Category Archives: public employees

Unsolicited Advice for a Police Union

Rockwell cops I write this from the perspective of a former public sector union member and officer. I write this without rancor for other public section union members and their officials, but I write this because there is a difficult line to walk between protecting the interests of the membership and drawing lines between the members and the communities they serve.  Once those lines are drawn they are very difficult to erase.

There is always a temptation on the union side of the ledger to focus  on protecting the individual member from disciplinary actions, from demotions, involuntary transfers, dismissals, or refusals to re-employ.  That’s part of the job.  However, some disciplinary actions are both appropriate to the situation and often inevitable. Therefore, the focus of the union representatives is more productive in the long run if the philosophy is to protect the due process rights of the member, and the provisions of the master contract.  Put ever so much more bluntly, there are times when it’s necessary to tell a member, “I’m here to help you offer the best defense you can, if you can dream one up.”  

What is not helpful is to operate on the assumption that every member (or non-member in some instances) is worthy of full throated public support.  Nor is it helpful to assume that criticism of one, or a few, is necessarily criticism and vilification for all.    Yet, that seems to be the standard operation in a few high profile union/community examples.

“The St Louis Police Officers Association claimed that officers found the actions of (St. Louis Rams) Tavon Austin, Stedman Bailey, Kenny Britt, Jared Cook, Chris Givens and Tre Mason to be “tasteless, offensive and inflammatory”, and demanded that they be disciplined.

Five of the players emerged for their game against the Oakland Raiders on Sunday with their hands aloft, a gesture used by protesters who claim that Brown was surrendering when he was shot dead by officer Darren Wilson on 9 August. Last week a grand jury decided not to indict Wilson.” [Guardian] December 1, 2014

Wouldn’t it be nice if ALL police officers, firefighters, teachers, nurses, aviation employees, letter carriers, and state and municipal employees were respected for the countless hours of service they provide?  If everyone understood that first responder vocations are of paramount importance? If everyone understood that teaching and nursing are high stress occupations with long hours and little overtime?  However, respect doesn’t necessarily indicate adoration, reverence, and exaltation.   Further, demanding veneration means there will be higher standards applied to the members of the organization.  The old line applies: If you want to be respected do your job; if you want to be worshipped you have to do your job perfectly.

Mix a bit of racial tension into this toxic stew and there’s a recipe for unhelpful recrimination.  

“Pat Lynch, president of the Patrolmen’s Benevolent Association, blasted de Blasio for his inflammatory remarks, which followed Wednesday’s decision by a Staten Island grand jury not to indict cop Daniel Pantaleo in the chokehold death of Eric Garner.

“What police officers felt yesterday after that press conference was that they were thrown under the bus,” Lynch said.

De Blasio had called the Garner case “profoundly personal for me,” saying that because of “the dangers [Dante] may face, we’ve had to literally train him . . . in how to take special care in any encounter he has with the police officers who are there to protect him.” [NYPost] December 4, 2015

That a father would have The Talk with his son about interactions with police officers is common in the African American community.  I have yet to meet an African American who hasn’t been followed in a department store at least once, or hasn’t had The Talk with a son, grandson, or nephew.  Yes, The Talk implies a negative perception of the police, but an essential part of The Talk is to show respect for the officer and the directions given.  No one is getting tossed under the wheels of any imaginary bus – this is simply generational wisdom passed along regarding how to cope with some people in authority.  There are also  Talks about how to cope with cranky teachers, or how to behave in a department store.  These same talks are replicated in the white community, although without the sense of urgency and fear.  “Respect your teachers, respect police officers, keep you nose clean and mind your manners.”  Aren’t those things what we want all kids to do?

When the dust settles, let it settle. The outcome of mediation, arbitration, or litigation may not be the desired outcome for the union, but once it’s done it should probably “stay done.”  Such as in the case of the Eric Garner settlement in New York:

“Sergeants Benevolent Association head Ed Mullins, meanwhile, had a different take. In an interview with the NY Post (who else?), Mullins described the settlement as “obscene” and “shameful,” asking the tabloid’s readers, “Where is the justice for New York taxpayers? Where is the consistency in the civil system? In my view, the city has chosen to abandon its fiscal responsibility to all of its citizens and genuflect to the select few who curry favor with the city government.” [Translation: AL SHARPTON AL SHARPTON AL SHARPTON.] [Also: AL SHARPTON.]

“Mr. Garner’s family should not be rewarded simply because he repeatedly chose to break the law and resist arrest,” Mullins concluded. (Police claim Garner had been selling loose cigarettes outside a Staten Island deli when officers approached him.)” [Gothamist]  July 14, 2015

Or, in the case of Tamir Rice’s family in Cleveland:

“The head of the Cleveland rank-and-file police union says the family of 12-year-old Tamir Rice should use money from a $6 million settlement to educate children about the use of look-alike firearms.

Steve Loomis, the president of the Cleveland Police Patrolman’s Association association, was criticized on a national scale for statements he made to the media in the weeks and months after two officers in his union were involved in Tamir’s death.” [Cleveland PDealer] April 25, 2016

When enough has been said, enough has been said.  Until it happens again —

“Four off-duty Minneapolis police officers working the Minnesota Lynx game at Target Center on Saturday night walked off the job after the players held a news conference denouncing racial profiling, then wore Black Lives Matter pregame warm-up jerseys.  Lynx players did not wear T-shirts supporting the Black Lives Matter movement ahead of Tuesday’s game in San Antonio.

“The Lynx organization was made aware about the concerns of the off duty Minneapolis police officers,” the team said in a statement. “While our players message mourned the loss of life due to last week’s shootings, we respect the right of those individual officers to express their own beliefs in their own way. … We continue to urge a constructive discussion about the issues raised by these tragedies.” [MSTrib]

[…]

“Kroll (Minneapolis Police Federation) criticized Lynx players, citing the “false narratives” in the past two years in which some allegations of police misconduct in the killing of black people were refuted. “Rushing to judgment  Police sign up for off-duty jobs to work Lynx games, Kroll said. “They can start or stop a job whenever they want,” he said. “They are working on an independent contract.”

Asked about a report that seven or eight officers had walked off the job, Kroll said, “They only have four officers working the event because the Lynx have such a pathetic draw.” [MSTrib]

Here we go again.  Lt. Bob Kroll commends the officers for walking off, and then slathers on a bit of misogyny about the “pathetic draw.”  Putting distance between your union and your community doesn’t serve most positive purposes – in terms of  issues both philosophical and practical.

On a philosophical level, if we assume  there is already a divide between the African American community and the police – how does walking away from a potential opportunity for “constructive discussion” help anyone? What of, “I protect and defend your rights, including freedom of speech, until you say something I find offensive?” From a practical standpoint, the Lynx organization already hires private security; does it help other police officers trying to earn  extra pay if they are perceived as potential ‘walk outs’ should they be in any way offended by players’ statements?   The police chief tried to tamp down the rhetoric:

“Walking off the job and defaulting on their contractual obligation to provide a service to the Lynx does not conform to the expectations held by the public for the uniform these officers wear,” she said. “While I do not condone the actions of the officers, I realize how every member of law enforcement throughout this country, including myself, is feeling right now.” [MSTrib]

Here’s a thought: When the employer is trying to smooth the waters for the union, there’s a possible need to curtail wave making actions.  There are already calls for the privatization of police  [HuffPo] popular in some libertarian quarters, and touted as a ‘solution’ to police/community relations.  If your opponent wants to make a cudgel, refrain from handing him a tree branch.   Or a tree trunk, as in Denver:

“It’s only natural that some police departments reassess how they handle protests after the terrible shootings in Dallas last week that left five officers dead. But the demand by the Denver police union in the wake of the tragedy that local cops wear riot gear during protests was truculent and out of line.

The union has been pushing for the use of riot gear at protests for two years, ever since demonstrations in Ferguson, Mo., spread across the country. But the tone adopted by Nick Rogers, president of the Denver Police Protective Association, in a letter to Mayor Michael Hancock and police Chief Robert White, was rude and combative, while some of its factual content was questionable.

Basically, Rogers warned those two officials that if any officer not wearing riot gear is injured during a protest, the union will attempt to hold them personally liable, citing federal court decisions that “officials can be liable for the acts of third parties where those officials ‘created the danger’ that caused the harm.” Presumably he means the union will sue the mayor and chief in an effort to blame them.” [DenverPost]

There’s also something to be said for an employer who is trying to maintain the public image of police as public servants and not an armed militia out to suppress citizens, some of whom are already reluctant to give the police the benefit of the doubt.

