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Tuesday, October 13, 2009

Defined Benefit v. Defined Contribution Pension Plans

Pension costs take huge chunks out of municipal budgets. Allentown's three pension funds have tanked in the past two years, leaving taxpayers to make up the difference. Northampton County is no different. In his 2010 Budget message, County Exec John Stoffa warns that "[c]ounty-wide retirement related costs (retirement and retiree healthcare) are expected to rise from $13.1 million in 2009 to $19.9 million in 2010, an increase of $6.8 million (52%)."

Anyone working for Northampton County gets free medical care for the rest of his life after retiring. Pretty nice perk, eh? Stoffa, aware of how this drives up cost, has asked County Council to consider eliminating the new perk for new hires. He was flatly shot down by the same Council members who now shriek about the proposed 9.3% tax hike. A year ago, when Council member Ron Angle warned colleagues that the retirement fund needed a big cash infusion, he was ignored.

So how do Northampton County Council candidates feel about defined-benefit pensions? Municipal retirees currently receive pensions based on some formula regardless of the economic conditions. The risk is on the government's shoulders. This is unlike a defined-contribution plan, in which that pension is more dependent on the economic conditions and the markets, placing the risk on the employee. Should defined benefits be replaced with defined contributions, which is what increasingly is occurring in the private sector?

Lorraine Pasquali: "Obviously, the County has the taxpayers to answer to so defunding of the pension plans really needs to go along with the county budget and should be directed that way rather than private sector profit margins."

Obviously, Pasquale has no clue what she's talking about, and just tried to sling baloney sandwiches. This will happen when she attends no meetings despite having no job.

Charles Dertinger (see video here): "Just like every other pension fund out there, it's invested ... most of the money is invested ... and our investments, just like everyone else's, has seen shortfalls. And the only difference is that we have a certain period of time to make up those shortfalls unlike other pension funds that can just simply go defunct. ...

"We have a significant fund balance. We have a significant surplus in our rainy day fund. That's where the money has been coming from presently. It's been coming from that rainy day fund."

The rainy day fund again. First, Dertinger is using it to balance the budget. Now, he's using it to contribute to the pension fund. Incidentally, his assertion that the rainy day fund is already being used for the pension fund will be news to the Stoffa administration.

Like his protege, Pasquali, Dertinger has no idea what he is talking about, not even mentioning defined contribution plans. He's only marginally more adept at serving up bullshit burgers.

Bruce Gilbert: (see video here) "In a defined contribution plan, the employee gets to decide what percentage of their income is going to go into their retirement plan. They can do that based on their household budget. In a defined benefit plan, what happens is that based on your tenure, within that said organization, you are given a defined benefit, usually up until you pass away, and/or including if you want to pass it on to your spouse.

"Now if you look at the legacy problems that companies like GM are having, and if you look at the revenue that would be saved if they did not have that as an outstanding debt, and think about who is the largest employer currently in our local area, that would be the County.

"Imagine, in a time where we see lower revenues based upon lower values of property, and state funds that are going to be lower coming in, and imagine the largest employer continuing to put people out who are going to have a defined benefit that we must pay for.

"If you allow the individual, by empowering them, to save on their own, not only will they have that retirement plan for themselves, but you will take much of the burden off of the County."

Gilbert, in this single answer, demonstrates why he deserves a seat on County Council. At least he understands the issue.

25 comments:

Anonymous said...

Standard Republican answer, screw the employee. The County employee has control over how much of their income they want to "contribute", and the retirement formula is fair. Of course he would love to get everyone to buy into the Business class bullshit sandwich that is Wall Streets creation of the defined contribution to us-so we can screw you later plan, we all see how well that went for millions of folks. I think county Council can do without Bernie Madoff Jr.

I love how Stoffa ensured he got multiple pensions in his household and medical plans and now says lets screw everyone else cause I got mine. Stoffa and his wife have those nice fat County pensions. Standard Stoffa, do as I say not as I do.

The only bullshit burgers here are being served by you and Chef Angle. Let us see if your sidekick Angle votes for his buddy Stoffa's tax increase since he has yet to vote for a budget dispite screaming for the County to fund all kinds of things.

Bernie O'Hare said...

Defined benefit pensions have to go. They are sucking taxpayers dry. Neither Dertinger nor Pasquali even knew the difference.

Anonymous said...

My turn, the difference is one is a real pension and the other was made up by corporate America!

Anonymous said...

Stoffa and family got theres, so screw everyone else. Nic eguy. Will he forfeit his multiple pensions and lifetime healthcare to set an example? I think not.

Catharine said...

Defined contribution is not the answer for retirement plans. The classic defined contribution account, the 401k, was never intended as a replacement for pensions or to be the primary basis of an individual's retirement income. It was a loophole in the Internal Revenue Code used for highly paid executives in addition to the defined benefit pension.

If an employer wants to provide an appropriate retirement savings vehicle in lieu of a traditional pension, a different replacement should be developed. 401k's shift the risk of loss in the market to the employee, who is often (as this decade as shown) exposed to significant downturns in the market just as he or she wants to retire.

It is the allocation of risk that is the issue. When the market is gaining 10% a year, the pension fund has surplus, and no one complains about the county share because there is none required.

Time magazine just published a story on why we need to get rid of the 401k.

http://www.time.com/time/business/article/0,8599,1929119,00.html

However, NorCo is incredibly foolish for continuing to pay retiree health care, a cost that is not at all controllable. Unlike the actual pension, health care is one area the legislature has not mandated.

Catharine said...

