"Out of Every Dollar that Funds Wisconsin' s Pension and Health Insurance Plans for State Workers, 100 Cents Comes from the State Workers" → Washingtons Blog
"Out of Every Dollar that Funds Wisconsin' s Pension and Health Insurance Plans for State Workers, 100 Cents Comes from the State Workers" - Washingtons Blog

Sunday, February 27, 2011

"Out of Every Dollar that Funds Wisconsin' s Pension and Health Insurance Plans for State Workers, 100 Cents Comes from the State Workers"

Pulitzer prize winning journalist David Cay Johnston - who has written several books on taxes - reports at Tax.com:

Accepting Gov. Walker' s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply "contribute more" to Wisconsin' s retirement system (or as the argument goes, "pay their fair share" of retirement costs as do employees in Wisconsin' s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read (emphasis added), is: "The Employer shall contribute on behalf of the employee." This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.

The collective bargaining agreements for prosecutors, cops and scientists are all on-line.

Reporters should sit down, get a cup of coffee and read them. And then they could take what they learn, and what the state website says about fringe benefits, to Gov. Walker and challenge his assumptions.

And they should point out the very first words the state has posted at a web page on careers as a state employee (emphasis added):

The fringe benefits offered to State of Wisconsin employees are significant, and are a valuable part of an individual's compensation package.


But the mainstream press is not even getting basic labor economics right, a much simpler matter.

As Forbes' Rick Ungar notes, the taxpayers do not contribute to the pensions, but do guarantee payment of the pensions if the state makes bad investments:

Many commenters have made the point that, while it is true that it is state employees’ own money that funds the pension plan, when the pension plan comes up short it is up to the taxpayer to make up the difference.

There is some truth in this – but not as much as many seem to think. Because the pension plan is a defined benefit plan – requiring the state to pay the agreed benefit for however long the employee may live in retirement- if the employee lives longer than the actuarial plan anticipated, the taxpayer is on the hook for the pay-outs during the longer life.

But is this the fault of the state employees? The pension agreements are the result of collective bargaining. That means that the state has every opportunity to properly calculate the anticipated lifespan and then add on some margin for error. What’s more, the losses taken by the pension funds over the past few years can hardly be blamed on the employees.

Take a look at what Sue Urahn, an expert on the subject at the Pew Center on the States, has to say about this when describing the $1 trillion gap that existed between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.at the end of 2008-

To a significant degree, the $1 trillion reflects states’ own policy choices and lack of discipline:

  • • failing to make annual payments for pension systems at the levels recommended by their own actuaries;
  • • expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
  • • providing retiree health care without adequately funding it

Via Pew Center on the States

That is the point. While the governor of Wisconsin is busy trying to shift the blame to the workers in an effort to put an end to collective bargaining, the reality is that it was the state who punted on this – not the employees.

Further, by the state employee unions agreeing to the deal proposed by Walker on their benefits (as they have despite Walker’s refusal to accept it) they are taking on much - and possibly all – of the obligation out of their own pockets.

As a result, the taxpayers do not contribute to the public employee pension programs so much as serve as insurers. If their elected officials have been sloppy , the taxpayers must stand behind it. But if the market continues to perform as it has been performing this past year, don’t be surprised if the funding crisis begins to recede. If it does, what will you say then?

Of course, if you are bearish on the economy - as I am - then this last sentence may seem moot. But Ungar's points that this was bargained-for insurance, and that the state - and not the employees - was responsible for the shortfall, remains.

And as I've previously noted, the little guy shouldn't be asked to sacrifice unless the biggest banks, giant corporations, and top 1% of wealthiest Americans are simultaneously asked to sacrifice.


  1. The first cuts that should be made are the unearned subsidies to the banking industry. We must stop paying banks interest on every dollar in existence.

    Dollars are created by taking a loan from a bank. Those dollars are erased when the loan is repaid. But the interest charged for that loan must be created from another loan. So if you think about this, to maintain the same number of dollars in the economy, the debt MUST increase exponentially. So why are we supprised that we are in debt? And why do we continue to put up with this scam?

  2. If you reject my last comment, could you please send me a copy. I was previewing it, when it disappeared. Thanks.

  3. Pulitzer prize winner, not Nobel.

  4. The pensions and benefits weren't bargained for, they were bought. The unions vote in officials who give them what they want and no one looks out for the taxpayer. This has nothing to do with banks, that's a totally separate issue.

  5. Total semantic argument. Yes, if a state employee union also brokers Rolls Royce's for each of their members as 'compensation' that too is 100% funded by the workers.

    ...cut me some slack if I'm becoming disillusioned with my once favorite blog.

    Average collectively bargained compensation in my school district (Milwaukee) is $100k/yr per teacher - one of the worst performing school districts in the nation.

    Walker has never attacked the employees - the unions and their controlled collective AKA the Democratic Gov and Legislature of the last eight years is were his blame rests - as demonstrated in the subversively taped phone prank.

    Big turnouts on recall petitions for AWOL senators this weekend. Will indie media continue to placate the noisy 4% bobblehead Collective in our state when the democracy uprising again (which started last November in record voter turnout) makes its will known?

  6. I don't believe one word of this article.

  7. The article states that state workers paid 100% of their pension payments, nothing could be more ridiculous. All state workers pay comes from taxpayers. Just because state workers save some money and pt some into pensions does not alter that relationship.

    The public is demanding that the sweetheart deals, meaning elected offcials receiving votes after appriving unsustainable wages and benefit packages, be reined in, brought under control. Giverment spending is at records highs in terms of percentage of GDP, and the public is sick of it.

  8. If the pensions were cash balance plans then I could understand the argument that the pension payments by the state treasure are simply deferred compensation. However, since they are defined benefit instead of cash balance you don't have that certainty of "what's paid in" vs. "What's paid out." The state is signing up for an open ended liability with a known and fixed input.

    Either way it has to change: either they get a cut in deferred compensation or the benefit plan changes to cash balance.

  9. Bravo!



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