Highly publicized emotional comments in highly volatile times, too often made from intransigent positions predicated on “us vs. them,” may garner approval from some quarters but approbation from others.   It’s best to function from the position that there are those who will always be in support no matter what the issue; however, it’s the increasing level of approbation which ought to be of primary concern.  Listening to supporters is always comforting; listening to the adversaries is always necessary.  On a more tangible level one thing the police unions would do well to avoid is the perception (now conveniently applied to public school teachers) that the union will protect the “bad apples.”

The recent devolution of respect for the teaching profession includes the argument that “schools are bad, they are bad because of bad teachers, and unions are bad because they protect those bad teachers.”  That none of this makes any sense isn’t the point. We certainly don’t need for some elements in the political spectrum to start arguing that “policing is bad, it’s bad because of bad officers, and the unions are bad because they protect those bad officers.”  Once this contamination spreads it’s more difficult to resist the privatization proponents.

If the perspective is truly to defend the due process rights of police officers, and to protect the provisions of the master contracts, then it’s much easier to defuse confrontations.  Due process and contractual elements aren’t personal.  Personalizing them adds emotion, emotion reduces discourse, and reduced discourse increases confrontations.  Negotiations are rarely improved by adding confrontation into the milieu. There is, indeed, a time for more collaboration and less conflict.

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Filed under civil liberties, conservatism, labor, Politics, privatization, public employees, racism, unions

Amodei, Heck, Hardy, Sell Out Seniors

Amodei 3 There are three members of the House of Representatives from Nevada who, as of April 28, 2016 at 3:23 pm roll call vote #176, don’t get to talk about protecting retired persons, and their interests.  One of these members is Mark Amodei (R-NV2) who decided to vote “yes” on a House temper tantrum about Department of Labor rules on fiduciary duty.

Heck photo

Representative Joe Heck (R-NV3) is the second.  Congressman Heck decided that investment advisers should be allowed to put their own interests ahead of the interests of their retirement account clients.  Perhaps he’s touting the GOP line that making the investment advisers put clients’ interests ahead of their own profits would mean higher costs for investment advice.   The GOP says they want to “protect access to affordable retirement advice.”  If you are inclined to believe this I have some investment advice for you….free of charge.

Hardy 2

And, the third one who doesn’t get to talk about protecting retirees? Nevada 4th District Mr. Malaprop, Cresent Leo Hardy, Republican from Mesquite.   He seems to like the “old standard,” and this raises the question why?  Let’s take a look at the “old standard:”

“Before the new standard, advisers were only required to give “suitable” advice, which left the door open for them to steer clients into products that made the advisers more money but weren’t the best option. That practice was costing Americans an estimated $17 billion a year in conflicted advice, according to the White House. Some people say their finances, particularly their chances of retiring comfortably, have been destroyed by bad advice and that they would have simply been better off without it.” [TP]

Yes, we have it, Representative Hardy evidently believes that it is better for Americans to waste $17 billion per year on conflicted investment advice than to hold advisers to a higher standard of fiduciary responsibility.

Titus

One, that would be ONE member of the Nevada congressional delegation voted to hold financial advisers to a higher standard than “just what will best line the pockets of their firms.”  Representative Dina Titus (D-NV1) was the lone member among the delegation to vote against the GOP sell out to the financial and banking industry.

Thus, the next time one of the three Republicans blather on about how they want to protect senior citizens and retirees – We can smile and say “But what about HJ Res 88 on April 28, 2016 at 3:23 pm.”

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Filed under Amodei, financial regulation, Heck, Nevada Congressional Representatives, Nevada politics, profiteering, public employees, Titus

Great Retirement Scams: GOP pins hopes on Primerica Testimony?

GRANNY retirement As of 2013 the Census Bureau counts 13.7% of Nevada’s population as aged 65 or over.  The handy Plastic Brain tells us that amounts to 382,435 people.  Unfortunately, there’s a chunk of the 2,839,099 (2014) people in Nevada who have some silly and alarmingly self-serving ideas about how retirees should plan for those Sunset Years; and, more egregious ideas yet about how those under 65 should be planning for their retirement.  These would be the people in the “privatizer and opportunist” category. Let’s take a look at both. First, a quick review of the privatizers and Social Security (and by extension any public retirement program), and then a gander at the opportunists as exemplified by the unfortunate choice of champions brought to us by Senate Republicans.

The Great Scam

FALSE: “Social Security is Going Broke!”  Underpinning the Great GOP Retirement Scam shuffle is the notion that somehow Social Security “isn’t going to be there for young people…” and therefore younger Americans should pile their retirement funds into private sector wealth management schemes.  “But, but, but,” blubber the privatizers, “the Trustees Report and the CBO agree it will be b’b’b’..bankrupt by 2042 or 2052.” [CNNNo they didn’t.

They reported that in order to provide promised benefits for elderly people  the Social Security Administration will have to tap into the reserve fund – it is not – repeat not – going bankrupt. Nor, will those receiving benefits from the reserve funds live forever, thus at some point the system will stabilize. Tapping into the reserve fund – which was put in place to deal with the Baby Boomers – is not the same as “going bankrupt!”  There are some basic facts (of life) to deal with at this point.  The Census Bureau report, An Aging Nation, (2014) explains carefully: 

“In 2050, every age group is projected to be larger than it was in 2012. This is not the case between 2012 and 2030 or between 2030 and 2050. For instance, the number of men aged 48 to 58 and the number of women aged 47 to 58 in 2030 are projected to be smaller than those in the same age groups in 2012 (see Figure 2). This is because large cohorts of baby boomers were in these age groups in 2012, and smaller and younger cohorts will have replaced them by 2030. Similarly, the number of women aged 66 to 77 is projected to peak in 2030 and be smaller in 2050 than it was in 2030, as the smaller birth cohorts born in the late 1970s moves into these age groups.” [Census pdf]

A “smaller” cohort means that once the baby boomers die off, and they will do that because they are human beings, there will be less demand on the system for benefit payments.  That’s what the entire idea of the Trust Fund was based on, the knowledge that the system needed a “savings account” to get past the baby boomer generation.   “But, but, but..” sputter the privatizers, “there won’t be enough young people paying into they system..” Nonsense.  Take a look at this chart from the report on aging: (figure 2)

age structure us population chartSeriously, does anyone really think there are going to be more elderly retired people than younger workers in the foreseeable future?  If someone believes that then I guess I would try to sell them some scammy retirement savings plan!  I could also try to sell them an automatic kitchen gadget that “Cools your water in an instant! No Ice Cubes Required!”

FALSE: “Social Security won’t guarantee your retirement…”  this is right so far because Social Security was never meant to be an entire retirement program – it was meant to keep elderly people out of abject poverty.  However, the rest of the privatizers’ pitch gets more dicey, “therefore we should privatize the system and let people have a Choice…”  There’s a reason Social Security is called a Social Safety Net. It’s the safety net in case all else fails and an elderly person has little else to fall back on.  That we have a Social Security system to keep people from falling into an abyss of poverty doesn’t mean that people can’t choose to augment their retirement plans with pension plans, savings accounts, equity accounts, and all manner of other savings vehicles.  The privatizers would like for us to forget that we already have (and have had for decades) alternative savings plans for retirement!  The privatizers would be perfectly pleased to get all the money that’s paid into Social Security funneled into the hands of Wall Street traders… now there’s a thought that should lower one’s body temperature, or raise the blood pressure?

And now we get to the good part wherein the privatizers and scammers walk the halls of Congress to promote those alternative and supplemental retirement savings financial products.

retire savingsHowever, some of the plans are a dream for some and nightmares for others.  

The Smaller but Painful Scams

Consider:

“Sen. Elizabeth Warren (D-Mass.) on Tuesday embarrassed Primerica President Peter Schneider, who Senate Republicans had invited to testify against a new regulation designed to protect retirement savings from dodgy investment managers. The Obama administration estimates that Americans lose $17 billion a year from investment professionals who manage retirement accounts by prioritizing their own financial interests over those of their clients. It has proposed a simple solution: making that illegal.” [HuffPo]

Hmm, the Senate Republicans INVITED Primerica’s testimony against a fudiciary responsibility standard? And, what was Primerica testifying against?

“In February, the President directed the Department of Labor to move forward with a proposed rulemaking to require retirement advisers to abide by a “fiduciary” standard—putting their clients’ best interest before their own profits. And today, the Department of Labor is taking the next step toward making that a reality, by issuing a Notice of Proposed Rulemaking (NPRM) to require that best interest standard across a broader range of retirement advice to protect more investors.” [DoL] (emphasis added)

Thus, we could assume that the Senate Republicans are in favor of allowing retirement advisers to put their own profits AHEAD of consideration for their client’s best interests?  Okay, so what can happen when an investment adviser steers a client into territory which is not in the best interest of the client but really bolsters the firm’s bottom line?

