Wednesday, November 14, 2012

What Is A Defined Benefit Pension?

By Ron York

A defined benefit pension is an arrangement where an employee agrees to receive less money for the years of active employment in exchange for the employer agreeing to pay the employee for the rest of his life.  It is a very simple concept.

 A person that has a 401(k) plan with an insurance company can elect upon retirement to get a guaranteed check for life or a guaranteed check for 10 years, without regard to the date the employee dies.  The amount of the checks under the two options are not the same.

Let's apply this same explanation to a new employee coming to work at a police department.  To simplify the computations and make it easier to grasp, I have made the following assumptions:

  • There are no step or longevity raises.  The base is the same for every police officer.

  • Wages will grow at an average annual rate of 4%.

  • The discount rate, assuming it is invested properly, is 8%.

  • The employee will work for 30 years and live 20 years after retiring

  • The pension plan is 90% of final pay

  • Annual pay for an employee covered by the pension is $100,000

  • Employees contribute 10% of pay to the pension

  • Take home pay is $90,000 per year

  • The annual pension check is $90,000 

  • Under this scenario, the employee will receive $90,000 per year for 50 years.

    Last year, the city decided to phase out the defined benefit pension.  The employees will be paid in full during their employment years, but to keep from ruffling anybody's feathers, the city will let the employees pick which plan they want.

    Here are the options:

  • 50 annual checks in the amount of $90,000 (without COLA adjustments)

  • 30 annual checks in the amount of $112,683 (without COLA adjustments)

  • Using the above assumptions, both plans are of equal value, if compared at present value.  Before you pension haters have a cardiac arrest, forget about the validity of the assumptions.  You can use any assumptions you want.  This presentation is only shown as a concept, and is not being held as typical or average.

    Let's review the pension arrangement.  In exchange for a lower paycheck during the active years, the employer agrees to pay the employee for the rest of his life.  Notice, it is not a commitment by the employer to make deposits into a pension plan.  The employer only commits to annual checks, not some advanced funding mechanism.  Screw GASB!  GASB does not apply!  GASB has nothing to do with funding of pensions.  GASB is only about ink on paper, not reality.  GASB only rules in Kubla Kan or some other abstract place.  The deal is between the employee and the employer. GASB has no standing.  The employer can pay the deferred amount however it wants.  It can pay the full amount on the first day of employment or pay the deferred amounts as they come due, or anything in between.

    If there are any of you brain dead GASB parrots left, then go ahead follow the non-applicable rules handed down by the idiots in Norwalk, which allow you to contribute nothing for years, followed by years where you have to pay out the wazoo. The rest of you with a still functioning brain restructure how you are paying for the deferred amounts.  Don't assume that investment returns will be in crapper into infinity.

    Has anyone seen my unfunded liability?  No!  I do not have a description.  All I have ever seen is some ink on a piece of paper that claimed to be a proxy.  Boy, that unfunded liability is as elusive as "Red John" or the "one-arm" man.

    Before I go, let's have a pop exam.  How much cash does a billion dollar unfunded pension liability demand?  Envelope please.  And the answer is none - zero.  You see, the very fact that it is shown on the balance sheet is proof that it is an unliquidated claim.  Only liquidated claims (the pension checks as they come due) require cash.  But, GASB!  But, GASB!  Yeah, yeah!

    Tuesday, November 13, 2012

    Escape From Norwalk

    By Ron York

    "There is a house in New 
    Orleans They call the Rising Sun
    And it's been the ruin of many a poor boy
    And God I know I'm one" 

    The Animals - 1964

    Norwalk, Connecticut, the Alcatraz of your pension plan, is a rather benign place with nice homes and well manicured lawns, but within the boundaries of this tranquil New England town is a "House of The Sinking Sun" for your pension - The Governmental Accounting Standards Board (GASB). GASB is a collection of accounting eggheads who write the rules for local government financial statements.  It is this esoteric group that has set up the current pension crisis with their absurd theories of economic reality.  Let 's go through this one more time:


     In case you did not hear that:


    Then why the hell are cities screaming to the heavens that they have to fund their pensions using the GASB fiat?  They're idiots, fools, on drugs?  Nah, it is plain and simple - they are liars and they know it.  They want to eliminate your pension and the GASB lie is just the ticket.

