Saturday, January 14, 2006

America's pension time bomb

CRAFT and many other education reformists have often talked about the troubles of the Teachers Retirement System. We are glad to see so many problems with our system now being played out in the mainstream media. Both of these articles appeared at CNN Money. Voting yes on referenda only increases the obligation of the pension because of the increase in salaries that occur. This burden of paying the pensions will be passed on to your children.

America's pension time bomb
Commentary: Workers, employers, taxpayers, governments. Meet the key players in the coming battle.

By Geoffrey Colvin, FORTUNE senior editor-at-large
January 13, 2006: 11:03 AM EST

NEW YORK (FORTUNE) - Some of the nastiest conflicts in America's future have recently begun to reveal themselves. Let's call them, broadly, the pension wars.

They will be fought on a wide range of battlefields, involving not just workers and their employers but also governments at all levels, regulators, accountants and taxpayers. And these wars will be bitter -- because the combatants will be desperate.

Corporate pensions are an unstable, unfair and economically perverse means of paying for retirement. (Read column)
A hint of what's to come could be seen in the New York City transit strike. Most of America didn't notice exactly what sparked the first such strike in 25 years, costing businesses, individuals and the city hundreds of millions of dollars. The answer is pensions. The transit authority and the workers were agreed on virtually everything except how much new employees would contribute toward their pensions--6 percent of wages vs. 2 percent -- and neither side felt it could give an inch on that.

The reasons illustrate the larger problem. The transit authority, like many private and public employers, is watching its pension costs rocket as longer-living retirees increase in number. That burden will become unbearable. On the other side, union members are watching employers nationwide dumping or cutting their pensions just as Social Security starts to look shaky. They figure retirement security is the one thing they cannot sacrifice. Result: war.

New York's transit strike also illustrates an important reason that the pension wars weren't headed off long ago. The truth about pensions has been systematically hidden, with all parties collaborating in the deceit. Public-employee pensions have never been accounted for like those run by private employers. No government is required to tell you its pension liability the way, say, General Motors is, on the theory that governments can always just extract more money from the taxpayers to pay retirees.

But this year the Governmental Accounting Standards Board, which sets the rules for the public sector, is changing its regulations. State and local governments will now have to reveal their pension liabilities, which may be underfunded by $1 trillion or more.

Private employers, while required to account for their pensions, have played sophisticated games with the numbers -- all within the rules. For example, they can assume the pension fund increased in value when it actually declined. They can assume it will continue increasing in value at a rate that is almost certainly way too high. They can even jack up their reported profits based on that assumed, though nonexistent, increase in pension-fund value.

But eventually actual dollars must be paid out, a prospect that has seriously spooked private employers. Just this month IBM (Research) announced that it would join the long list of companies (Verizon, Hewlett-Packard, Motorola) that have frozen their pension plans, instead increasing 401(k) contributions for employees. And the 18-month negotiation between UPS and its pilots has come down to just two points: whether outsourced pilots overseas must be union members, and (you guessed it) pensions.

The pension wars will inevitably include Congress, which is working out a way to increase funding for the federal Pension Benefit Guaranty Corp., now deeply in the red as huge companies like UAL, parent of United Air Lines, dump their pension plans on it. Since the PBGC is an insurer, the logical move is to raise the premiums companies pay, especially for the riskiest plans.

But if Congress mandates a premium hike, as it probably will, then more companies will just dump their plans on the PBGC, redoubling the need for more funds, leading to more premium hikes, and so on. If you can see any way taxpayers will not get billed for a giant bailout, please e-mail Congress immediately.

And then there's the greatest pension crisis of all: Social Security. We've stayed in denial thanks to the so-called trust fund, that magical place where the plan's annual surpluses are sent to be invested until we need them. But since those surpluses must by law be invested in government bonds, they have simply been handed over to the U.S. Treasury and spent by Congress.

The trust fund is in fact meaningless, a bit of marketing hooey cooked up in the '30s. When Social Security's annual surpluses end in just six or seven years, the battle over whose ox to gore in order to cover the plan's obligations will be truly epic.

The hard reality is that for decades we haven't told ourselves the truth about pensions. Now, as the first baby-boomers turn 60, we must finally confront reality -- and absolutely no one will like it. In New York last month, transit workers and management compromised; employees will make small contributions toward health insurance premiums but will keep one of the richest retirement deals around.