“A system where firms can benefit from backdoor payments and hidden fees often buried in fine print if they talk responsible Americans into buying bad retirement investments—with high costs and low returns—instead of recommending quality investments isn’t fair. A White House Council of Economic Advisers analysis found that these conflicts of interest result in annual losses of about 1 percentage point for affected investors—or about $17 billion per year in total. To demonstrate how small differences can add up: A 1 percentage point lower return could reduce your savings by more than a quarter over 35 years. In other words, instead of a $10,000 retirement investment growing to more than $38,000 over that period after adjusting for inflation, it would be just over $27,500.” [DoL]

Actually there was more bad news from the Council of Economic Advisers in its report on the Effects of Conflicted Investment Advice on Retirement Savings (2015 pdf).   There’s this conclusion: “A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years. If a retiree receiving conflicted advice takes withdrawals at the rate possible absent conflicted advice, his or her savings would run out more than 5 years earlier.”  And, if this weren’t bad enough, there’s another item: “The average IRA rollover for individuals 55 to 64 in 2012 was more than $100,000; losing 12 percent from conflicted advice has the same effect on feasible future withdrawals as if $12,000 was lost in the transfer.”

Thus, in general terms, retirees are losing an aggregate of some $17 billion from conflicted financial advice, losing a potential of five years worth of retirement savings value, and dropping 12% “in transfer” because of conflicted advice in the process.

And, to dispute this the Senate Republicans hauled in the CEO of Primerica? Oh, what a tangled web we weave when first we practice to deceive?

Let’s begin our Primerica Story in Florida in 2002 with a classic case of privatization:  

“Primerica’s legal battles stem from a change to Florida’s retirement system in 2002. It gave employees the option to switch from a traditional pension plan, in which they would receive lifetime benefits based on their salaries and years of service, or convert the value of their pension to a lump sum payment which they could invest in mutual funds and other securities offered through the state retirement system.”

Primerica told potential investors that they could put their pension money into an account which could (note Could) earn more than their pension benefits, and could be inherited by family members unlike standard pension benefits.   What Primerica sort of forgot to tell the state employee  investors was that the market could also go down. South. Pear-shaped. In the commode… And thus it did in 2007-2008.  By July 2013 Primerica was fighting off lawsuits in Florida and allocating $3.9 million to defend its claims in court cases and arbitrations. [Reuters]  As of January 2014 the amount set aside to settle various and sundry complaints against the company climbed to $9.3 million. [BfH]  The 2015 figure for fighting off the litigation was up to $15.4 million. [HuffPo]  And THIS was the company Senate Republicans thought would be a good source of testimony against the fiduciary responsibility rule?

So, what did the Senate Republicans get for their efforts to include Primerica’s CEO Peter Schneider on the witness list?

bamboozalah The Big Bambooza-a-lah began with Schneider’s written testimony:

“We are believers in educating the households we serve about fundamental financial concepts. Our investment education and philosophy is geared toward the needs of middle‐income households, who often are new or less experienced investors.  In that regard, we produce easy to understand educational pieces teaching fundamental investing concepts including the critical importance of taking the steps needed to start along the path of financial security.”

Uh, if your investment education process is “easy to understand” then why the escalating amount of funds the company is plowing into defending the itself  in some 238 cases?  When your defense fund increases by 295% in two years it’s pretty clear someone didn’t have a solid grip on “investment education” or “the fundamental investment concepts.”

Having wailed on about how Primerica was serving the Middle Class, a reference tossed in at just about every possible location in the testimony, Schneider got down to his real complaint “Guv’mint Regulations,” and the favored GOP buzzword, “burdensome.”

Those wonderful, admirable, Middle Class customers would be cheated of their opportunity to invest with Primerica because the rules for investment advice would be too “burdensome.”  Here comes the “Daze and Dizzy:”

“We draw this conclusion first and foremost because the Department’s expanded definition of fiduciary turns into a fiduciary act almost every conversation about an IRA that a financial professional might have. ERISA and the Internal Revenue Code prohibit fiduciaries from receiving commissions and other traditional forms of variable compensation in connection with a covered benefit plan such as an IRA unless what is known as a “prohibited transaction exemption” applies and provides relief.  Effectively, the DOL’s expanded definition of fiduciary makes an exemption from the prohibited transactions rules necessary to continue to effectively serve individuals investing in IRAs. Unfortunately, the exemption the Department has proposed to preserve the commission‐based services for IRAs – the Best Interest Contract Exemption (BIC) – is not operational.”

Translation: A conversation including investment advice for an IRA  would be covered unless there is an exemption, and the “best interest contract is not operational.”  We can take it that “not operational” means it won’t work.

This is followed by more “Daze and Dizzy” as Schneider attempts to explain, and at this point we need to parse the testimony carefully:

Instead, our primary concern is that the requirements and uncertainties of the BIC exemption are so complex and burdensome that the exemption is neither administratively nor operationally feasible. (1)  The trouble is that, from start to finish, the BIC exemption fails to offer certainty.  In operating our business, “certainty” with respect to regulatory compliance matters is critical because a failure to satisfy the proposed exemption may result in steep prohibited transaction penalties, including the forfeiture of compensation and excise taxes, as well as consumer lawsuits for breaches of contract, and potentially even class action lawsuits. (2)   Critically, the technical implementation of the exemption promises to be a substantial burden, and to cause a significant disruption of services to our clients, with no true added benefits in the way of investor protections. (3)

(1)Complex and burdensome,” could any phrase be more illustrative of any and all Republican complaints about consumer protection rules, product safety regulations, clean air and water standards?  This is standard GOP rhetoric, and no more probative because it is repetitive. Nor does this explain WHY the rule, and the exemption, would be a burden to a company intent on supervising its employees and representatives in such a way as to insure they properly represent the risks and rewards of their products.

(2)Creates uncertainty,” and again we have good old reliable Republican boiler-plate.  The well worn phrase has been applied often  to banking regulations (somehow the banks are still with us and doing quite well.) Once more the testimony doesn’t explain WHY anyone should be uncertain – IF the firm were providing the best financial advice it could in the most educational way possible.  If, however, the company was prone to, say, wrap backdoor payments and hidden fees in the fine print then they might be “uncertain” about how much they could get away with.   The fact sheet from the Department of Labor is really clear, for a technical document, about what constitutes investment advice.

(3) More boiler-plate. Now the implementation is a “substantial burden.” Not just any old regular garden variety burden, it’s substantial!  It’s interesting how many investment advisors there are in this country who don’t seem to have any trouble offering investment advice without selling products with hidden fees and backdoor payments.  In this instance old fashioned capitalism works, the firms sell products that people understand, and know both the rewards and the risks involved, then people recommend these firms to their friends and relatives – and so it goes.   If providing clear and honest investment advice without playing backdoor payment and hidden fee games is a “substantial burden,” then perhaps the business isn’t worthy of its clientele?

Then comes the “threat.” Consumers will lose their “freedom” to choose their investment advisers:

“This shift to advisory services is likely to cause millions of small balance IRA owners to lose access to the financial professional of their choice, or any at all. Those with enough investments to meet the account minimums will face higher costs and experience losses in retirement savings. These resulting losses by some estimates could be as high as $68‐$80 billion each year.”

Please. Let’s look at this from the consumer’s perspective – no one chooses to be ripped off. And, if one’s investment advisor is playing games for the firm’s bottom line at the expense of the retiree’s retirement savings then that future retiree should not be prey for the predators.   Is Mr. Schneider serious that NO brokerage firm will consider a small IRA or other investment?  That our little Middle Class man or women will be left shivering in the cold, facing the closed door of Merry, Berry, & Itch LLC, with $1,000 in hand?   Trust me, that money will go somewhere, and if it doesn’t meet Merry, Berry, & Itch’s minimum it will certainly find its way into a money market account at the local bank. If, the amounts do meet the minimum, would there be “higher costs?” Maybe, but they wouldn’t be hidden. Do private retirement accounts invested in equities lose money? Yes, again, but why shouldn’t the customer, the consumer, be made aware of this very fundamental fact?   However, we should observe in Mr. Schneider’s testimony that he presents no substantiation for his assertion that the costs will be higher and the losses any greater, other than his un-sourced “some estimates” phrase.

