RI Town Bankrupted by Public Pensions

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You make some valid points, AND I should have said "SOME unions do not bargain in good faith."

I think, in particular, to unions in California where retirees get more in retirement than they were earning when working. That's insanity. Retirement income is generally less than working income because you are no longer working and not being compensated for all the work-related expenses you bear. How California ever agreed to that is insane to me, but given the liberal bent of many politicos in California and a willingness to tax the living daylights out of everyone and everything to pay for all their obligations (hence why so many industries are LEAVING California), perhaps they made the deal figuring they could excise the funds from somebody to pay for the future obligations. They didn't want to have open eyes about the coming economic crash nor realize that people and businesses would leave the state in droves if the taxes/regulations became too oppressive.

I would like to think that any negotiator (union or management) has a clear understanding of what is possible and sustainable. If you ask for excessive benefits and pay when you know the employer really can't swing it, is it the employers' sole fault if he can't deliver or should you have known this bad outcome was inevitable (or highly likely)?

I believe the military has a saying....Setting someone up to fail. You give someone a task they can not possibly perform so that you can use their failure as a cause for disciplinary action.

Unions and management should ideally be aware of what both side are able to safely offer. Many of these situations with failing pensions involve pensions so gratuitous you have to wonder if the union seriously believed they were sustainable. Likewise, it is possible (in this era of allowing companies to borrow against pension funds), that a downturn of the economy could jeopardize pension plans.

My dad suffered from this as a union worker. He had pensions with Pan Am, National and Eastern Air Lines. Because government allowed these companies to BORROW against their pension funds, when they went belly up, guess where the pensions went. Had the government not bailed out the pension funds, my dad would have gotten nothing at all. However, in these cases, the pension guarantees were quite reasonable....the fault lies in government allowing pension funds to be pledged as surety for other debts. That was not allowed for a darn good reason for many, many years.



No. I see the difference between an academic exercise of the law and reality.

Yes. A contract is a contract is a contract. You are correct. If you make a bad deal, you are stuck with it. HOWEVER, as I pointed out above, some of these deals are rather outrageous. Did the union negotiators really think the other side could afford to meet these demands? Maybe. Maybe not. I recognize in truth that outside the academic exercise the fact remains if there is no money to pay, you get nothing. I also have dealt with enough people who are blessed morons who can't realize that you really can't get blood from a stone. It's hard to sympathize with someone who thought they'd have a retirement mansion when the financials of their employer were so buggered that any sane person WHO EXAMINED THE FACTS would realize they were in trouble long ago.

In the end, if there is no money to honor the contract, you won't get anything. That's the reality.

I suppose my issue is one more of sympathy. I'm sympathetic to situations like my dad's because his pension was pretty much the norm and IF the government did not change the law prohibiting companies from borrowing against their pension holdings, nothing bad would have happened. However, if my dad was promised more money in retirement than he made actually working, I'd be wondering where that money would come from. I'd also be very concerned if the company's financial health started to suffer. In the end, if the company goes down, who's going to fund the pension in this day and age? If they were setting aside money, how much did they set aside, how many others are claiming against it?

Law and reality (especially of late) do not tend to comport with each other.

Agreed. I hadn't realized that there were municipalities that had failed to do that yet.

For the most part, if you are in Social Security, you are on the rolls. I've heard of maybe only one or two groups (one in Texas) where they are not part of Social Security, and all that happens there is the money is put into a private run retirement plan. Federal employees (other than Congress) DOES NOT get some special retirement plan IN PLACE OF Social Security. Many federal workers have a pension plan in addition to Social Security...just like many other Americans.

But that's the beauty of the law--the academic exercise are all real life situations. Casebooks are full, not of obscure theory, but of actual case law.

I have the great good fortune to have received both a medical and a legal education. While I consider the medical profession far more personally rewarding that the legal profession, there is no question that the law school was intensely more interesting academically than medical school.



I don't think it's enough to look at the contract today and say, "we can't afford this, it's outrageous." How did the company and the bargaining unit get to that position?

I lay the blame squarely at the feet of employers, and governments who allowed them to get away with improper practices.



