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Pfizer Jacks Up Drug Costs, Pays Billions to Stockholders

Prescription Prices Ver5

Photo by Chris Potter via Flickr

Ever wonder why prescription drug costs are so high? Take a few minutes and read Bill Lazonick’s piece on Pfizer.

From January 2001 through September 2015, Pfizer paid out [to stockholders] $95.5 billion in buybacks and $87.1 billion in dividends.

That’s $182.6 billion paid to stockholders… compared to $37.1 billion paid in corporate taxes over the same time frame. Do the math. That’s almost five times more money paid to stockholders than paid in taxes.

Now, stop and think about this. Why are stockholders getting all that money? When shares are bought and sold on the stock exchange, none of that money goes back to the corporation. Instead, the money goes to the previous owner of the stock – who may have owned that stock for less than a second. (Read more about “high frequency trading” here.)

And yet, most corporations pay lots of money to their stockholders. For what? Passing stock from one owner to another isn’t investing in the corporation’s future. So far in 2015, Pfizer has paid more than twice as much to stockholders as it has invested in R&D.

Why are stockholders getting all that money?

— — — —

tieby Unsplash via PixabayPaying money to stockholders benefits corporate executives who are “paid for performance.” (How this works, using Verizon as a case study, is a previous NHLN post.) In the case of Pfizer’s CEO, “75% of his long-term equity awards are earned based on relative and absolute total shareholder return.” In other words, the CEO’s compensation depends on Pfizer paying money to shareholders. If stockholders don’t get enough money, the CEO doesn’t get that compensation. And it’s not just the CEO. All of Pfizer’s top corporate executives are paid according to whether they meet “shareholder return” targets.

Back to Bill Lazonick’s piece:

In 2014, [Ian C.] Read as [Pfizer] CEO had total direct compensation of $22.6 million, of which 27 percent came from exercising stock options and 50 percent from the vesting of stock awards. The other four highest-paid executives named on Pfizer’s 2015 proxy statement averaged $8.0 million, with 24 percent from stock options and 41 percent from stock awards.

Remember, a good chunk of that compensation was based on the amount of money paid to stockholders. Which probably explains why Pfizer is paying so much more to stockholders than it’s spending on R&D.

— — — —

dollar by TBIT via PixabayWhere does all that money come from, anyway?

From Bloomberg:

Pfizer Inc., the nation’s biggest drugmaker, has raised prices on 133 of its brand-name products in the U.S. this year, according to research from UBS, more than three-quarters of which added up to hikes of 10 percent or more. … In a note Friday, analysts at Morgan Stanley said Pfizer’s net prices grew 11 percent a year on average from 2012 to 2014.

The Wall Street Journal documented Pfizer’s three-year market research campaign to decide the price of a new breast cancer drug.

“[I]ts process yielded a price that bore little relation to the drug industry’s oft-cited justification for its prices, the cost of research and development. … Staff members put together a chart estimating the revenue and prescription numbers at various prices… The chart showed a 25% drop in doctors’ willingness to prescribe the new drug if it cost more than $10,000 a month.”

Two years ago, AARP investigated the pricing strategy for another Pfizer drug, with an expiring patent:

[T]he manufacturer of the popular anti-cholesterol drug Lipitor employed an unusually aggressive strategy — including a pay-for-delay agreement, a coupon program, and a substantial price increase — to try to maintain revenue and market share after Lipitor’s patent expired. … Several major U.S. retailers have filed lawsuits against Pfizer and Ranbaxy that accuse them of violating antitrust laws by striking a deal that kept generic versions of Lipitor off the market… Pfizer’s chief executive reported that they maintained three times more market share than what is traditionally seen when blockbusters lose patent protection, “add(ing) hundreds of millions of dollars of profitability to the company.”

And a bunch of Pfizer’s profits come from government spending. There isn’t a lot of available research into government spending on pharmaceuticals, but what I’ve found is enlightening. As of 2010, Pfizer’s Lipitor – in varying strengths – represented three of the top-20 drugs prescribed under both Medicare and Department of Defense health programs. As of 2003, Medicaid was spending almost $650 million a year just on Lipitor.

That’s a lot of taxpayer money going to Pfizer.  While the corporation is paying twice as much to shareholders as it’s spending on R&D. While it’s paying five times as much to shareholders as it’s spending on corporate taxes. While Pfizer is trying to use the US corporate tax rate to justify off-shoring profits through a merger with Allergan.