Senator Warren was correct to make an example of Mr. Schneider and his business model.  It should be noted that (1) the privatizers with their claims of insolvency for both Social Security and state retirement programs are doing a national disservice with false claims intended to frighten people into putting both the social safety net and public pension programs into the hands of the players in the Wall Street Casino; (2) private firms which utilize questionable business practices which involve lots of fine print hiding fees and management charges and which engage in back-door payoffs are not functioning in the customer’s best interests; and (3) trying to pass off clichéd, stale, and trite boilerplate as Congressional Testimony is unhelpful in the legislative process.

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Filed under Economy, financial regulation, Nevada politics, privatization, public employees, Social Security

Battle Born and Still Squabbling: The Waning Days of the 78th Assembled Wisdom

Nevada Flag

Battle Born and still fighting.  Day 116 and the the squabble over revenue plans and priorities continues in the Assembled Wisdom.  See Let’s Talk Nevada for daily details.  The Latin Chamber of Commerce has lined up with the Governor’s proposal. [Slash Politics]  This makes some sense because those business interests which are opposing the Governor’s plan would actually pay very little under it. [Ralston] No, it doesn’t come as any surprise that those who are opposed to the plan don’t bear most of the burden, while supporters would pay a bit more than their share.

This morning’s agenda for Assembly Ways and Means includes SB 491, “Provides for the award of a grant to a nonprofit organization for use in Fiscal Year 2015-2016 and Fiscal Year 2016-2017 for the recruitment of persons to establish and operate high quality charter schools to serve families with the greatest needs..” 

Also on the agenda, AB 480, which would allow mortgage wholesalers from outside the state to act as mortgage brokers.  AB 481 would strike the limitations on the Consumer Affairs Commissioner and B& I Director to provide investigative assistance to the Attorney General in cases involving deceptive trade practices.

The Assembly Taxation Committee will take on SJR 13, the Settelmeyer, Gustavson, Goicoechea proposal to restrict property taxes — “no new taxes, and even less of the old ones” —  “This resolution proposes to amend the Nevada Constitution to limit the amount of certain property taxes which may be cumulatively levied per year on real property to 1 percent of the base value of the property. “ How does this fit with revenue plans and local government interests? It doesn’t.  The beast got out of the Senate on a 12-7 vote.  The city of Reno estimates it will cost about $8 million in lost revenue.

The Assembly Committee on Education will be looking at SB 509 which pertains to charter schools.  From the LCB analysis:

“Existing law requires an application to form a charter school to be submitted by a committee to form a charter school. (NRS 386.520, 386.525) Sections 21 and 22 of this bill authorize a charter management organization to apply to form a charter school. Section 2 of this bill defines the term “charter management organization” to mean a nonprofit organization that operates multiple charter schools. Section 21 also revises the required contents of an application to form a charter school. Sections 21 and 36 of this bill authorize a charter management organization to request a waiver of requirements concerning the composition of a governing body. Section 22 revises the manner in which a sponsor is authorized to solicit and review applications to form a charter school.”

“Existing law authorizes a sponsor to revoke a written charter or terminate a charter contract under certain conditions and requires a sponsor to take such action if the charter school demonstrates persistent underachievement. (NRS 386.535, 386.5351) Sections 5 and 27-29 of this bill: (1) authorize a sponsor to reconstitute the governing body of a charter school in such situations; and (2) revise the conditions under which such action is authorized or required.”

The Senate Education Committee will be looking at SB 92, which requires a teacher deemed minimally effective after the three year probationary period is reverted to probationary status.  And, then there’s the predictable assault on “seniority” as defined in master contract agreements:

“Existing law provides that when a reduction in the workforce is necessary, the board of trustees of a school district must not lay off a teacher or an administrator based solely on seniority. (NRS 288.151) Section 30 of this bill requires the board of trustees of a school district to consider certain factors when reducing the workforce. Section 30 also provides that, if two or more employees are similarly situated after the application of those factors, the decision by the board of trustees to lay off one or more of the employees may be based on seniority.”

Meanwhile, back at the Battle of the Budget……………..

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Filed under education, financial regulation, Nevada economy, nevada education, Nevada legislature, Nevada politics, nevada taxation, public employees

The Great Annuity Bundle Bungle: AB 360

banker 2 The Financialists are at play in the current session of the Nevada Assembled Wisdom, with the support of Assemblyman David Gardner (R-NV9) and his AB 360 which will be heard in the Assembly Government Affairs committee today.  Here’s the summary:

“This bill: (1) requires a program for deferred compensation that is made available by the State or the Board of Regents to offer an employee at least five investment options to choose from; (2) provides that any plan authorized by 26 U.S.C. § 403(b) or 457 must offer at least two investment options consisting of fixed or fixed index annuities and at least two securities investment options offered by different investment management companies; and (3) provides that a third-party administrator of a program for deferred compensation must use an open and competitive request for proposals process when selecting investment options for the program.”

Sounds techy?  This link will take you to the UNS page explaining the supplementary (and voluntary) retirement programs currently offered by the institutions of higher education in Nevada.  There are two “record keepers” for voluntary retirement programs: ING and Hartford; and, there are also plans separated from these two offered by TIAA CREF, Valic, and Fidelity.  So, why would the University System have to offer five, including “fixed or fixed index annuities?

First, what’s a fixed index annuity?  The SEC explains the forms currently available:

“There are generally three types of annuities — fixed, indexed, and variable. In a fixed annuity, the insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.

In an indexed annuity, the insurance company credits you with a return that is based on changes in an index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance.

In a variable annuity, you can choose to invest your purchase payments from among a range of different investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments you eventually receive, will vary depending on the performance of the investment options you have selected.”

So, what could possibly go wrong?  There are several reasons why annuities aren’t all they are cracked up to be.   First, we ought to remember that annuities are forms of insurance, and are regulated as insurance policies and NOT like securities.  For example, with fixed or fixed index annuities there aren’t the disclosure requirements which are in place for investments in securities.  The individual purchasing the annuity is on his or her own to figure out the fees, the comparative performance, and even how the money is being invested. [Kiplinger]   Thinking about fixed index securities? Think again.

FINRA issued an “alert” regarding those “Fixed Index,” or sometimes called “Equity Indexed” annuities (pdf)

“Sales of equity-indexed annuities (EIAs) have grown considerably in recent years. Although one insurance company at one time included the word “simple” in the name of their product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another.” (emphasis added)

If a person isn’t knowledgeable and comfortable with terms like “ratchet” indexing, or “high water mark,” or “point to point” indexing methods, then the session with the salesperson will be (a) quite long or (b) really confusing.  The salesmanship is an important element, and leads us to the second thing that could go wrong.  Did we explain that because annuities are lightly regulated, unlike equities, that the commissions for selling and managing annuities are in the really high range – like around 6%? [Orman

So, with an almost unregulated product, the opacity of which is nearly legendary, and the fees are some of the highest in the business, why require the University System to offer them?

Because the whole business in annuities goes back to the Romans, but the recent interest has more to do with insurance companies trying to shave off a bit of the money that was going toward money market accounts  in the late 1980s and early 1990s.  And, what the salesman is telling the potential buyer doesn’t usually include: (1) The high costs and fees; (2) The illiquidity (for ‘premature’ distribution; (3) The complexity of the product – remember it’s really hard to compare products; and (4) The taxes, “All withdrawals received from an annuity contract that are not considered to be a return of principal are taxed as ordinary income, regardless of the holding period of the contract (see below). There is no chance to qualify for capital gains treatment.” [Investopedia]

Why AB 360? Perhaps because somewhere out there in Nevada there are insurance companies still seeking to pick off investors who might otherwise sign up for retirement plans associated with the equities or money market sectors – who are ripe for the picking.

If a reader still isn’t sure why DB is opposed to this bit of legislation designed to enhance the bottoms (and bottom lines) of the insurance business, then I’d recommend “Beware the pitch for indexed annuities,” Reuters 2010; and,  “Annuities are not bought, they are sold,” from Forbes 2012; and, “The low down on equity indexed annuities, “ Bankrate.

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A Second Look At AB 182: ALEC’s assault on Nevada Public Employees

AB 182

REVIEW: If one feels the need for a bit of background information, the origin of bills like AB 182 can be found in the ALEC model legislation package known as “The Public Employee Freedom Act.”  (pdf)  The bill is a veritable laundry list of the ALEC bill-mill wishes:

“(1) AN ACT relating to local governments; prohibiting a local government employer from entering into an agreement to pay dues to an employee organization through deductions from compensation; (2) prohibiting such an employer from providing paid leave or paying compensation or benefits for time spent by an employee in providing services to an employee organization; (3) prohibiting the inclusion of certain employees in a bargaining unit; (4) revising provisions relating to a reduction in force; (5) providing that a collective bargaining agreement between a local government employer and a recognized employee organization expires for certain purposes at the end of the term stated in the agreement; (6) requiring public notice of certain offers made in collective bargaining; (7) eliminating final and binding fact-finding except upon the election of the governing body; (8)  removing a portion of the budgeted ending fund balance of certain governmental funds from the scope of collective bargaining and from consideration by a fact finder; (9) eliminating statutory impasse arbitration for firefighters, police officers, teachers and educational support personnel;…”

Nothing would so please the corporate masters of ALEC and the Koch Brothers alliance than to see public employee unions brought down, scuttled, and preferably stricken branch to root.