You seem to suppose that it is the employers' revenues today that have to pay the retirement benefits earned yesterday. While that might be true in practice, it is not what should properly occur. Employers and employees are obliged to make contributions to pension funds, and those funds are held in trust by the employer, for the benefit of the employees within their lifetimes (or in certain cases their estates upon their death). Were these funds properly managed, the employer and employee contributions would be sufficient to meet the pension obligations for each employee as they come due. Both my public pension (Canada Pension Plan) and my employer pension (Public Service Superannuation Plan) are fully funded--that is to say that with an actuarial assumption of 4%, there is enough money in the plan today, to pay out the pension benefits accrued by every single member. There is no need to rely on the Government's revenue in 30 years to pay my pension, because that money's already in the bank. But corporations have sought to evade the requirement to hold those funds in trust. Government and business have sought to evade their obligation to maintain their pensions in a fully funded state. And government has given them permission to do so.

The unfunded state of pensions today is a direct result of employers' attempts to evade their responsibilities. It strikes me as entirely unjust for an employer to seek relief from circumstances that are entirely of the employer's own making. It's not as if they didn't know what their contribution obligations were--but they chose to seek ways to avoid making them, preferring to rely on tomorrow's revenue, rather than saving from today's revenue.

Putting the blame on unions for negotiating generous deals entirely misses the point that corporations, having signed the deals, took on obligations that they deliberately avoided, and now seek relief from honouring altogether. For shame.

Correct. And what happens when a person has a contract obligation and the other side is broke? They get NOTHING. That's the reality. Contracts are only good if there is something of value you can levy against to ensure you get what you bargained for. That's one of the points I was making.



Normally, that would be correct. However, when you see how outrageous some of these pension plans are, you must question if the bargainer on the other side honestly could think they would get what was promised. Again, in some cases (rare), the retiree gets more in pension payments than they earned when working. That is very atypical.



I agree.



My position is simple....as you point out above, pensions are not being run as they are supposed to be run. If you have a pension and know that the law allows your employer to borrow against it, you better watch out. If you think your pension/retirement package is safe AFTER you start drawing on it, you better watch out (courts have ruled that an employer can change the terms of a retirement package after the fact...even if you are already retired).

Any union negotiator that thinks they can make deals and nothing can go wrong is an ignoramus. The warnings are out there, and you'd have to choose to be blind to not see what's happened.

If a negotiator gets a deal that seems too good to be true, perhaps they should look closer. For some of the lavish pensions (that are now in trouble), I have no doubt the deal was made with the expectation that someone down the road would figure out how to honor it. You can put all the blame at the employer's feet, but I hold that the other side bargaining should have known what they were demanding was not realistic and could be in jeopardy down the road.

You hire a lawyer to draft something that prevents problems down the road. Would you blame the other party to the contract if your lawyer got sloppy and neglected to address key issues in the contract and when they happened, the contract was of no use in protecting your interests? No. It was your lawyer's job to look out for your interests long-term. Sloppy work is your lawyer's fault, not the fault of the other parties to the contract.

But you are presuming that the munipality in question is insolvent due to liabilities exceeding their assets. I suspect that what we are dealing with is current liabilities that exceed their revenue. They're not in a negative equity situation, they're in a negative liquidity situation.

I think if you started seizing assets and selling them off, the cash to fully fund the pension fund would materialize from that exercise. (Though I could be wrong).



But there is no principal that permits a contracting party to repudiate a contract on the grounds of "outrageousness." A bad deal it might be. Well, tough. You signed the deal, and then you failed to put the money aside to meet your obligations. Don't come complaining to me now that the deal is outrageous--you should have dealt with the outrageousness at the time, either by refusing the contract, or jacking the employer and employee contributions to ensure the plan was funded.



You are getting precisely to my point--Government is creating an environment in which individuals are put at risk by permitting employers to mess with their pensions.

I don't disagree that anyone negotiating a pension deal today has to be aware of the shoddy environment that has been created--but that does not mean that bargaining units are responsible for that mess. Unions did not give companies permission to borrow pension funds. Unions did not give companies permission to defer contributions. Unions did not give companies permission to arbitrarily change contractual entitlements.

Turn your last statement around: You hire a negotiating team to negotiation a collective agreement with your bargaining unit. You and your negotiating team are sloppy and you agree to terms that you will have trouble financing. Do you blame the bargaining unit for your sloppiness? No. It is your job to look out for the ongoing financial health of your business. It is not the bargaining unit's job to manage your business for you.

The article cited in the original post says these towns do not use social security - that these retirement plans, unlike the current federal plan - is instead of social security, not in addition to it.

I think that's an ill advised approach, and towns like that should fix it.