Sorry- the link was truncated.

http://www.time.com/time/business/
article/0,8599,1929119,00.html

Anonymous said...

It's pathetic that people serving on county council don't know the difference between defined contribution and defined benefit. Just proves how continue to elect stupid people...

Anonymous said...

It's pathetic that people serving on county council don't know the difference between defined contribution and defined benefit. Just proves how we continue to elect stupid people...

Anonymous said...

"Anyone working for Northampton County gets free medical care for the rest of his life after retiring. Pretty nice perk, eh? Stoffa, aware of how this drives up cost, has asked County Council to consider eliminating the new perk for new hires."

I think you are wrong here Bernie. Didn't Reibmann get rid of this benefit to new hires back in 1997? Check with Northampton County HR.

Anonymous said...

Gilbert has as much chance to get elected as my pet frog does. You can promote him and his corporate principles forever on your blog. He 's lucky if he finishes tenth..

Bernie O'Hare said...

"I think you are wrong here Bernie. Didn't Reibmann get rid of this benefit to new hires back in 1997? Check with Northampton County HR."

As recently as two years ago, Stoffa proposed eliminating this and was shot down by Council. last year, he dd not try bc, as he mentioned, there i no political will to do this. Unfortunately, this perk continues and it cvosts taxpayers megabucks.

Bernie O'Hare said...

"However, NorCo is incredibly foolish for continuing to pay retiree health care, a cost that is not at all controllable. Unlike the actual pension, health care is one area the legislature has not mandated."

Agreed. Most counties do not do thias. It was eliminated in Lehigh long ago. It needs to be eliminated here. It will have n effect on the current tax hike but may minimize the need for future increases. That's one are where you can cut spending w/o cutting services.

Bernie O'Hare said...

"Gilbert has as much chance to get elected as my pet frog does."

He's the most qualified pwerson in the race, regardless how he finishes. He is a lousy politician, but was clearly head and shoulders above everyone else in that debate.

Considering he ran no campaign in the primary, he did very well. Now in the general, once people learn who he is, he will do better. I expect him to finish well.

Gilbert is being painted by fearful Long Dems as a corporate shill, when in reality, he is a poor kid from Easton who was first noticed by Coach Wayne Grube. he put Gilbrt on his foorball team, went undefeated, and went one to win the district championsip.

Gilbert looked up to Wayne and respected him. I stood behind him during the viewing. Grube told him he needed to run for office.

In addition to being brilliant, Gilbert would be Nortahmpton Couinty's first ever black member of Council. We need the diversity bc it gives us a perspective that we simply lack.

Gilbert is conservative, but ideology has next to nothing to do w/ local office. His intelligence and perspective are what we need.

Bernie O'Hare said...

Catharine, Thank you for the link.

Anonymous said...

Screw the employees or screw thousands of taxpayers? It's time for the county to stop being a retirement hammock for underachievers who hold taxpayers in contempt and likely couldn't last a day in the private sector.

Government types really know how to work the pension merry-go-round. Just watch them jump on pension after pension.

This county simply doesn't elect individuals of Bruce Gilbert's timber. He's too honest and makes too much sense.

Anonymous said...

Bernie is paying his white liberal guilt card. The corporate world and the governmental bureaucratic world are very different.

Mr. Gilbert will probably be as successful as other businessmen who taught they could run things like the wild west. Northampton County had some experience with that and it was a disaster.

Bernie O'Hare said...

No what I'm talking about is a cadre of government workers who think the taxpayers not only owe them a living, but must continue to pay high wages after they retire. They've been shackled by this system, which is causing state and local governments to go broke. It has to change.

Anonymous said...

If you are interested in an inteligent analysis of pensions and DC plans follow the link below:

alephblog.com/2009/10/10/pension-apprehension/

David Merkel discusses the current system and tales issue with the Time Magazine article.

Worth the read for anyone truely interested in the topic and understanding the topic.

Anonymous said...

11:56,

Just get on with it and call Bruce and Uncle Tom for not fitting your stereotype and speaking cogently on the most important issue of the day. Liberal "throw a program at 'em" racists are so transparent. They really don't like those uppity blacks.

Anonymous said...

So ohare thinks he is uppidity? Wow that is harsh.

Bernie O'Hare said...

When you twst what people say, all you do is make a full of yourself and hurt the very people you are trying to help. Ask Ann McHale

Anonymous said...

Wow, the Liberal guilt is really flying. Relax, no Republicans are going to be elected to County Council this year.

Anonymous said...

401(k) plans, while sponsored by employers, are controlled by and benefit exclusively the individual employee. That means the employee (for the most part) controls his / her 401(k) and makes the investment elections. It always amazes me when people criticize 401(k) plans as a retirement savings vehicle. I feel much more secure with a defined contribution plan that I control, rather than a defined benefit plan under the "control" of the public or private employer.

Anonymous said...

Anon 1:27, thank you for the opinion of the Corporate world. Their greed so great they have used up their funds and now wish the money of poor unsuspecting private investors looking for security.

Little do people realize that the destruction of defined benefit is the beginning of the end of the middle-class and the greatest Ponzi scheam from Wall Street in teh second half of the 20th Century.

Anonymous said...

Great article in the latest Time Magazine on pensions. Great research on the 401K scam and how it has actually lost money for people over even the most modest of defined benefit pensions. If you invested $100 in 1989 you now have $87. Congratulations.

It details the points made here that the corporate schills don't want folks to know. 401K's are risky ventures designed to get middle-class dollars into Wall Street brokers hands for the benefit of business, with little to no protection for the investor.

Time is hardly a left wing rag, read it if you dare.