Every provision in this bill is strategically calculated to prevent unions from providing their services to their members.  No dues check off, making dues collection more costly and cumbersome for members; combined with the  attack on union leadership – after all, if the leaders can’t afford the volunteer time then service is necessarily reduced.  Eliminate “supervisory personnel,” if they so much as think about making an “independent judgment.”  No lawyers, no doctors, no supervisory personnel, may by involved in a bargaining unit?  No “confidential employee?”

Allow a government agency to reallocate resources such that there is a reduction if force – translation: layoffs – and then say “We did it because we moved the money elsewhere.” Anywhere? Any budget category? For any purpose? For the purpose of laying off personnel?  No “evergreen provisions?” No cost of living adjustments without a new master contract?

AB 182 assumes there will be no employee strikes – illegal for public employees in this state – but there won’t be any resolution options either. No fact finding, mediation, or arbitration results shall impinge on the employer to do whatever the agency wishes.  It’s take it or leave it time.

And, 16.6% of the total “budgeted expenditures” must be kept in reserve.  Really?  While this sounds “financially responsible” it really isn’t.  There are supposed to be funds allocated at the local level for “extraordinary maintenance and repairs or improvements, funds for contingencies, and funds to stabilize operations, and to provide a cushion in case of a natural disaster. [See: NRS 354]  There’s really little more to this than pulling 16.6% away from the bargaining table.

CONSIDER THE SOURCEWho is supporting ALEC?

The corporate sponsorships include:  The American Bail Corporation; the Altria Group (tobacco), AT&T, Diageo, Energy Future Holdings. Exxon Mobil Corporation, Koch Companies  Public Sector, Peabody Energy (coal), Pfizer Inc. PhRMA, State Farm Insurance, United Parcel Service, Amerian, American Express, US Airways, Anheuser Busch, Bayer Corporation, Bell Helicopter, BP America, Burlington Northern, Catepillar, Century Link, Chevron, Comcast, Conoco Phillips (under Phillips 66 brand), Dow Chemical, Eli Lilly Inc, Farmer’s Group, Georgia-Pacific (Koch Bros), Honeywell, Insight Schools Inc, JR Simplot, Marathon Oil, Raytheon, Reynolds American, T Mobile, Transcanada, (yes, THAT Transcanada)Verizon, and Xcel Energy.

However, a more interesting list is who has dropped membership in the organization which provides models for legislation like AB 182: Pepsi, Coca-Cola, Pepsi, Kraft, Intuit, McDonalds, Wendy’s, Mars, Reed Elsevier, American Traffic Solutions, Blue Cross Blue Shield, Yum! Brands, Proctor and Gamble, Kaplan, Amazon.com, Medtronic, Wal-Mart, Johnson and Johnson, Dell Computers, John Deere, MillerCoors, Hewlett-Packard, Best Buy, General Motors, Walgreens, Amgen, Dreyfus, Amgen, General Electric, Western Union, Sprint Nextel, Symantec, Entergy, Merck, Bank of America, Wellpoint, Bristol Myers Squibb, Brown-Forman, Publix Markets, Glaxo Smith Kline, Unilever, 3M, Darden Restaurants, IBM, Intel, Nestle USA, Berkshire Hathaway, NV Energy, Alliant Energy, Microsoft, Pacific Gas and Electric, Yahoo Inc, International Paper, Occidental Petroleum, Overstock.com, Facebook, Google, Union Pacific, eBay, Wells Fargo, and Northrop Grumman. [link]

Not to put too fine a point to it, but the Nevada legislators sponsoring AB 182 – Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson – are still promoting legislation (and an ideology) which is no longer all that popular among major corporate sponsors.  The ALEC bill mill has lost some of its patina of late, but 10 Nevada Republicans haven’t quite noticed the train’s left the station?

While ALEC may be headed off to the horizon, the Koch Brothers and their Americans for Prosperity are alive and well.

“AFP adopts the anti-union positions held by its libertarian funders, David and Charles Koch.[56] A video published on YouTube on February 26, 2011 shows Scott Hagerstrom, the executive director of Americans for Prosperity Michigan, advocating “taking unions out at the knees so they don’t have the resources” to fight for workplace benefits or political candidates.” [Sourcewatch]

One has only to look at Michigan, Ohio, and especially Wisconsin under the Koch financed Walker regime, to see that AFP can simply adopt the legislative packages from ALEC, and insert these into state legislatures – like Nevada.

Thus, Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson are simply doing the bidding of the Koch Brothers and promoting their reactionary agenda.

CONSEQUENCES:   This assault on unions, and specifically the attack on public employee unions, are part of the general hostility of corporations toward labor, and toward government.  The results are obvious.  As union membership has declined over the years so have middle class incomes.  [MJ] [APO] [EPI]  And, how did many families move into the middle class in the first place?  By becoming police officers, firefighters, teachers, community health nurses, librarians, land management specialists, transportation specialists, heavy equipment operators, social workers, public health service workers, and so on.

The wages and salaries earned by public employees, as determined by negotiated master agreements, put more families into the middle class, and more money into local economies.  Once again – the Koch Brothers aren’t interested in Bob’s Bodega or the Smith Family Furniture Store, or Jill’s Fashions —  the kinds of small businesses which form the core of local economies.  Possibly the view from inside the 0.001% bubble doesn’t allow for the possibility that products such as Koch Brother’s brands wouldn’t sell in such quantities without local retailers – local retailers who rely on middle income consumers to produce their revenue?

The anti-union, anti-labor perspective is ultimately unsustainable.  Yes, paper towels (like Koch’s Brawny brand) are basic household items, but put too much downward pressure on household income and people will discover that re-washable rags will work as well.  Every household needs toilet paper, like Koch’s Angel Soft, but households under pressure to save pennies may find cheaper brands to purchase.  While the Koch’s can fall back on Flint Hills energy products, local grocers can’t fall too far back from their local demand.  Grocers average a margin of 1-6%, [AZBus] which is not a large cushion to sustain too much drop in customer demand.

Perhaps it’s easier to sit back insulated by a top 0.001% annual income and think of Liberty, Freedom, Personal Accountability, and other abstractions, but the middle class consumer, including the middle class firefighter, police officer, teacher, social worker, or public health nurse doesn’t have that luxury.  Freedom for most people comes down to what Franklin D. Roosevelt called “Freedom from Want.”  The freedom which allows a family to procure all that’s necessary for basic needs, and leave  little left over for a home, for retirement, for an education for their children.  They want, and need, the freedom to breathe between paychecks.

Bills like AB 182 take the air out of the room.  If Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson would pull this bill, people could all breathe a little easier.

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Union Busting 101: Nevada’s AB 182

Union busting If anyone is functioning under the happy delusion that the current session of Nevada’s Assembled Wisdom is intent upon securing the happiness of the middle class – look no further than AB 182.

“It would clarify the rules that exclude supervisors from collective bargaining, prohibit using government funds to pay employees engaged in union activities, require employees to seek union deductions before they would be collected by a government entity, and make agreements retroactive to the date of the expiration of the previous contract. It would also require a final contract offer to be made public, among other provisions.” [LVRJ]

Welcome to the re-labeled world of corporate sponsored legislation as defined by ALEC and the related ACCE.  The “public final offer” part is straight out of ALEC model legislation.   This has not been overlooked:

“ACCE’s first meeting coincided with ALEC’s national conference. One workshop topic was “releasing local governments from the grip of collective bargaining.” Another report discusses the conservative Heritage Foundation’s plan for localities across the country to experiment with “local” right-to-work initiatives. Heritage predicts that these experiments could provoke a legal challenge ending up in the hands of the US Supreme Court, which they hope will effectively end “fair share” of agency fees for public employees currently under collective bargaining agreements.” [Teamsters]

There’s an agenda at work here, and it’s NOT one conducive to maintaining the middle class families involved in local government, firefighting, police and public safety, teachers, and others who perform vital public services at the state and local level.   The Republican Noise Machine has been relentless in its messaging about public employee unions and the members they serve, and the term “messaging” is appropriate because what’s been transmitted isn’t rational, and often isn’t even factual.