Actually, I know of towns that do that and the retirees do better than Social Security, but then again, Social Security has no money in it. It's lumped in with general revenue and spent....replaced with an IOU for future budgets to deal with...hence our current crisis (in part).

Perhaps, but a municipality generally has no assets. The property is that of the community and anything owned of the municipality is necessary or would just create a bigger problem if seized. Unlike a corporation that owns its own assets.

Often, municipalities in a bind will raise revenue with new and larger taxes, but this causes people to leave...impacting overall intake.



True. Of course, here's the distinction I'm getting at. In some places, some states, union power is oppressive. They can shut things down to the point that times are unbearable, and this means if they don't get what they want...ALL OF IT...they will make you pay.

Normally negotiations have some level of balance of power. In some states, the unions have an overpowering ability to get what they demand. The municipality/company could say "no" and be destroyed in the process. Maybe they should call their bluff and see what can be done...that was part of why teacher's unions in Wisconsin recently lost collective bargaining rights. You had unreal situations with bad teachers keeping their jobs because you pretty much could not afford the legal fight to fire them but good teachers could be let go for budget cuts because they were new hires.

I disagree with your first statement. How much of a typical city in the United States is parkland? Almost invariably, parkland is land held in fee simple by the municipality (which is an entity with corporate personality). There may be some trusts out there, but in a circumstance in which retirees are claiming breach of trust with respect to pension funds improperly used, there are a host of equitable remedies available, including collapsing perpetual trusts.

Other municipal facilities include public housing, libraries and other cultural institutions--not to mention the real estate sitting under City Hall.

Now, don't get me wrong, I don't advocate a "slash and burn" approach to funding pension deficits. But I think it is the responsibility of the state government to see to it that these deficiencies are made good. The state and its citizens have reaped the benefit of services at below their proper cost, and the time has come to pay the piper.



Call the union's bluff. Which side has the deeper pockets, the state or the union? Let them fight each and every dismissal for cause and see what happens to their strike fund. I am a firm believer in collective bargaining--but I am also a firm believer that it is managements prerogative to dismiss employees who fail to properly perform their jobs.

The truth of the situation is that management is failing to do its job properly. Principals are provided with little or no training and support in HR management (after all, they trained as teachers, not as HR professionals), and little capacity to undertake performance management, and to deal with problem performers. That's not the union's fault, either. If a school district wants to fire a bad teacher, first they have to demonstrate that the teacher is a bad teacher. If you don't give your principals the tools to assess people fairly and properly, then you have no reason to be surprised at the result.

But don't blame the union because you don't support your principals.

But that is not the "city's" property to sell, and if sold, it is held for the public trust. A library is not the property of the city, it's the property of the residents of that city. To order the liquidation of the asset to satisfy a contract would likely violate many state laws on issues of sovereign immunity and accounting rules.

A private company owns a parcel of land, that's it's property. It gets more complex with political corporations.




That is a legal issue yet to be addressed. Certainly the US Government is putting the nation into a black hole of debt. At no time did I give the US Government the express authority to bind me for its indebtedness. You can argue "public good" and other nonsense to say I benefited, but really, the vast majority of government spending has ZERO "public good" for the average person. It's pork spending for special interests or (right now) wars that are not really related to national security, etc. Why do you think so many Americans are so hopping mad over government spending and debt? We are drowning in our own economic problems without government obligating us for tens of thousands of dollars we don't have to give.

Likewise, labor contracts with city employees are not the "public good" of the citizen, and if you threaten to tax the people too much to pay for it, they can move away or vote you out of office for trying to raise their taxes.

Otherwise, your argument would be similar to saying that if a company can't pay its contracts, it falls upon the customers to pony up the money. Certainly, costs do get passed to the customer, but raise prices too much and they won't buy your product/service.




I see you are in Canada, I suppose union matters are VERY, VERY DIFFERENT from how they happen here in the USA.

Who has deeper pockets? Hard call. Cities DO NOT have infinite funds. Trust me on this, they don't. States fare better...often because their lawyers are on staff and on a paycheck/benefit package. Still, let's say you don't give in to a union's demands...here's what will happen.

They will go on strike and do everything they know how to do to spin the media that you (the city/state) are the bad guy. As the strike drags on and impacted services are neglected, the public gets more and more upset because X service isn't being rendered. In time, the public sentiment turns against the city/state and the union usually gets its way. Never mind illegal "sympathy strikes" by other unions that shut down Y and Z services for periods of time.