While Pfizer’s CEO is receiving millions in compensation based on the amount of money the corporation pays to stockholders.

— — — —

hands by Gaertringen via PixabayAnd where else does that money come from?

If you have family or friends on Medicare, you probably know that the price of prescription drug coverage is going up significantly next year – even though there will be no Social Security COLA.

If you’re a State of New Hampshire retiree, you know that your cost of drug coverage is going up significantly next year – even though there hasn’t been a retirement COLA for the past six years.

The billions being paid to Pfizer stockholders are coming out of a lot of pockets… including the pockets of people who are spending their “golden years” choosing between medicine and food.

One more time: why are stockholders getting all that money? What have they done to deserve it?

Buying (and Selling) the Future on Wall Street

Verizon as a case study of why our economy doesn’t work, part six

The “ah-ha!” moment came during a conversation with a friend. What we realized: the way we usually talk about the stock market doesn’t match the reality of our modern economy. Things we assume about stock ownership often aren’t really true.

NYSE_09_26_1963_US_News_World_Report

New York Stock Exchange, 1963 (Photo by US News and World Report via Library of Congress)

Start with the basics: what is a share of stock? Most of us think “Investors give a business money and get back shares of stock that give them a fractional ownership of the company.”

But try applying that concept to Verizon, and it doesn’t fit. Verizon stockholders buy and sell shares on the open market – and none of that money goes back to the corporation. The money that investors pay when they buy stock… goes to the investors who sold the stock.

So buying stock isn’t “an investment in the company”… it’s an investment in the stock itself. If you later sell that stock for more than you paid for it, that profit is what’s known as a “capital gain.” If you sell it for less than you paid for it, that’s a “capital loss.”

Stock ownership does give shareholders a “fractional ownership of the company.” But what does that mean? There are more than 4 billion shares of Verizon stock outstanding.  If you own one of those shares, you don’t have rights to any particular network router or mile of transmission line.  Instead, you own slightly less than one-four-billionth of the corporation’s “stockholder’s equity.”  That means if the corporation were to be liquidated tomorrow, you – along with all the other stockholders – would share whatever remained after the corporation’s assets were sold and its other debts were paid.

And that’s probably when, if you were a stockholder, you would start remembering the $49 billion in long-term debt that Verizon acquired in 2013.

And that’s probably when you’d realize that Verizon’s corporate balance sheet shows less than $12.3 billion in “total stockholder equity.” And there are more than 4 billion shares of stock outstanding.

Which means each share of stock represents less than $3 in stockholder equity.

VZ stock chart

Verizon Share Price

Verizon has been trading above $40 a share since… April Fool’s Day 2012. (Back when there were less than 3 billion shares outstanding and the balance sheet showed stockholder’s equity of about $11.76 per share.)

That’s a huge difference between the per-share value of stockholder equity and the per-share price stockholders have been paying… for years now.

So… what else are stockholders buying? (in addition to that minuscule percentage of a relatively small amount of stockholder equity)

Each share also confers the right to receive a dividend, when and if the corporation issues dividends.  And – no surprise – Verizon has been issuing steadily-increasing dividends for more than a decade.  At this point, it’s issuing dividends that total more than $2.20 a year.  With shares trading between $40 and $45, that means stock purchasers can expect to make back – in dividends – about 5% a year on their investment. Which is way more than the rest of us can get in bank interest right now, if we put money into a savings account.

But although those dividends represent a whopping big “return on investment” – there’s still the risk that you could lose money on the stock itself.  Think about it: if you bought a share of Verizon stock last October, you paid about $49 a share. Since then, you’ve received about $2.20 in dividends. But the price of each share of stock has dropped to about $44. So even though you’ve received 5% in dividends… if you sold the stock now, you would still have “lost” about $2.80 per share.

So corporate executives pay a whole lot of attention to share prices.

VZ_Exec_Comp_Program_from_ProxyFor two reasons. First, because executives’ compensation is largely “pay for performance.” For Verizon executives, 90% of compensation is “incentive-based pay.” And what’s the objective? “Align executives’ and shareholders’ interests.”

Second reason: because most corporate executives own a lot of stock in their company.