“Two widely shared misperceptions are helping to drive this shift of opinion. The first holds that public sector workers now earn more on average than their private sector counterparts, making them what Indiana’s Republican governor, Mitch Daniels, calls “a new privileged class in America.” The leading candidates for the 2012 Republican presidential nomination have helped promote this view. “Average government workers are now making $30,000 a year more than the average private-sector worker,” declares Mitt Romney. “It used to be that public employees were underpaid and over-benefited,” adds Tim Pawlenty. “Now they are over-benefited and overpaid compared to their private-sector counterparts.” The second perception is that collective bargaining contracts have been major contributors to the growing budget deficits of the states, a view promoted by Chris Edwards, the director of tax policy studies at the Cato Institute.” [Dissent]

What is conveniently omitted from the discussion is the fact that most government workers are older and have more education than the “average private sector worker.”  Using a term like “counterpart” makes it appear that the opponents of public sector unions are comparing average government workers to average private sector employees – they aren’t.  If the term “counterpart” is defined strictly as one person doing an essentially similar job then the numbers don’t back up the union opponents.  The facts are:

Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23% of private sector employees have completed college as compared to about 48% in the public sector.

Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants such as education and work experience. State workers typically earn 11% less and local workers 12% less.

Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local employees than for comparable private sector employees. [NIRS]

Thus we can discount the “Pigs at the Public Trough” argument for what it is – propaganda, using misleading numbers and comparisons to make an ideological point.  And, we can dismiss the “driving the deficit” argument as well:

“There is no direct correlation between states with unionized public workers and those facing budget deficits. New York State, which boasts the highest percentage of unionized public employees of any state, is running a projected budget deficit of 16.9 percent for fiscal year 2012, while North Carolina, which prohibits public sector collective bargaining, faces an even larger budget deficit (20 percent) according to the data of the Center on Budget and Policy Priorities. Similarly, there is no direct correlation between collective bargaining and pension obligations that have gone unfunded. According to the conservative American Legislative Exchange Council, New York has done a better job at funding its pension obligations (currently at 100 percent funding) than Virginia, which does not permit public sector collective bargaining and is currently funding only 80 percent of its obligations.” [Dissent]

Not only is there no correlation between collective bargaining and budget deficits, but we should also take into consideration the unasked question: Why is it always a matter of cutting expenses, and not a question of whether more revenue should be raised to sustain public services?

There is a correlation ALEC and ACCE don’t want to discuss.  As the EPI documentsthere is a correlation between declining wages and the decline in union membership.   Unless one subscribes to the illogical and oligarchian ideologies of the ultra-conservative think tanks and the billionaires who support them, the logic of good old fashioned capitalism is obvious – the more wages, the more demand, the more demand, the more sales, the more sales, the more profits, the more profit the better for all concerned.

And, this holds true for public employees who pay their mortgages, buy groceries in the local supermarket, buy clothes from local retailers, purchase automobiles from local dealers, pay for gas at the local station, and get their hair cut by local barbers and beauticians.  However, ALEC and ACCE’s perspective isn’t driven by any concern for ‘those small businesses,’ but by a concern for the corporate bottom line – a bottom line which would be enhanced if levels of state and local taxation were to be reduced.  It sounds seductive to the local business owner to hear “we’re going to reduce your taxes,” until that coin is flipped to the obverse and the people who depend on those taxes for income stop thinking about the new car, defer car maintenance, put off buying new clothes, and reduce personal expenditures.

AB 182 launches some very specific attacks on public sector unions which bargain for wages and working conditions.  For example, who is a supervisor? 

Sections 2, 3, and 7 exclude school supervisory and administrative positions from membership in bargaining units, and expands the definition of an excluded confidential employee to include any employee whose duties entail access to proprietary or confidential information.  Therefore, anyone with any supervisory duties is excluded – good by principals and administrators, and with a bit of creativity that “proprietary or confidential” information clause could exclude many others.

Section 1 is a double whammy.  First, there will be no dues deductions. This is nearly always the first point of attack, and if we didn’t figure this out already, there’s a model bit of legislation from ALEC called the Public Employer Payroll Deduction Policy Act.  There are also some alternatives offered by ALEC to this same end. Secondly, the opponents of public employee unions have noticed that union leadership is voluntary and if there is any remuneration it isn’t all that much. So, the “head of the serpent” can be removed by simply refusing to grant leave for union purposes, and also by removing anyone who is not compensated by the union from participating in union activities because they’ll lose time and benefits for doing so.  That would wipe out most committee chairs, officers below the top level, and most local activists.

Section 6 gets rid of the Evergreen provisions. It “generally provides that upon the end  of the term stated in a collective bargaining agreement, and until a successor  agreement becomes effective, a local government employer shall not increase any  compensation or monetary benefits paid to or on behalf of employees in the  affected bargaining unit.”  Thus much for previously bargained cost of living adjustments.

And if there’s an impasse in the bargaining process?

“If an impasse is reached in collective bargaining negotiations, existing law  establishes a process of fact-finding. Under existing law, the findings and  recommendations of the fact finder are final and binding if the parties so agree or a  statutory panel determines that the findings and recommendations are to be final 40 and binding as to some or all of the issues in dispute. (NRS 288.200-288.203) 41 Sections 10 and 15 of this bill eliminate the panel.”

And, there’s more:

“Under existing law, an impasse in collective bargaining negotiations involving  firefighters, police officers, teachers or educational support personnel may be  submitted to an arbitrator, whose decision is final and binding. (NRS 288.215, 59 288.217) Section 15 repeals those provisions, eliminating the statutory right to  arbitration as a means of impasse resolution.”

Remember, public employees in Nevada have no “right to strike” protections, and AB 182 removes the fact-finding and the arbitration options to settle an impasse.  So, what’s left? If an impasse remains unresolved the government entity can’t raise any compensation and the employees are frozen in place?

AB 182 is, for all intents and purposes, an ALEC/ACCE dream piece, based on ideology rather than a rational approach to economic and social requirements, and supportive of corporate as opposed to local economic interests.   The Committee on Commerce and Labor should file this one away in the “unconscionable” part of its cabinetry.

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ALEC assault on Nevada PERS: AB 190

AB 190 AB 190 is hitting the light of day [ltn] – and for those advocates of middle class financial security and adequate pensions for former public employees this bill needs to go back down into its pit.  This bill is a bit of ALEC dreamland:

“…relating to public employees’ retirement; providing for the establishment of a hybrid retirement program for certain public employees; requiring the program to include a defined benefit plan and a defined contribution plan; setting forth the required provisions of each plan; requiring certain public employers under certain circumstances to make additional contributions to the Public Employees’ Retirement System to reduce the unfunded liability of the System;…[ NVLeg]

The Hybrid From Hell

This portion of the bill would create a system similar to the one enacted in Utah, and promoted by ALEC in its “State Solutions for Government Pension Reform.” [ALEC pdf] *See Utah Reform, page 18.

There are a couple of crucial point embedded in the ALEC publication.  First is the notion that defined benefit plans are a “problem.”  It doesn’t matter the fiscal state of the pension benefits program – if it isn’t about to send the state into bankruptcy, there are ways to massage the statistics in order to make it appear the state has a monstrous unfunded liability.   Funding from the Koch Brothers partially funds the NPRI’s conclusion that there is a $41 billion current liability.  And, gee whiz – wouldn’t you have guessed it? – they recommend a Utah style hybrid public pension program. *See DB 12/9/14.

Before grabbing the children and heading for the hills in a panic – consider the possibility that we can make the unfunded liability number really big by reducing the advance funding factors.  Translation, if I were to total up the liability for every public employee, working and retired,  and treat it as if it were all going to be paid out tomorrow morning, the number would be really  big – and really misleading and  inaccurate.

What we need to focus on is how well the program deals with liabilities over time.  So, when AonHewitt did an independent review of the NV PERS system what did it find?

“AonHewitt found that NV PERS “funding levels and the discount rates were not uncommon, where NV PERS differs from others is in its Funding Policy and contribution rules which provide much better than average protection, when compared to similar systems. Continued review and comparisons of costs and benefits with other large plans, actuarial audits, and consistent updating of the Funding Policy facilitates NVPERS ability to remain among the best run large public systems.”  [AonHewitt pdf]

Sorry, privatizers and financialists, there really is no reason to adopt any major changes in the current define benefit plan in Nevada because, as the independent comparative review discerned, Nevada doesn’t have the problems associated with other large pension systems in some other states.

