December 3, 2014 3:25 PM
“I’ll gladly pay you Tuesday for a hamburger today” was the trademark utterance of J. Wellington Wimpy, the mooching character from the old Popeye cartoons. These days, he might find work to pay for his burgers managing a public pension fund—while playing bingo after hours.
In recent years, state and local governments’ pension shortfalls have gained greater public attention, due in part to the 2008 financial crisis, which left many in even worse shape. But the financial crisis isn’t alone to blame.
For years, public pension managers have been contributing less than the actuarially recommended contribution, essentially eating the proverbial burger today while leaving a future patron to pay the bill. Then, as the burger bill grows larger and our friend Wimpy gets more worried about ever paying it back, he turns to playing bingo, making ever larger wagers in the hope of clawing his way out of the hole he’s dug for himself.
At that point, as the American Enterprise Institute’s Andrew Biggs explains in The Wall Street Journal:
[P]ublic-plan managers may see little option other than to double down on risk. In 2013 nearly half of state and local plan sponsors failed to make their full pension contribution. Moving from the 7.5% return currently assumed by Calpers [the California Public Employee Retirement System] to the roughly 5% yield on a 38%-62% stock-bond portfolio would increase annual contributions by around 50%—an additional $4 billion—making funding even more challenging.
But the fundamental misunderstanding afflicting practically the entire public-pension community is that taking more investment risk does not make a plan less expensive. It merely makes it less expensive today, by reducing contributions on the assumption that high investment returns will make up the difference. Risky investments shift the costs onto future generations who must make up for shortfalls if investments don’t pay off as assumed.
November 24, 2014 9:45 AM
On December 16, Nancy Schiffer’s term on the National Labor Relations Board will end. Sharon Block was set to take her place but the Obama administration abruptly withdrew her nomination on November 12, 2014.
Lauren McFerran, formerly the chief labor counsel and deputy staff director of the Senate HELP Committee is the next nominee in line.
The NLRB has some very important cases before it including whether or not student athletes should be unionized, whether or not unions can use a company’s email to organize, and whether or not a union can get the private information of workers they are attempting to unionize. The most important case by far, however, is the joint employer case.
With the NLRB potentially reclassifying a decades-old joint employer rule to devastating and systemic impact on the economy, those familiar with the issue were eagerly waiting to hear McFerran’s position. Would she support NLRB General Counsel Richard Griffin’s authorization of complaints against McDonald’s, thus blurring any meaningful distinction between franchisee and franchisor and classifying most business relationships as joint employer relationships?
The short answer is that no one knows. The only indication McFerran gave about her beliefs in the Senate HELP Committee hearing was when she described herself as “pro act,” meaning that she was trained not to desire a specific outcome but only to look at the facts and try to give the right answer. Besides that, McFerran didn’t give us much to go on besides saying vaguely positive things about how her role, if confirmed to the NLRB, would be to solve real problems for real people and reach across the aisle.
When Sens. Lamar Alexander (R-Tenn.) and Richard Burr (R-N.C.) asked her directly about the joint employer controversy, she would only say that she could not give an opinion on the controversy since it would be one she would have a role in resolving if confirmed to the Board.
Sen. Alexander also asked McFerran if she thought it was appropriate for student athletes to be unionized, since they receive full scholarships that pay many of their living expenses. Again McFerran dodged the question by saying she could not give an opinion since the question was also one that would come before her if confirmed.
Sen. Burr, taking into consideration McFerran’s reservations about giving a decisive opinion on a case she would preside over, asked a more general question: “Are there any limitations to what the NLRB can do to determine how many people who don’t actually pay the check are in the chain of liability for joint employer?”
McFerran answered, “If the issue were to come before me as a Board member, all I can pledge to you is that I would consider it with a very open mind, I would look at the arguments presented to me in the case, I would review the record, I would consult with my colleagues, and I would review the issue with a completely open mind.”
Well, McFerran might be open-minded, but the bad news here is that if somebody wants to be confirmed to a position on the NLRB, all they have to do is say vaguely positive things.
November 19, 2014 1:06 PM
The left has a troubling Big Labor agenda that can only be accomplished by a pen-and-phone strategy to evade the U.S. Senate and House. The strategy centers largely upon the National Labor Relations Board (NLRB) that will need the key fifth board member to cast the deciding votes for the agenda.
