. It was a very modest reform, not impacting any presently employed teachers. All it would do is put new teachers into a defined-contribution, 401K plan, instead of adding to the hugely underfunded state pension plan (defined benefits).
On its face the new law is unobjectionable. After all, the first rule of holes is, when you're in one, to stop digging. And that's all the state suggested. The fact is the new bill doesn't do anything to solve Kentucky's pension problem, but at least it stops it from getting worse.
The teachers went ballistic. Calling in sick, they skipped school in droves to show up at a huge rally in the state capitol, reminiscent of Wisconsin, 2011.
The reason for the response is obvious: the teachers are screwed, and they know it. They will never see even a fraction of their promised pensions. But they're still in denial, trying desperately hard to defeat the laws of both arithmetic and compound interest.
Turns out, according to Ms. Lamont, that neither the state nor teachers have been paying into Social Security, so they won't even get those benefits. That's gotta be one of the most shortsighted decisions ever! I recall when I was a grad student, for a few years I didn't have to pay social security taxes. I thought I was making out like a bandit. Fortunately it was only temporary, and thank God I've since put in enough that today the benefit covers my house payment. Kentucky teachers, meanwhile, have taken the short term savings and just spent it. Idiots!
Of course that's not the worst of it. According to Troy Vincent over at ZeroHedge, in an article entitled Kentucky Teachers Want a Bailout.
The Kentucky state workers’ pension system is by some measures the worst funded pension in the entire country with an estimated $70 billion dollars of unfunded liabilities. A recent audit of the pension system found that the plan has had $6.9 billion in negative cash flows since 2005.
At $40 billion, Kentucky teachers make up the largest portion of this unfunded liability. But even in the face of impending insolvency, many teachers in Kentucky are still protesting the slightest changes and cuts to their compensation that have been proposed in an effort to prevent catastrophe.For example, Ms. Lamont interviews a certain Megan Berketis--a teacher with less understanding of economics than most high school students.
“They talk as if there is a giant pie, and if someone gets a bigger slice, then yours gets smaller,” Berketis said. “But there is no pie. We shouldn’t have to pay more taxes. Money for education should come from the companies that make a lot of profit.”It surely is presumptuous for Ms. Berketis to allocate all corporate profits to teachers' pensions. Even a socialist won't agree with that--surely some money should be reserved for highways, health care, parks, and even prisons. Even if you accept the socialist premise that no profit should go to private individuals, by what right do Kentucky teachers get to claim everything?
To put it in scale, the richest man in Kentucky is not Colonel Sanders or Jack Daniels, but instead B. Wayne Hughes, worth $2.7 Billion. He's the founder of Public Storage, a nationwide storage locker provider. Sounds like he has a lot of money, but it's less than 4% of the state's pension hole. Of course the company operates in all states, not just Kentucky, so our teacher friends can only claim at most about $60 million of his fortune--or far less than 1% of the amount needed.
And that's only if the company is both bankrupted and liquidated, with all of its employees put out on the street and left unemployed, and with no pensions. All that just to bail out a bunch of clueless, very stupid teachers who couldn't even be bothered to pay into social security.
The fact is there simply aren't enough rich people in Kentucky to cover the hole that teachers have dug for themselves. So it will have to come from higher taxes.
Kentucky currently collects about $12 billion annually in tax revenue, or $2655 per person (not per household). If the pension deficit is to be filled over a decade, that means a tax hike of about $7 billion per year, which raises the bill per person to about $4200. Note that citizens wouldn't receive any additional services for all that money--all they'd be doing is reimbursing teachers for excess stupidity.
It will never happen. Kentucky's state pension system is as good as bankrupt, and it is only a matter of time before it fails completely. There is no way that teachers will ever collect what they've been promised. So the logical thing to do is to extricate oneself as gracefully as possible from the system--at least try to recover fifty cents on the dollar. If I were a Kentucky teacher I'd try to negotiate buyout. At least I'd get something before the whole thing goes down.
Of course Kentucky teachers aren't the only ones in this predicament. New Jersey is worst off--their plan is only 30.9% funded. Kentucky is second, with 31.4% in the bank. Illinois, Connecticut, and Colorado round out the bottom five.
But that's not the end of the bad news: percent funded in both New Jersey and Kentucky declined by more than 6% in one year. (For Kentucky, the ratio went from 37.8% in 2015 to 31.4% in 2016.) The reason for the decline is that nearly all state pension plans assume a very high rate of return on their investments--typically 7.5%. A more accurate number is about 5%, but putting that into the arithmetic throws all pension plans far into the red. So even states like New York or California, which nominally are at or near fully funded, arrive at that result only by making unreasonably optimistic assumptions.
The bottom line is that teachers who trusted their kleptocratic politicians and con-artist union officials to manage their retirement portfolios for them are screwed. In only a few states will they come out whole. In Kentucky the likely outcome is something close to zero.
Me, I put my money into a 401K from the very beginning. Can't say as I regret the choice. The state of New York doesn't owe me a dime.
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