Public employee funding problems

I am a disability retired public employee.

Just so you know.

Over at Power Line, John Hinderaker has a post on Two Americas: The Reality which goes into the problem of public employee pension funds and the budget busting trends that were put into place over the last number of decades.  This includes such things as giving a fully retired employee not only their highest of the last three to five earning years (base pay) of which you get a percentage of that, but also things like Cost of Living Adjustments, healthcare coverage, and all sorts of retiree benefits that require a lot of money as the age for which one can retire has gone down due to the 2% rule.  The 2% rule (on the federal side, your local situation varies, no doubt) is that you can retire early and lose a percentage of your base adjusted pay for retiring at, say 50 with 30 years of service, and you get 2% back for each year you stay in until full retirement at 55.  Yes, you read that right: 55.

That might have been workable for the 1930's (as you didn't get such lovely benefits like health insurance and you weren't expected to live to 65, on average) and government jobs tended to under-pay per sector of the economy.  After the 1980's the under-pay issue was seen as not enticing enough good workers to the government and a nice adjustment system got put in to raise the base pay and then add in for locality adjustments... during the Internet Bubble years of the 1990's no one noticed this due to the number of good jobs in the private sector.  The inflation of base pay, however, took on a power of its own regardless of the economy, and with the downturn in the economy the public sector now makes more, per equivalent position, than their private sector counter-parts.  States and localities may not have been as generous as the federal government, but in those venues the various workers came to rely on the pension system which often saw investments by organizations set to 'manage' them.  The California Public Employee Retirement System (CALPERS) was one of the one gambling money for pensions into high risk derivatives and stock investments that, when those went south, saw the entire income plummet for the retirement system.

This was mirrored in smaller degrees by a number of State and local pension systems or other retirement systems that thought a quick buck would be a long-lasting buck... and the good days would never, ever, end.  The State systems did this to benefit those working in the pension systems and that means when the Lake Woebegone Economy (all investments are always above average) saw the lake drain out as it was artificial, the States and localities found themselves with investments not gaining them money, actually growing smaller, and being unable to cover pensions without the help of tax dollars.  Lots and lots of tax dollars went into the system and now will need to bail them out.

The federal government relies on tax dollars for pensions and for individual private investment for retirees so that they can have an independent source of funds they can manage on their own.  Instead of the public employee system it is Social Security that has 'empty lock box syndrome' as the lock box was opened during the Johnson Administration and the money that, in theory, was your retirement 'investment' got spent like normal funds and a great big IOU went into the lock box.  Now the lock box is full of IOUs and that system is running in the red which means it is either: A) adding to the deficit and thusly the debt, or, B) eating up regular taxes and forcing other parts of the government to run a larger deficit, or, C) both A and B.

You will not be seeing a penny of your SSA 'investment' if you aren't already drawing it or aren't up for retirement in a few years as the entire she-bang will go insolvent somewhere between tomorrow and 2020.

I don't expect to see a single, red cent of SSA as I am only disabled for my work and SSA is set up to say that if you can breathe, move around a bit, function for 10 minutes a day, then you can, indeed, 'find work'.  As I can get a few hours of conscious thought in a day, have some energy and work very hard at trying to overcome what my body has handed me, I don't quality... and never expected to.   Just to get that out of the way, so you know that I 'paid in' to that corrupt system and expect no help from it.  Ever.  It is a 'sunk cost' and my money spent by the government already.

Now the question is: what to do about this mass of increasing debt because everyone is living so much longer that no one bothered to see if that motorhome and around-the-world vacation by the retired every couple of years was in any way, shape or form, affordable from public coffers.  Turns out they aren't because of demographics and our rewarding those in public service with great benefits, high paying jobs, fantastic retirement, health care, and cost of living adjustments.  Often with a Union taking a 'cut' from all of that.

To counter that there is one very, very harsh piece of medicine which is not contract law... well it is, but not the part most people are used to.  It turns out that when contracting with Sovereign Entities (normally Nations but I would expect that States have similar capability) they have a relatively easy thing to do: terminate contracts without recourse to sue the Sovereign as they ARE the Sovereign entity.  Some may allow you to sue, but that is an allowance if the Sovereign power wants to let you sue.  If it doesn't you have zero, as in no, recourse.  It is the source of the law, after all, and when the source determines it needs to terminate a contract for its convenience it can do so.

In the federal contracting side this is a T4C: Termination For Convenience of the government.

That is written into every single federal contract even if the verbiage never, once, appears as it is part of the contract verbiage that anyone getting a contract with the federal government are supposed to know before entering into a contract with it.  Yes a Sovereign Power is allowed to do that.  Yes it has been upheld in court numerous times.  No it is not illegal as that is the law as stated and if you don't bother to learn the law, you are still obligated to know it.  From that I expect other Sovereign entities, like the States and possibly more local powers, to have that same ability.

When push comes to shove a government can and will terminate contracts and obligations that hold it down, and it is far, far better to shaft individuals than to shaft other Nations.  Doing the former only gets you unrest, possibly a revolution if you don't play your cards right.  Doing the latter can get you a major war, at worse, and a huge loss in trade as most of the debt holders are people who trade with you... and doing that during an economic downturn is suicide.

Push is coming to shove on this, and no matter how 'liberal' or 'nice' a State or the federal government says it is via what it writes down, it holds the ability and actual duty to cut off those obligations when it is endangered.  Of course when its gotten that far the actual Sovereign isn't all that stable as a power and is flailing around for any way to save itself... but as we lose outside investors due to our economic problems, and as the largesse shoveled at public employees becomes a major part of the problem, I expect the movement by those in power to try and save their skins by sacrificing the retired and their retirement systems to become paramount.  Shedding that burden might get you a lot of angry retirees, yes, but it might just soothe everyone else for a few months until the next economic calamity hits.  By then the government is just doing anything it can to keep the pitchforks, torches and boiling vats of tar away.

Do I expect this to happen?

With some States, yes.

SSA and the medical apparatus of Medicare and Medicaid will also go down due to similar problems.

I suggest a Grand Bargain to get rid of those systems and help the economy, plus put the federal government on a starvation diet.  We made promises to ourselves via our government that we cannot keep, and as the amount of pain increases due to those promises the more inviting tossing them becomes.  I am more than prepared to see my SSA as a 'sunk cost' already spent and never to be seen.  The Grand Bargain would get the economy going if we dared to do it.  Soon we may not have that option.

Then things get interesting as the 'chuck it' and T4C appear as damned good ways out.