Pensions on the Brink of Bankruptcy

Collective bargaining and pensions for public-sector employees should have been history a long time ago. In the private sector, you don’t get tenure for simply showing up for work for three years or for writing a few articles here and there that happen to get published. In the private sector, you do your job without the promises of tenure or a pension, and in this economy you probably do a lot more than you have in the past to improve your job security. In the end, as a member of the private sector, you save as much as you can in a 401k and other savings accounts and take responsibility for your own retirement.

Collective bargaining and pensions for public employees are putting Rhode Island on the brink of bankruptcy. The pension disaster made the front page of The Washington Post last week: “Rhode Island Considers Radical Moves as Pensions Put State on Brink.” Rhode Island is a microcosm of what will take place on a national scale in states, cities, and towns that have made promises that their bank accounts simply cannot keep.

In Rhode Island, as in other states, expected returns have missed their mark for years. Employee contributions are maxed out and the money is going to retired workers, not to an account in that employee’s name. Taxpayers will not take on an additional burden and at the same time see basic services deteriorate. If anything, taxpayers will look to the government for more services to free up money in order to get out from underneath a mountain of debt.

The Wall Street Journal in “Debt Hobbles Older Americans” reported that 39% of households with heads aged 60 through 64 had a mortgage in 2010 and 20% had second mortgages including home-equity lines—up from 22% and 12% in 1994. Meanwhile Americans of all ages owed $11.4 trillion at the end of the second quarter—double what was owed in 1999.

Cuts will need to be made to existing retirees on a scaled-out basis and based on need. Current workers will need to be shifted over to a 401k-style savings plan. Yet after you read these comments, you get the picture that not much will get done. Union and political leadership will make sure of that.

Rhode Island Senate President Teresa Paiva Weed:

“The union leaders have been working with the general treasurer. They very much want pension reform, because they’re concerned about… the viability of the pension system.”

Philip Keefe, president of the Rhode Island Alliance for Social Service Employees, Local 580, a member of the pension-advisory group appointed by state Treasurer Gina M. Raimondo and Governor Chafee:

“I don’t know what those changes are going to be… [but] if they are Draconian, I will lobby day and night to defeat them.”

J. Michael Downey, president of Council 94, American Federation of State, County, and Municipal Employees:

“My position has been and will continue to be [that] there were certain commitments made when people were hired, and we should do our best to keep those commitments.”

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.