There’s Gold In Those Hills (for Someone)

Thus far, ultra-right organizations such as ALEC and associated think tanks like the NPRI have been beating their drums and issuing reports to friendly news outlets about the Problem – which doesn’t exist in Nevada, in the hopes of promoting ALEC’s agenda that brings us to the second major point of the issue:

ALEC, et. al., want to promote defined contribution plans because there’s money to be made.

“On the private side – Continue to tell workers that they’ll be better off with their “economic freedom” (in a defined contribution plan) to finance their own retirement plans with “flexibility,” and they can use their money as they want – just make the management fee structure so complicated it takes a degree in Finance to figure it out, and then operate on the happy assumption that the financial professional’s first duty is to his own firm’s bottom line not with a specific obligation to cover the future retiree’s bottom.   Give us your money, pay us the fees, and just trust us!  Go quietly, and no one will get hurt?” [DB]

AB 190 is a classic assault on a perfectly good public retirement system which is NOT generating an unwieldy unfunded liability.  If the ultimate purpose isn’t to retain the best features of the current system, but to replace it with defined contributions in the future, then the other motive which springs to mind is that the financialists among us have been ogling the coffers of public employee retirement systems and want very much to dip into them up to at least their elbows, if not their shoulders.

What the advocates of AB 190 want to do is fairly easy to see – ultimately hand over wads of money from the public employees retirement funds to wealth management firms who will exact their fees and transactional costs with less public scrutiny than is required in a publicly managed retirement system.  What could possibly go wrong?

Golden Years or Fleeced Sheep?

Not sure this is the case? Then look at the provision in the bill in which individual trust accounts are inserted. [NV Leg pdf Section 4]  Let’s review two problems associated with the individual trust accounts.  First, how many people have the financial training, experience, or acumen to manage their own trust accounts?   The obvious answer is – not many.

In this instance a newly hired heavy equipment operator for NDOT might be given his “freedom” to establish an individual retirement trust account.  This freedom has a price tag.  There will be transactional and management fees associated with this account. There will be transactional decisions made about the portfolio and contents of the account.  If the basis for the transactional decisions is “proprietary” information within the wealth management firm handling the account, then how is the NDOT employee to determine if the transactions were made in his or her best interests?

This brings us to the second problem, not only do many public employees (or other regular folks for that matter) lack the financial expertise to track their own individual retirement trust accounts, but if the system isn’t very carefully structured, and the contracts exceedingly open – the employee may not be able to find out how and why investment decisions were made on his or her behalf.  However, the wealth management firms will be delighted.

Half of the Research is false, ergo Half the Products are false

If these two problems aren’t enough to may a person queasy, there’s one more issue to explore.  Financial firms are happy to inform investors that their investment decisions are based on empirical research.  Sounds nice, doesn’t it?  Wait.  Evaluating trading strategies has proven to be a mare’s nest of research forms, leading the Journal of Portfolio Management to report that,  “Most of the empirical research in finance, whether published in academic journals or put into production as an active trading strategy by an investment manager, is likely false. This implies that half the financial products (promising outperformance) that companies are selling to clients are false.” [Economist]

Do the advocates of AB 190 comprehend what the JPM author’s are saying when they conclude that:

“In summary, the message of our research is simple. Researchers in finance, whether practitioners or academics, need to realize that they will find seemingly successful trading strategies by chance. We can no longer use the traditional tools of statistical analysis that assume that no one has looked at the data before and there is only a single strategy tried. A multiple-testing framework offers help in reducing the number of false strategies adapted by firms. Two sigma is no longer an appropriate benchmark for evaluating trading strategies.” [JPM]

Let’s translate:  If there is a 50-50 chance that the research is wrong, then there’s a 50-50 chance the financial product sold on the basis of that research will be falsely assumed to be a good product to put in a retirement portfolio.   How is our NDOT equipment operator, our public school teacher, our firefighter, our police officer, our assistant county administrator, our receptionist in the Department of Education, supposed to track his or her retirement account IF the research isn’t made available, and if it is, it might very well be inaccurate?

We might revert to the previous advice from the management firm – give us your money, don’t ask too many questions, go quietly, and no one will get hurt – in this firm. You, might be another matter.

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Statistics Don’t Lie, But – Playing with Public Employee Pension Fund Figures

Public Employees Wall Street

It’s NO secret.  Wall Street investment divisions have been anxious to get their mitts on the funds in public employee pension funds for a long time.  Why not? It’s a $3.7 trillion – yes, that’s trillion with a T – sector.  However, as we’ve noted here recently, there’s some table setting to be done.  First, the general public has to be convinced the money would be in better hands on Wall Street. A previous post called the vultures “accomplished looters,”  and in order to loot the funds some table setting must be done.  We have a nice example of how this is done compliments of Moody’s.

In September 2013, Moody’s reported that public pension liabilities had tripled to $2 trillion from 2004 to 2013.  [Reuters] Wow! Look! Look and See!  My oh my, what a terrible awful increase, a spike, a spiral, and all other things egregious and horrifying.  BUT WAIT!  Take a deep breath, all things are not as they seem.

How did the ratings agency come up with that number? It didn’t take long, October 9th actually, for the National Association of State Retirement Administrators to note the interesting way in which Moody’s had calculated the number. [Reuters]  Why was there such a dramatic difference in the old numbers and the new ones?

“Controversially, Moody’s changed its methodology for assessing pension liabilities in 2013, lowering the discount rate to assess the present value of liabilities and using a market valuation for assets instead of the industry practice of smoothing liabilities over a number of years.”  [Reuters] (emphasis added)

If you guessed that Moody’s manipulated the calculation to show a dramatic increase in public pension fund liability over the last nine years, you’d be right.   Moody’s also fiddled with the characterization of the number – Is it a funding requirement?  That would be NO. As NASRA advised: (pdf)

“By Moody’s own admission in prior pronouncements, the adjusted pension liabilities calculated by Moody’s do not represent a funding requirement. Yet the report makes no effort to clarify that vital fact. Instead, readers are left to infer that the “quadrupling” of unfunded liabilities represents an amount that must be made up with additional contributions.”

In other words, Moody’s ‘new’ number made it sound like the pension funds were four times deeper in liabilities than before 2004, and made no effort to prevent anyone from thinking that this would have to be a “burden on taxpayers.”   So, since last September the ‘fish fork’ Moody’s slipped onto the dinner table in the form of a manipulated and mischaracterized number has been sitting there waiting for some state legislator or state conservative think tank to use to ‘prove’ state pension funds are in trouble and should be handed over to … who else? … Wall Street.

Moody’s place setting for this dining experience also included some dodgy work with the cake fork and dessert spoon – somehow Moody’s didn’t factor in the reduction in value, in real dollar terms, of public pension funds due to inflation in the last ten years.  Moody’s also insinuated that public pension funds “fell short in their investment goals” from 2010 to 2013, because they lagged behind the S&P.  That’s rather like saying the dessert fork is only to be used on Devil’s Food, because like all diversified investors, public pension fund management doesn’t use one single asset class (like the S&P) as a benchmark for evaluating its entire portfolio.

When Moody’s planned the meal for its investment house diners it seems to have intended that those evaluating the public employees’ plans were to gasp that the salad and fish course knives had been misplaced by the management. It’s so hard to get good help these days?

“The report accuses public pension funds of seeking high returns and increasing investment risk by increasing allocations of alternative investments. The report does not include the fact that these allocations are also part of an effort to diversify and lower risk. Indeed, the report makes no effort to measure the actual risk being taken by public pension funds and makes no reference to the risk/reward tradeoff. The report also ignores that private equities, the primary type of alternative investment, has been the highest performing asset class for most public pension funds during the last decade.”  [NASRA]  (emphasis added)

Interesting?  A report intending to reinforce the notion that public pension funds are not being well managed and could better be handled by the professionals on Wall Street, somehow forgot to measure the actual risk incurred by the current management.

Moody’s messed with the meat service as well – misstating the aggregate value of state and local pension fund assets as $5.29 trillion instead of the actual amount as calculated by the Federal Reserve of $3.7 trillion.  And, then there’s the part wherein Moody’s ignored that which will not serve its narrative:

“Although the report makes passing references to pension reforms approved in recent years, in fact, since 2009, nearly every state has made material changes to its benefits structure, employee contributions, or both. As a result of these and other factors, on a GAAP basis, annual public pension liability growth has fallen below five percent for five consecutive years. As the investment losses of 2008-09 are fully recognized in actuarial calculations, and as the substantial investment gains since 2009 are actuarially recognized, public pension funding levels will improve sharply, and unfunded pension liabilities will fall.” [NASRA]

It doesn’t matter how cleverly one sets the table, what Moody’s served up was toxic, and the fact that its report has been on that table since last September doesn’t make the meal any more palatable.  Moody’s appears to have forgotten that Wall Street’s own incapacity to curb its appetite for risky trading, trades in which they couldn’t even put a realistic value on their own transactions, was part of the “unfunded liability” problem faced by all investors, including pension funds, in the wake of the 2007-08 debacle.