VERIZON SHARES OWNED by executivesAs of this past February, when stock incentives were awarded, Verizon’s top 10 executives reported owning a total of more than 645,000 shares of corporate stock – worth, at the time, $49.31 per share… or, more than $31.8 million.

But Verizon stock is now trading at about $44 per share. That means those same executives’ shares are now worth only about $28.4 million.

So is it really a surprise that corporations spend trillions of dollars buying back their own stock, to bump up share prices?  Is it really a surprise that corporations borrow money to pay dividends and fund buybacks?

I don’t see anything here that provides an incentive for corporate executives to grow a company long-term.  Nothing that provides an incentive to pay employees a fair wage.  Nothing that provides any incentive to “create jobs” (no matter how low the tax rate goes).

The only incentives are: to keep stock prices high and to pay dividends. (And an incentive for corporate executives to take as much money as they can, however they can, while it’s still available.)

And so for the rest of us, the economy doesn’t work.

— — — — —

retirement eggWondering why you should find time to care about this, with everything else that’s going on right now?

Because of that huge difference between the per-share value of shareholder’s equity and the actual price per share.

And what happens during recessions.

And the fact that almost everybody’s retirement money is – in one way or another – invested in the stock market.

Here in the Granite State, the NH Retirement System lost 25% of its value in the last recession.

In June 2007, before the Wall Street meltdown, the NHRS had $5.9 billion in investments, including
•  $29.7 million of stock in Citigroup, Inc.
•  $23.5 million of stock in American International Group, Inc. (AIG)
•  $14.0 million of bonds issued by Federal Home Loan Mortgage Corp. (Freddie Mac)
•  $13 million of bonds issued by Federal National Mortgage Association (Fannie Mae)

Two years later, when the recession was in full force,
•  Citigroup stock had plunged to only about 6% of its former value
•  AIG stock was worth only about a penny on the dollar and
•  Freddie Mac and Fannie Mae had both been placed into federal conservatorship

That’s what happens to stock values, during recessions.

Remember hearing about the Detroit bankruptcy? Which supposedly was triggered by unsustainable public employee pension costs? The Detroit pension systems were fully funded, as of June 2008. Then the recession hit.

All those defined-contribution 401(k)s? Across the country, families lost an estimated $2 trillion (with a T) of their retirement savings when stock values plummeted during the last recession.

Artificially-high stock prices hurt almost everybody, in the long run.

— — — — —

Yes, there’s more.

Smashed Piggy Bank RetirementVerizon’s balance sheet includes $24.6 billion of “goodwill” and $81 billion of “intangible assets.” And if you factor those out, Verizon has “net tangible assets” of minus $93.4 billion. That’s what most of us would think of as a negative net worth… of about minus $23.35 per share. While investors are paying about $44 per share to buy the stock.

The good news, from the investors’ perspective: they’re not personally liable for that $116 billion in long-term corporate debt. If – and this is purely hypothetical – if Verizon were to declare bankruptcy and default on that debt, stockholders would not be expected to pitch in $23.35 per share to satisfy the corporations’ creditors.

The bad news is, somebody out there would take that loss… and retirement systems across America invest in corporate bonds. (At last report, the NH Retirement System owned more than $433 million worth of corporate bonds.  Can’t tell, from here, whether any of those include Verizon.)

— — — — —

Photo by Stand Up to Verizon via Flickr

Photo by Stand Up to Verizon via Flickr

If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which followed.

Part two of the series, showing how Verizon executives benefited from that $5 billion buyback, is here.

Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

Part four, about phantom stock and how Verizon executives are avoiding taxes by investing in imaginary assets, is here.

Part five, about how Verizon is borrowing money to pay stockholders and executives while demanding givebacks from unions, is here.

This is part six.  And yes, there will be more.

NH Retirement Security Coalition Responds to Supreme Court Ruling on 2008 Legislative Changes

NH Retirement Coalition 

The NH Retirement Security Coalition has long contended that promises made to our member employees should be enforced because our members uphold their promises each and every day that they go to work.  The Court’s decision in American Federation of Teachers – New Hampshire et al. v. State of New Hampshire today unfortunately allows public employers to renege on their promise of security in retirement.  While this decision is disappointing, our members will continue to provide high quality service to the state and its cities, towns, and school districts.