Now, I don't know about Canada, but illegal strikes are near impossible to punish in the USA. Why? The due process requirement to fire any one worker for illegally striking isn't worth the cost and time involved. It's not enough to show they didn't show up for work...or that they walked off the job. There are how many contractual protections that make it too much work to try and punish them for their illegal activity. Then, the NLRB (National Labor Relations Board) can be brought in to deny the city/state/employer the ability to fire anyone. If the man in the White House is a liberal/Democrat/union-sympathizer, you likely will have NLRB that vigorously will defend the union workers no matter how blatant their misconduct.

If you didn't understand why there was so much fuss over Wisconsin revoking collective bargaining rights for teachers unions, you need to understand what took place.

1. Teacher unions not willing to negotiate in a time when there are massive job losses and pay freezes in other private and public sector jobs (public sentiment against the unions demanding more and more).

2. Public opinion being against bad people keeping their jobs while good people are let go. Non-union jobs don't have this. Employers can let go of bad workers and keep/promote good ones. Unions protect based solely on longevity. Bad conduct terminations are so lengthy and expensive it is CHEAPER to keep someone on the payroll than fire them.

3. The conservative/Republican government took a stand against this, and the public supported it. The Democrats in office ILLEGALLY fled the state and moved from hotel to hotel to avoid the media, the public and the police...all to prevent government from taking a vote they knew they didn't have to votes to block. All that protesting you saw on the media, the vast majority of attendees were bussed in from other states with union workers and supporters.

4. Why is collective bargaining is bad for public sector jobs? It is because often the people on the other side of the bargaining table (or have the "signature authority" to approve a deal) are on the take from the unions which are allowed to make massive financial donations to electoral campaigns. There is nobody on the state's side who couldn't lose funding or see their next opponent massively funded by the unions they opposed at the negotiating table. In essence, the union has a level of control ON BOTH SIDES of the negotiation table. I don't know if Canada has a similar problem, but in America, this is so with public-sector jobs.

So, in America, a union can have insanely disproportionate power to negotiate. Most negotiations are reasonable. A few are not.




That would be true in most cases. Some are the exception. Hence why Wisconsin voted to take away collective bargaining rights from the public-sector union. That Unions exercised controll on both sides of the negotiating table was wrong and finally the state leadership had the votes to end it.



Again, things must be different in Canada. It is not that way in the USA. Frequently, when a union is involved, the process to terminate a bad employee is lengthy and expensive. It's not a matter that the principal doesn't know how to do their job. It is a matter of how much it involves. The union has the teacher's back, and even in the face of documentation that would not only get you fired on any non-union job and keep you from every working again in that field, it's still a challenge to terminate bad teachers in some school systems.

Examples of how messed up things can be....

1. Minimum job requirements. A custodian should have to do whatever falls within the scope of his job. There are cases where a unionized custodian has a filthy area that he manages. Why does he not clean it up? The labor contract sets the "minimum" duties he is required to perform. He does that and no more. Certainly the "minimum" is not enough to meet the need, but he won't do more than the minimum required to satisfy the profile for his job. Hence, there is no contractual grounds to fire him. Any other non-union job? You'd be fired for that attitude on the spot. Your only justification for not doing all the work under your domain is that it is too much for you to manage as one person. To say, "I mopped the floor once this week and that's all the contract says I MUST do" is not going to fly on a job where the floor needs it 2 or 3 times a week.

2. Chronic rule breaking...one at a time. Postal unions have enshrined a generation of useless workers the Postmaster can't fire. They know the ins and outs of the union rules and procedures. They know the rules and regulations of the postal system. They know they can be terminated on a 3rd offense, but it's not the 3rd offense in total...it's the 3rd offense for the same action. So, they can readily document a worker chronically breaking rules, but unless they catch him/her on a 3rd offense for a particular violation, they still can't fire them...even if there is a file drawer full of violations documenting his bad action.

Certainly, these two situations, in good faith, were intended to give a worker a sense of what they MUST do in the course of their workday/workweek. Certainly, the purpose was to ensure a person who does something wrong would not be dismissed for their first mistake, but the labor unions choose to tolerate the workers exploiting the rules literally so they can do as little as possible, be a bad worker, break rules, and ultimately, avoid being held accountable. If not for the union bailing them out of trouble (because contractually they must), these people would be fired and likely would never work again without first having a major attitude adjustment.

So, yes, the unions bear some of the blame for this mess. They have many people who are unreasonable, irresponsible and feel neither they nor their members should be accountable for any of their poor choices.