    If any of you self-righteous zealots are "offended" by my remarks, prove me wrong!  But, before you get very far into your "hate mail", answer this question: "Do GASB rules apply to the actual funding of defined benefit pensions?"  Yes or No - no equivocation. (A self-imposed ordinance does not count)

    As for police unions and police officers, forget about reforming your city leadership.  They have been lying about this issue for years, they are lying now, they will continue to lie. You must extricate your pension from GASB and your city leaders.  It can be done if you are determined. 

    Pension plans?  Fire the city and their "prophets" (actuaries).  Kick GASB into orbit.

    The Purging of The Tea Party Has Begun

    By Ron York

     Still reeling from defeat at the polls, the Republican Party has assigned blame to the Tea Party and has begun a purge of the extreme right leaning coalition.  John Boehner and company are done taking falls for this group of uncompromising small government zealots. In the end, they could not deliver the vote. Today's house cleaning by the Republicans is much like the actions by the Democratic Party after the 1972 debacle.  Before you start playing Chopin's Funeral March for the Tea Party, you need to be absolutely certain that the beast is dead.

     Although mortally wounded, the Tea Party is still lethal and will be for some time.Their venomous Credo has taken cult like roots all across the nation. Motivated by frustration, the real fanatics in this political sect will go on suicide missions - "Damn the torpedoes.  Full speed ahead."

     World War II was over in October 1941 - two months before Japan bombed Pearl Harbor. October 1941 saw Hitler make the largest strategical blunder of his Third Reich reign of terror. He invaded Russia (USSR), another tyrannical hell hole ran by even a colder bastard - Stalin.  The Nazis should have just surrendered that autumn, but they didn't. It would be more than three years and millions of deaths before the hostilities would end.

    During the period from October 1941 and April 1945, Hitler damn near wiped out the European Jews - all after Germany's death warrant had been signed and sealed. The Tea Party is has begun its trek down the same road, while refusing to concede a single inch.  The Speaker is now focused on the longevity and relevance of the Republican Party.  As for Paul Ryan?  He is not the future of the GOP, but only a brief historical episode.  As Cousin Eddie said in Christmas Vacation "Clark, if that cat had nine lives, he spent them all right there."  As for the U.S. Capitol, the Tea Party is about to become persona non grata. But, in your town, the Tea Party still has some reprise performances.

     Before the Tea Party is emasculated at the local level, pension plans for police and fire will be only hollow shells of what they are today.  Police unions that hesitate to take action will end up in the political gas chambers.  It does not matter that you make it until two days before the surrender, you are still dead.  The smart union will adapt, compromise, and live to show the tattoo on its forearm, while the others get their names engraved on a stone memorial. 

    Postscript: How did we get into this mess?  Police unions made the same mistake the Tea Party did - we overreached and got slapped down.  Pick yourself up and start making amends before your pension is just another casualty.

    Monday, November 12, 2012

    You Are Already Dead and Do Not Know It!

    Ron DeLord
    By Ron York

     Most of you are walking dead pensioners.  Your pension is about to be eliminated and you refuse to acknowledge it or you do not know what to do to prevent it.  Even the national police unions are paralyzed by the unthinkable, as they continue to conduct pension seminars that focus on lawyers, investment advisers, and ministerial duties.  None of these will matter in a few years.

    Ron York
    There is a way to save your pension, but it is not found in the conventional wisdom of today.  The solution has to be implemented before your pension is gutted by over-zealous politicians.  It has to be done now, not as part of a long-term "strategy."  If any of you have any strategy, long or short term, please mail it to me.  I haven't seen one yet.

     Want some answers?  Real answers?  Come to Jacksonville January 30 and 31 to get some real answers.  A two day program addressing this very issue will be presented by Ron DeLord and Ron York.  Two old geezers?  Damn right - with over ninety years combined experience.  Two radicals?  Do you really believe the same old tripe will save you this time?

     Today is the day of reckoning.  Are you prepared?  Tell the truth.  You do not even know what prepared means, let alone how to achieve it. For some of you, it is already too late.  Nothing can save you.  You are toast. Those of you still standing download the brochure, complete and submit the registration form and then book a flight to Jacksonville.  It will be the best investment you ever make.  I guarantee you it will not be the usual old crap you hear everywhere else. Tired of having sunshine pumped up your skirt?

     Come to Jacksonville and get in your face, bona fide answers.  Learn from the most controversial police labor leader on this planet.  Learn from a man who couldn't win a popularity contest if his life depended on it, but has stood for election and won many times.

     Think we are full of crap?  Send a fire breathing email to   The rest of you?  Wise up and take control.

      Jacksonville Brochure