Soon those compromises simply won't be affordable. And that's when the pension wars will explode.

The next article can be viewed at

Good riddance to pensions
Corporate pensions are an unstable, unfair and economically perverse means of paying for retirement.

By Justin Fox, FORTUNE editor-at-large
January 12, 2006: 5:56 AM EST

NEW YORK (FORTUNE) - It really is over for the corporate pension. Now that IBM has opted out, telling employees last week that their pension benefits will be frozen in 2008, it's hard to see what's to stop every last American corporation from preparing its eventual exit from the pension business. Lots of reasonably healthy companies -- Verizon, NCR, Lockheed Martin and Motorola, to name a few -- already have.

This phenomenon, along with the more dramatic cases of companies going bankrupt and defaulting on existing pension commitments (think United Airlines), has gotten tons of press, most of it of the "ain't it a shame" variety. But the real shame may be that we ever put so much faith in such an inherently unstable, unfair and economically perverse means of providing for retirement.

The corporate pension has been around since the 19th century, but really came into its own in the United States in the years just after World War II. General Motors president Charles Wilson was its most visible champion, creating a company-run pension plan in 1950 over the initial objections of the United Auto Workers union because he believed it would improve employee relations.

But there were problems with Wilson's approach that, while they didn't seem like a big deal in 1950, were to loom large decades later. For one thing, the Wilson way assumed that lifetime jobs with big, pension-granting corporations were the American norm -- which ceased to be the case decades ago.

For another, it failed to foresee that pension commitments could become a heavy burden for companies (among them Wilson's own General Motors) forced by competition and changing consumer demand to get smaller or at least leaner.

If GM had simply set aside all the money it put into its pension plan over the decades in individual retirement accounts for its employees, it wouldn't have this problem. Some GM retirees would be worse off than they are under the existing pension plan, but prospects for current employees (and potential future employees) would be far better.

That's the problem with pension plans that promise a specific benefit in the future -- they amount, pension consultant Keith Ambachtsheer says, to a contract between current and future generations, and those future generations aren't represented at the bargaining table. As a result, they get stuck guaranteeing the retirement income of their elders while receiving nothing in return.

When succeeding generations are bigger and wealthier than the ones whose retirements they must help fund -- as is the case in a growing corporation or in the United States since the launch of Social Security -- this isn't much of a problem. But it's no longer the case at GM, and may no longer hold for the U.S. as a whole a few decades down the road.

An alternative
So what's the alternative, when it's also clear that many otherwise productive members of society are incapable on their own of setting aside enough money and investing it wisely enough to fund a comfortable retirement?

Toronto-based Ambachtsheer has been thinking about this harder than just about anybody else over the past few years (a sampling of his writings can be found on the Web site of the International Centre for Pension Management at the University of Toronto's Rotman School of Management) and he has become a big believer in individual retirement accounts that are aggregated into what he calls "buyer's co-ops."

That is, the money belongs to the individual, but the choices of how much money to set aside and how to invest it are at least partly in the hands of professionals who aren't in the employ of a for-profit mutual fund company or brokerage firm. The closest thing to such a co-op currently in existence in the United States is TIAA-CREF, the retirement fund for academic, medical, cultural and research workers. But more and more corporations are now approximating the buyer's co-op model by reinventing their 401(k)s as paternalistic organizations that automatically set contribution percentages and investment choices unless employees opt out.

That still leaves the majority of Americans who don't happen to be professors or employees of especially enlightened corporations. To help them provide for retirement, we could move to a system like Australia's, where 9 percent of every worker's income (up to a limit similar to the wage ceiling on Social Security payroll taxes) is automatically funneled into retirement accounts managed by organizations akin to Ambachtsheer's buyer's co-ops.

That's sort of what President Bush was proposing last year with his Social Security private accounts -- but those accounts were relatively puny, the president was unwilling to come clean about the true costs of his plan, and Congress in its wisdom (and fear of the AARP) chose to do nothing.

A long-cracked pillar of the American retirement system is crumbling, and not nearly enough is being done to build a replacement.