With the December 16 expiration of Nancy Schiffer’s term on the NLRB, Big Labor is scrambling to see someone confirmed before then to take her place. Their surprise answer is to withdraw Sharon Block, who had already had her confirmation hearing, had passed in a bipartisan fashion out of committee, and had been placed on the Senate Executive Calendar for a vote.
Now President Obama and Big Labor have taken three steps back and on November 12 nominated Lauren McFarren, chief labor counsel and deputy staff director of the jurisdictional Senate Health, Education, Labor and Pensions Committee.
McFerran should not be slid through a committee hearing a mere week after she is nominated. Given the issues at hand, full advice and consent cannot be provided in such time.
Big Labor Agenda
What is on the Big Labor agenda?
Commercial concerns include whether franchises, staffing agencies, and contractors/subcontractors will suffer major changes to their businesses, as Big Labor’s allies attempt to make businesses joint employers and transform everyone into an employee of a big conglomerate that faces huge liabilities and expenses and is more easily unionized.
Privacy advocates are concerned by Big Labor attempts to obtain workers’ private information so that, in addition to knocking at the doors of their homes, unions can email, text, and instant message workers.
Property rights defenders are worried that Big Labor wants to use businesses’ email systems for their unionization purposes unrelated to the business.
Businesses large and small are disturbed at the NLRB concept that profane and insubordinate actions—cursing out and telling off bosses, even in front of customers—is to be considered protected organizing activity.
The NLRB wants to give unions the ability to put up anti-business posters in the business in plain view of the customers.
Employers have been alarmed at the NLRB push to have unions and bargaining units as small as two people—micro-unions—which creates massive administrative headaches.
The NLRB is attempting to speed up union elections to as few as 10 days from the request to unionize, thereby ambushing businesses that are left without time to discuss downsides.
These examples only begin to paint the picture of Big Labor’s problematic agenda.
November 5, 2014 11:47 AM
As pollsters predicted, voters approved increases in state-level minimum wages in four states (Alaska, Arkansas, Nebraska, and South Dakota), although to levels less than the increase in the minimum wage proposed by Congressional Democrats (to $9.75 in Alaska, $9 in Nebraska, and $8.50 in Arkansas and South Dakota). Voters in the City of San Francisco voted to raise the minimum wage to a whopping $15 per hour from the current $10.74.
As economics professor Mark J. Perry notes, minimum wage increases drive up unemployment among teens, knocking some of them off the bottom rung of the economic ladder. Quoting economist Kevin Erdmann, he notes that “In every episode” in which the minimum wage increased over the last 60 years, “except 1996 (which is the smallest hike relative to average wages), there was a distinct decline in the trend of teen employment, over the period of time covering from a few months before the initial hike until a few months after the follow-up hike.” Recent research published by the National Bureau of Economic Research arrives at similar conclusions.
November 4, 2014 3:59 PM
Did you know it is against the law to volunteer for a for-profit business?
The issue has surfaced in a trio of varied settings recently.
Let’s begin in mid-America.
Congressman Tim Griffin and Senator John Boozman have introduced federal legislation, H.R. 3173 and S. 1656, to help women, predominantly, who volunteer at used-children’s-clothing consignment sales. The consignment sales are a small business that helps reduce waste by promoting the re-use of clothing that might otherwise be tossed in the garbage, were a marketplace not fostered. People selling the children’s clothes make some money, and purchasers save some money, rather than have to shell out bigger dollars for new outfits for their kids. It seems win-win-win, right?
Well, the supposedly dastardly aspect to it is that people commonly volunteer on the day of the consignment sale to organize the clothes and put them on racks. Volunteers are there early to arrange the clothes, and as a benefit, these volunteers get first pick of the used clothes. Again, seemingly win-win, right?
Ahhh, there’s the rub. These volunteers, commonly women, are volunteering against the law. “In 2013, the U.S. Department of Labor ruled that the business model, as represented by Rhea Lana’s, violated the Fair Labor Standards Act,” reports the Kansas City Star. The proprietor of the business was cited for failing to employ all of the volunteers. The Star continues, “Rhea Lana Riner, the founder and CEO of Rhea Lana’s…calls it a social business model that has grown in popularity because times have been tough and money tight for a lot of families. ‘We feel moms are co-venturing with us because they have a desire to use their personal time for their benefit.’”
The Children’s Consignment Event Recognition Act seems sensible and would allow children’s consignment events to continue by specifically exempting them from the Fair Labor Standards Act. The bill has been cosponsored by other Midwestern legislators.