We are deeply concerned about the long term impact of this decision on the people of NH.  We are carefully reviewing this decision in detail with our attorneys and members of the Coalition at this time.

Members of the NH Retirement Security Coalition:

Sandy Amlaw, New Hampshire Retired Educators Association

Steve Arnold, NE Police Benevolent Association

Dennis  Caza, Teamsters Union Local 633

Laura Hainey, American Federation of Teachers – New Hampshire

Mark Joyce, NH School Administrators Association

Rich Gulla, State Employees Association of New Hampshire – SEIU Local 1984

Dave Lang, Professional Fire Fighters of New Hampshire

Mark MacKenzie, New Hampshire AFL-CIO

Harriett Spencer, American Federation of State County and Municipal Employees Council 93

Keith Phelps, New Hampshire Police Association

Scott McGilvray, NEA – New Hampshire

NH Retirement Security Coalition Further Responds To Today’s NH Supreme Court Ruling

NH Retirement CoalitionEarlier today, the New Hampshire Supreme Court issued its decision in the Professional Firefighters of NH v. State of NH “Rate Case” permitting firefighters, police officers, teachers, and public employees’ pension contributions to be increased.

The Coalition believes that the Court’s ruling focuses narrowly on the Legislature’s ability to change a “fixed contribution rate.” The Court relied on a Florida Supreme Court decision in a similar case, allowing a Legislative body “to amend a retirement plan prospectively, so long as any benefits tied to service performed prior to the amendment date are not lost or impaired.”  The Florida Court made clear that it was not authorizing the Florida Legislature to modify benefits.

Today’s ruling does not clearly come to terms with important policy considerations.   The ruling sends a strong negative message to younger workers who are required to join the retirement system, but do so without any protections against ever increasing costs that are deducted from their pay.

There is much left unsaid in this decision and we are hopeful that the Court, in their upcoming decisions on remaining Retirement System cases, will be more definitive and better explain their rationale so that Coalition members will know exactly where they stand before and after retirement.

The NH Retirement Security Coalition represents over 76,000 active and retired Firefighters, Police Officers, Teachers State and Municipal Employees

###

Members of the NH Retirement Security Coalition:

Sandy Amlaw, New Hampshire Retired Educators Association

Steve Arnold, NE Police Benevolent Association

Dennis Caza, Teamsters Union Local 633

Laura Hainey, American Federation of Teachers – New Hampshire

Mark Joyce, NH School Administrators Association

Rich Gulla, State Employees Association of New Hampshire – SEIU Local 1984

Dave Lang, Professional Fire Fighters of New Hampshire

Mark MacKenzie, New Hampshire AFL-CIO

Harriett Spencer, American Federation of State County and Municipal Employees Council 93

Keith Phelps, New Hampshire Police Association

Scott McGilvray, NEA – New Hampshire

Marc Beaudoin, NH Troopers Association

Two Recent Court Rulings That Pit Legal Theories vs Workplace Realities

US Supreme Court BuildingCan’t help but think there’s a huge “disconnect” between recent court rulings and real-life work situations.

First Case: Yesterday, the US Supreme Court weighed in on the question of whether employees are entitled to be paid for time spent waiting for security screening as they leave the job each workday. Apparently, the Supreme Court doesn’t believe that routinely searching employees to see if they’re stealing anything is actually “integral and indispensable” to those workers’ jobs. And the law doesn’t require employers to pay wages for duties that aren’t “integral and indispensable.”

At one level, I agree with the Court wholeheartedly. Proving you’re not a thief, day after day, should not be an “integral and indispensable” part of anyone’s job.

But, in real life: what would happen if those workers refused to go through the security screening? My guess is: they’d be fired.

Which, in my mind, makes those daily screenings “integral and indispensable” – at least as long as the employer insists upon them. Myself, I would distinguish between investigating employees after a theft, and the practice of requiring workers to go through daily screenings “to prevent theft.”  And I don’t think workers should be required to donate their personal time, just because the employer mistrusts every single one if its employees.

Second Case:  This morning, the New Hampshire Supreme Court weighed in with a reverse-and-remand decision about the NH Retirement System.

The court case, Professional Fire Fighters of New Hampshire et al. v. State of New Hampshire, challenged the 2011 increase in public employees’ contributions to the NH Retirement System. That increase ranged from 2% to 2½ % of employees’ paychecks, depending on the job classification. This “pension reform” provision was included as part of the State’s biennial budget.