Thursday, January 12, 2006

Alsip District 126 Referendum Discussion

The below post is from Robert Shelstorm of Southland Education Watch. He is one of our many friends fighting for education reform in the State of Illinois. This is a great example of how a well prepared speech can persuade people to vote against a referendum or at least consider voting against a referendum. This is an excellent summary of the Alsip District 126 referendum forum. Great research Bob!

Last night I attended a "public forum" regarding a 50 cent proposed tax increase for the ed fund in the District 126. Over 200 people showed up, but about 180 were teachers, administrators, and staff.

I was surprised that the board let me speak, since I didn't live in the district.

I told the group that the root problem was that the board and the union had agreed to an unsustainable plan. Teacher raises were averaging 4.1%, and average revenue growth was at about 3%. Administrators, I told the crowd, were also setting a bad example in a financially troubled district by accepting raises of 6.8% last year. The line, "How can administrators ask teachers, children, and parents to make sacrifices when they take care of themselves so well?" Actually drew some applause from the teachers.

I also pointed out a reasonable option to address this problem was not identified in the board hand outs; renegotiating the teachers contract to freeze wages to save jobs planned to be cut and adjusting the contract to allow raises to be paid from available funds from revenue growth. This would ensure student services and teacher jobs would be protected.

Surprisingly, there were no boos or blunt objects thrown at me, so I continued.

I said that as a former United Steelworker Union member, I learned that a union was like a family. When a member of the union "family" was faced with a devastating event like losing their livelihood, the union stuck together and shared the hardship to protect their brothers and sisters. Besides, even freezing salaries for a year would leave the teachers with an average 2% raise, which isn't bad in this economy.

I went on to challenge claims by the district that revenues were only growing by 1% per year, citing the 3.3% COLA for last year and the 7% per year increase in EAV per student in the last period.

I also noted that the district's enrollment has dropped by 6.5% over the last 5 years, which should free up more funds for salaries.

I brought their attention to the fact that the district had a serious problem in their non-instructional expenses. The district typically spends about $3,100 of its $7,700 per student operating expenses outside of instruction. I questioned whether the administration had done" benchmarking" comparisons with other districts such as Summit Hill 161, which spends on $1,800 per student in non-instructional expenses, to find better ways of management to avoid hurting students and staff. The administration sheepishly admitted that they hadn't.

This response brought some angry looks from the audience, including teachers, towards the Superintendent.

I concluded by saying that ultimately the decision of the community to raise or not raise taxes was more of an emotional than an analytical one, but it was clear in this instance that there were fair options that could protect student services and teacher jobs that had not been adequately explored by the board prior to calling to raise taxes.

I offered my help to the board and community if they wanted to explore ways to protect the children, parents, taxpayers, and staff without increasing taxes. I had about a half dozen people come up and ask for my card following the meeting, including some parents who originally spoke out for the tax increase, but were developing second thoughts.

I had only two "hostile" responses. One was a teacher who said "I didn't live in their community" and "he always comes out against tax increases". The other was a teacher who completely misconstrued what I said to mean "teachers are overpaid".

Bob Shelstrom

Profession tarnished

The letter to the editor below appeared in the Northwest Herald and can be accessed by clicking on the title above. Bravo to Bill for speaking up. As long as public school teachers support unions that refuse accountability they are a part of the problem and not the solution. We have had three generations of uneducated or undereducated children graduating our K -12 system. With billions of dollars wasted annually on inefficient school systems it is time for parents, business owners and taxpayers to speak up to the injustice to so many generations of children. Results of our poor public school systems are billions of dollars spent annually on remedial education in higher education, social welfare programs and penal systems.

Profession tarnished

[published on Tue, Jan 10, 2006]

To the Editor:

Public schools are a disgrace.

School boards, administrators and teachers have taken the once proud profession of educator and created a cancer that's draining society.

Eighty percent of property taxes go to education, and as property values skyrocket, actual tax dollars skyrocket, too. Public grade schools now charge tuition.

The largest general expense the state pays is education. That's before considering the teachers retirement fund shortage that's larger than the whole state budget.

Small-town superintendents earn more than the governor, but threaten program cuts to be fiscally responsible.

They conveniently forget fiscal responsibility while negotiating contracts with the already bankrupt schools.