November 3, 2014 8:59 AM
On July 29, 2014, the National Labor Relations Board’s Office of the General Counsel set the labor and employment world on fire by authorized complaints against McDonald’s, determining that the franchisor McDonald’s is a joint employer with McDonald’s franchisees and thus liable for the actions of the franchisees.
Were franchisors typically held liable for the actions of their franchisees, as the NLRB General Counsel has proposed in an amicus brief, the franchise system as we know it would implode.
With October now past, it has been over three months. Yet, despite the General Counsel’s determination, no formal complaint has been filed by the full National Labor Relations Board (NLRB) against franchisor McDonald’s as a joint employer.
This lack of action from the Board comes as something of a surprise, given the time and high-profile attention paid to the matter and given that the norm is for the Board to follow the advice of General Counsel Richard Griffin, himself a former Board Member.
October 27, 2014 12:51 PM
Minimum wages help some workers, which is why they are so popular. But they aren’t a free lunch. There are tradeoffs. They aren’t always easy to see, but they exist just the same. My colleague Iain Murray has a piece about those tradeoffs in the Washington Examiner, to which I contributed. As Iain summarizes:
Breaking out of poverty is difficult for many people, and the evidence is that a minimum wage adds to the difficulty. Workers are fired, hours are cut, jobs are not created, non-wage perks, including insurance, free parking, free meals, and vacation days evaporate, annual bonuses shrink, prices rise, (squeezing minimum wage earners themselves), big businesses gain an artificial competitive advantage over their smaller competitors, and crime rates rise. It is a bleak litany.
On the flip side, minimum wages do give some workers a raise. Are the tradeoffs that others have to endure worth it? Read the whole thing here (or here for a facsimile of the print edition, starting at p. 24).
October 7, 2014 9:41 AM
“Heads I win; tails you lose.” That essentially sums up the relationship the California Public Employee Retirement System (CalPERS) has long enjoyed vis-à-vis the Golden State’s elected officials. Now it is finally facing a serious challenge.
Last week, a federal bankruptcy judge ruled that cities must treat bondholders and pensions in like fashion. Judge Christopher Klein of the Eastern District of California said he would decide by the end of October how to apply the ruling to the bankruptcy of the City of Stockton, but it seems unlikely that pensions will escape cuts altogether, while bondholders are forced to take haircuts.
As The New York Times reported on the case:
Calpers is a powerful arm of the state, with statutory powers that include liens allowing it to foreclose on the assets of a city that fails to pay its pension bills.
Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.
“Why should I take that lien seriously?” he asked a lawyer for Calpers, Michael Gearin. “I may avoid it as a black-letter matter of bankruptcy law,” he said, referring to well-established legal principles.
He did not dispute that Stockton would be billed $1.6 billion to leave Calpers and said such a termination fee “can be seen as a golden handcuff.” But in bankruptcy, he said, Stockton could legally refuse to pay the bill because it arose from the city’s contract with Calpers, and contracts are broken routinely in bankruptcy.
“The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim,” Judge Klein said.
Judge Klein also said that Stockton had many options other than Calpers for retirement benefits: a private provider, like an insurance company; a multiemployer pension plan affiliated with a union; one of California’s county-run pension plans; or it could even offer no pensions at all.
Moody’s $2 Trillion Public Pension Shortfall Estimate Highlights Need for Better Pension Accounting PracticesOctober 1, 2014 11:12 AM
In a new report, Moody’s estimates the nation’s largest pension funds face a $2 trillion taken together. That’s a lot of money. But as significant as the size of the deficit is Moody’s criticism of how many pension funds have been managed, and pension fund’s reporting of their own liabilities. Bloomberg reports:
“Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”
In other words, for years, many public pension plans have determined their contribution levels using discount rates based on overly optimistic projection on investment returns. That in turn, has led to pension plans using riskier investment strategies in search of higher yields—a strategy the California Public Employee Retirement System recently abandoned in the case of hedge funds.
September 22, 2014 2:12 PM
CalPERS knows when to fold ‘em. The California Public Employee Retirement System, the nation’s largest public pension fund (and one of the world’s largest), announced last week that it would no longer invest in hedge funds, where it had sought larger returns in the hopes of gaining greater investment returns. It’s the right move. But it’s really only correcting a mistake, for CalPERS should have never held ‘em in the first place.