Nor has Moody’s paid attention to the probability that pension funding levels are predicted to improve, and therefore the unfunded liability will decline.  Why? Because this is the precise opposite of the Great Wall Street Narrative – how can they possibly convince city councils, county commissioners, and state legislators to allow Wall Street to play with their pension funds if those funds are actually doing rather well?

There’s nothing very subtle about this table setting.  It has all the elaboration of an Edwardian dinner and just about as much relation to reality.  However, once set, Moody’s and the other institutions on Wall Street,  fully intend to make a meal of public employee pension funds.  It does pay to know what’s on the menu, especially when the cooks are saying they want to “Serve Man.”

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Memo to Police Union Reps: Do be careful, please.

Coolidge Police Strike

It was September 1919, and about 80% of the Boston police force went on strike.  Police Commissioner Edwin Upton Curtis denied that the officers had a right to form a union, and he was certain they had no right to form one associated with the  American Federation of Labor.  Calvin Coolidge rode anti-union sentiment all the way to the White House, the Boston officers who had been fired for striking weren’t reinstated until 1931, and it would be two decades after the strike that police would be able to form unions – generally after World War II.

The gains made to protect officers from arbitrary and capricious hiring and firing, to insure their rights in regard to due process, and to bargain wages, hours and working conditions were hard won, and required general public approval to become reality.  Whether the police union representatives like it or not, associations of law enforcement officers are public employee unions, and subject to some of the same dynamics which affect other such organizations.  Ergo, here comes some unsolicited advice.

Keep your friends close and your enemies closer.  As of now most conservatives are inclined to support the police, and to support their use of lethal force.  [Salon]  As long as the “us versus them” mentality can be associated with communities of color, with poor people, and with those who might advocate for things like increasing the minimum wage, the conservative voices will be pleased to sing the praises of pro-police activities.    As long as the police are keeping such movements as the “99%” Occupy Whatever under control the powers that be will be supportive.

However, there’s a chink in the Kevlar.  The police are fine as long as they don’t ask for “exorbitant” overtime pay, or get negotiated pension benefits which appear “too large.” United Airlines is bristling at the pay for security personnel (police/firefighters) at the Newark airport. [ChAviation] Wages for Port Authority Police are under scrutiny as some veteran officers earn six figure salaries – one example, which is not identified as an outlier, given as $221,000. [NBC

What we don’t know is how much experience (seniority) this officer had, nor do we know the rational for running up all the overtime.  Medical expenses at home?  Several children to send to college?  Home mortgage payments? Yes, that $221,000 sounds “outrageous” when compared to the median income in a Newark household ($33,960)  but not quite so outstanding when compared to the U.S. median of $71,629.  It’s  even less so when we insert the cost of raising children from birth to 18 years of age in the northeast:

“In New Jersey and the rest of the Northeast, the cost is even higher. Families can expect to spend $261,000. After adjusting for inflation over 17 years, that amount grows to just less than $350,000.” [NJ.com]

It appears that some of those who are touting the efforts of police to secure places like bridges and tunnels, the World Trade Center, and other  New York City airports are loathe to pay the overtime negotiated for that protection.

Newspapers in Nevada were publishing overtime stories last year about corrections officers overtime pay [LVSun] and one news outlet placed a discussion of overtime pay framed as a “public trust” issue. [News8]  Once again there were brief mentions of police providing security for special events, and of seniority levels, but it’s hard to miss the point that these negotiated overtime payments might be considered “excessive.”

Rarely can one find articles, such as the one in the Chicago Sun Times which points out that suburban police and fire pension funds in that metropolitan area are “drying up.”  How much national publicity was given to the problems with the pension funds for New Orleans (LA) port police? [NOLA] Examples in California and Detroit made the national scene as cities faced bankruptcy – and it should be noted that the questions were framed as “either the police and other public employees should absorb the cuts so that (1) debts incurred by city governments could be paid off, or (2) tax cuts and loopholes could be maintained, or taxes could be kept lower than necessary to support the negotiated agreements – Did anyone speak to how closing tax loopholes or removing subsidies, or even raising taxes to meet expenses, might solve the problem?

Here again, we find the old canard that the only way to make a city budget balance is to do so on the backs of public employees – never, never on those who benefit from tax incentives, breaks, and subsidies, nor should any bondholders have to take a “hair cut” on ill-advised public projects.   Police spokespersons are gently advised to secure all the support they can, but be aware that the impetus for “transparency” for public employees’ salaries and benefits, and the publicized issues involved in pension benefits are motivated by a desire to play the “public employees at the public trough’” card with conservative voters.

It’s Us vs. Them when money matters.  Remember when teachers were highly regarded?  That would be before they decided that being hired or fired on capricious grounds wasn’t a good thing. Back in the Good Old Days when merit counted for nothing and New York City could shake down teachers for $120 for a job and $175 for a transfer.  {Bettman: The Good Old Days – They Were Terrible}  That would also be before the days when they decided that during a teacher evaluation the principal should actually appear IN the classroom and not conduct “humming bird evaluations” from the corridor.  That would also be before the days when teachers decided that their wages should allow them to pay off student loans for degrees costing about $9,139 per year, and still put food on the table, gas in the car’s tank, and dress “professionally.”

Now “unions” come under fire for “putting the needs of the teacher ahead of the needs of the students” for daring to declare that a salary schedule might need enhancement to meet the financial needs of the teachers in the system.  Once again, the question is framed NOT as how revenue might be generated to pay teachers what they are worth and what they need, but how demands for salary increases are jeopardizing the services the school can provide.  So-called ‘reformers’ come from the woodwork and every other conceivable direction to tell the general public that in order to ‘improve’ education the union must be broken, and teacher paid based on some matrix of quantifiable factors – as if education and schooling were one and the same.

The police unions are perilously close to the edge of the ‘public employees at the trough’ and ‘protectors of the incompetent’ charges when they negotiate wages and benefits.  Once more, when it’s a question of controlling the ‘great unwashed’ the conservatives are supportive, but when it comes to a question of paying for that ‘protection’ the conservatives are willing to slip easily into their Taxpayer Protector mode – not the regular garden variety taxpayer, but the tax benefited, bond holding, variety.

It’s almost guaranteed that when the police negotiators come up against those who want to protect bondholders and tax break benefited interests their status as “public servants” at servants’ wages will be inserted into the public discussion.  One of the banners so often waved in teachers’ faces is the canard that unions protect the incompetent, the extrapolation of this is, of course, do away with the union and the problem will be solved.

Policeman Police Thyself.   There’s a way to defend against the latter charge, but it requires some humility. The boisterous defense of police activities by  union leadership in St. Louis, Cleveland, and New York City, may ring well to the rank and file in the short term; however, it doesn’t take too much effort for the other shoe to drop – a public perception that the union is protecting incompetent officers.  Therefore, it might be recommended that:

Police union leadership should remind the public that the union is protecting the contract, not necessarily the actions of a few officers.  If the master agreement calls for a specific response to matters of suspension, demotion, or dismissal, then the union should insure the due process rights of its membership.  After all, the union is collecting dues, and those dues include defense of the person and the contract provisions.

Perhaps instead of caterwauling about an attack on the police from an uncooperative community, the union representative might want to say, “Officer X is facing some very serious charges, charges which could result in his suspension, demotion, or dismissal, and his union is tasked with defending his due process rights under our master agreement at every step in that process.”

If more comment is deemed necessary, then something like the following could be offered: “Officer X is guaranteed by our contract to have every opportunity to present his defense, and we will help him present it.” (It isn’t necessary for the representative to add in public —  “If he can dream one up.”)

The foregoing hypothetical allows the union to present its case as a defense of the contract provisions – and how many people don’t believe that contracts should be honored? – instead of taking the posture that even the most egregious actions by an individual union member should be fiercely defended in the public domain.

The right of public employees to organize, and to defend their membership was long in the making, and faces some important issues today as the anti-tax, pro-tax break and taxpayer subsidy, mentality holds serve in regard to community services.    The old saw might prove true some day: “Never  permanently antagonize an enemy, some day you might need him.”

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Filed under Economy, Politics, public employees, public safety