They also forget to mention large raises when they sell referendums. How about our wonderful teachers hoisting picket signs because they're insulted by offers of only 6 percent annual raises. It's despicable the way they hold our children's education hostage. Their mantra, "It's for the kids." What a joke.

I'm pro-education. That's why I'm outraged our taxes go to fund their greed instead of educating our children.

We've already paid and borrowed all we can to satisfy your never-ending extortion. We will not let you raise taxes. Education has a spending problem, not a revenue problem.

Bill Russin

Unwelcome present from District 203

The letter to the editor below appeared in the January 12, 2006 online edition of the Daily Herald. This letter could have been written by a resident in any school district. These problems exist in school districts across the State.

Unwelcome present from District 203
Christmas time is finally over for me. Four days before Christmas, Naperville Unit District 203 gave me the typical present — over-taxation by levying more taxes than required for operation.

Last week ended the cycle with my health insurance company, giving me and my co-workers cost increases in excess of 25 percent.

These two points may seem unrelated but they both apply and are related to District 203.

Back on Sept. 1, the board voted 5-2 to approve a teacher contract that guarantees large raises, significantly higher than private industry and CPI. Included in this contract, again, is a very generous health insurance package that protects the teacher from health insurance cost increases, but will time and time again further hurt the district’s financial status.

Myself, I have to endure raises that the market will support to keep the consulting firm I work for in business and also have to bear much of my insurance increases for the same reasons.

Then, to further frustrate the community, they will again levy more money than needed for a next year’s operation with the same 5-2 vote. Fortunately there are two board members that fully understand the problem and want to make changes.

Next, there is one board member who understands that there are problems but has yet made the completely right decisions to try and fix the problem.

As for the remaining members, I am not sure what they are all thinking about, but hopefully the community will wake up and let them know there is a problem with the district.

Kevin Hausman


Tuesday, January 10, 2006

Money doesn't test well

This letter to the Editor in the January 9, 2006 edition of the NWH speaks for itself. Nice job Vern.

Re: Ted Juske's Jan. 1 letter, "Education not debatable."

His letter has some things backward. Schools do not offer free lunch or free transportation. My taxes pay for those things. Businesses do not chose their clients. Their clients choose them.

Too bad our students can't choose which school to attend.

Beyond a minimum threshold, it doesn't matter how much the school district spends.

According to the 2005 School Report Cards: Central District 51 ($4,438 a student); Aviston District 21 ($4,789); Germantown Hills District 69 ($5,036); Oak Grove District 68 ($5,189); St. Rose District 14-15 ($5,421); Washington District 52 ($5,429); Breese District 12 ($5,545); and Geff District 14 ($5,584) all had a higher percentage of students meeting the state's math and reading standards than Lake Forest's Rondout District 72 ($23,799 a student), at a quarter of the cost.

If Lake Forest residents spend so much because they value education, are they getting their money's worth?

If your business puts out an inferior product at four times the cost of your competitors, how long will you stay in business?

Vern R. Klenz


Monday, January 09, 2006

2-year schools moving the bar

Yet another story to show how the public education system is failing our children. The story below came from the Daily Herald and can be viewed by clicking on the title above. The Daily Herald has been head and shoulders above the rest of the newspapers in Northern Illinois reporting on education issues. Bravo to Emily Krone and the Daily Herald for its excellent reporting.

2-year schools moving the bar
More community colleges requiring more students to take remedial courses

By Emily Krone
Daily Herald Staff Writer
Posted Sunday, January 08, 2006

Doors to Illinois community colleges remain wide open.

But, increasingly, doors to certain classes are starting to close.

Faced with a growing number of unprepared students, local community colleges are instituting tougher enrollment standards for everything from entry-level English to advanced physics.

Students who don’t demonstrate mastery of basic reading, writing and math skills must play catch-up in pre-collegiate classes that don’t count toward a degree — a major shift for institutions known for inclusiveness, accessibility and flexibility.

Elgin Community College’s new minimum competency policy is “the most significant thing we’ve ever done in terms of changing the climate” on campus, said writing professor Patrick Parks, who sits on the academic policy committee that recommended the change.

The new policy requires that ECC students post a certain score on standardized tests to enroll in classes that count toward graduation at a four-year university. Students who do not score high enough must enroll in remedial classes.

Enrollment will shift by about 20 percent as more students are funneled into remedial classes, Vice President for Instruction and Student Services Gena Glickman estimated.

The college this year would have required 15 additional sections of remedial reading to accommodate the students who failed the reading test administered to all first-time, full-time students.

Of those tested, 67 percent placed into developmental writing, 20 percent into developmental reading and 90 percent into developmental math.

Under the new policy, enrollment in remedial classes would have been compulsory for those students.

“We want to make sure we’re teaching at an appropriate level and not watering down content,” Glickman said.

Ready or not

Community college officials said the changes are necessary because so many students don’t have a firm grasp of the fundamentals.

“In the English department, we’ve been keenly aware of the erosion of basic skills in writing,” said Parks. “It’s pretty well-documented nationwide.”

College of Lake County officials have been working to upgrade remedial classes for the past three years because students there aren’t meeting requirements for more advanced classes, Vice President for Education Affairs DeRionne Pollard said.

Several years ago the college instituted new minimum requirements for classes that transfer to four-year colleges.

McHenry County College officials put new standards in place also after noticing an increase in students unprepared to take college-level courses.

“The impetus was that we have seen students coming into our courses and not succeeding as well as they wanted to, and that’s because students came a bit unprepared,” said Keith Snow-Flamer, MCC’s assistant vice president for learning.

The reasons for the increase in unqualified students are many — from many different types of people enrolling in college to more people graduating from high school without basic skills.

And the implications are clear, college officials said.

Students who enroll in classes without proper preparation often end up withdrawing before the end of the semester, Glickman said.

In addition to losing money, students miss the opportunity to address the gaps in their knowledge.

Qualified students lose out also.

“It has a tendency to change the whole demeanor of the class,” Parks said. “At a college composition level, I shouldn’t still be teaching parts of speech.”

Student reaction

Student response to the change at ECC has been mixed, Parks said.

“Some fear there will be a lot of extra coursework,” he said.

That’s a valid concern, according to Donna Younger, director of Oakton Community College’s Learning Center.

Elgin’s approach can “slow progress considerably,” Younger said. “Some may not be going on to a four-year college, so they’d be penalized, in the greater sense, by having to … ensure transferability when they don’t plan to transfer.”

But students adjust quickly to tougher standards, said McHenry County College’s Snow-Flamer.

“It will be a change. There was a change here,” he said. “After it’s been in place for a while, it just becomes routine.”

•Daily Herald staff writers Chad Brooks, Erin Holmes, Mike Riopell, Leslie Hague and Cathi Edman contributed to this report.

Sunday, January 08, 2006

Student Achievement in Private Schools: Results from NAEP 2000–2005

The description below was taken directly from the National Center for Education Statistics website. To view the full report click on the title above. Yet another reason for school choice. School choice should not be limited to those with the funds to send their children to private schools. The poor should have the same option.

This report is the first to focus on private school students’ performance on NAEP assessments. It provides results in reading, mathematics, science, and writing in 2000, 2002, 2003, and 2005. Specifically, it focuses on the three private school types that combined enroll the greatest proportion of private school students (Catholic, Lutheran, and Conservative Christian) as well as private schools overall. It also compares the performance of students in these schools to that of public school students to provide additional perspective. Comparing student performance among the three types of private schools highlights several differences at grades 4 and 8 and a few at grade 12. Among the three types of private schools, few significant differences in performance were found at grade 12. The exceptions were that in 2000, the average score in science for grade 12 students in Catholic schools was 6 points higher than for students in Lutheran schools, and that in the 2000 mathematics assessment, a higher percentage of twelfth-graders in Catholic schools performed at or above Proficient than twelfth-graders in Conservative Christian schools. Where differences existed at grades 4 and 8, students in Lutheran schools generally outperformed those in Conservative Christian schools. In some grade/subject combinations, Lutheran school students outperformed Catholic school students, and Catholic school students outperformed Conservative Christian school students. Students at grades 4, 8, and 12 in all categories of private schools had higher average scores in reading, mathematics, science, and writing than their counterparts in public schools. In addition, higher percentages of students in private schools performed at or above Proficient compared to those in public schools.