The plaintiffs and the NH Retirement Security Coalition are still reviewing this morning’s decision.  From their press release:

The NH Retirement Security Coalition has long contended that promises made to our member employees should be enforced because our members uphold their promises each and every day that they go to work. The Court’s decision today unfortunately allows public employers to renege on their promise of security in retirement. While this decision is disappointing, our members will continue to provide high quality service to the state and its cities, towns, and school districts.

We are deeply concerned about the long term impact of this decision on the people of NH. We are carefully reviewing this decision in detail with our attorneys and members of the Coalition and we will offer further in-depth comment as soon as we are able to do so.  

But as I read the decision, one thing jumped out at me: again, I see a disconnect between the legal reasoning and everyday workplace reality.

As I read the ruling – and I could be wrong on this, I am NOT a lawyer – it appears to me that the Court is viewing this from a purely theoretical perspective. It seems to me that the Court based its ruling on the theory that raising retirement contribution rates didn’t retroactively harm public workers because the retirement benefits they had already accrued (under the lower contribution rates) were still there – and the new contribution rates only applied to retirement benefits accrued going forward.

Or, in other words: if a public employee had retired on the day the new contribution rates went into effect, then he or she would still be entitled to all the retirement benefits accrued up to that point… and therefore (as I read the Court decision), the Justices do not see any unconstitutional retroactive impact.

Which I guess begs the question: what would have happened in 2011 if every single one of the public employees covered by the NH Retirement System had chosen retirement, rather than what was effectively an employer-imposed pay cut?

And in the real world, what does this do to NH RSA 273-A, the Public Employee Labor Relations Law, if public employers are now able to unilaterally change the terms and conditions of employment by increasing required “contributions” to the NH Retirement System?

The NH Supreme Court may be asked to reconsider today’s ruling. Stay tuned.

 

*       *       *       *

Members of the NH Retirement Security Coalition include:
Sandy Amlaw, New Hampshire Retired Educators Association
Steve Arnold, NE Police Benevolent Association
Dennis  Caza, Teamsters Union Local 633
Laura Hainey, American Federation of Teachers – New Hampshire
Mark Joyce, NH School Administrators Association
Rich Gulla, State Employees Association of New Hampshire – SEIU Local 1984
Dave Lang, Professional Fire Fighters of New Hampshire
Mark MacKenzie, New Hampshire AFL-CIO
Harriett Spencer, American Federation of State County and Municipal Employees Council 93
Keith Phelps, New Hampshire Police Association
Scott McGilvray, NEA – New Hampshire

Enough is enough!

Smashed Piggy Bank RetirementToday the Nashua Telegraph posted the article, “Pension tension: New research dispels old notion that public employees make less than private sector peers,” which highlights supposedly “new” research focused on public employee pensions.

There are many things wrong with this article and I feel obligated to correct some of these inaccuracies.

Let’s start with the fact that the “new research” they cite was written in 2012, hardly making it breaking news. It was based on surveys taken in 2004 and 2006. The report basically says that while public employees do make less per hour than their private sector counterparts, when you include their retirement benefits public employees make more.

Here are the facts.

1) Research from the National Institute on Retirement Security (NIRS) shows that public employees earn 11-12% less than their private sector counterparts. There is no denying that public workers have a better benefits package than private sector employees – however, even when you add in retirement benefits, public sector employees still fall behind private workers by 6-7% overall. Many people choose to work in the public sector for less pay because they want the better benefits and a real retirement plan.

Unfortunately the trend in the private sector is to take away defined benefit pension plans and force workers into 401(k) programs. This makes employees responsible for funding and managing their own retirement plans. Employers are able to reduce their contributions, reducing what they pay for the benefits they offer. This shifts the entire burden onto the employee. This is also why private sector worker are paid slightly better: because they are expected to save that extra pay for their retirement.

2) Public sector employees are better educated than private sector employees. NIRS found that only 23% of private sector employees have a college degree – compared to 48% of public sector employees with a college degree.

This is easy to understand when you think about some of the jobs in the public sector. You have thousands of literal rocket scientists at NASA and thousands of doctors and medical professionals at the Center for Disease Control. Every teacher is required have a college degree. The result is a highly educated public workforce.

3) It is an outright lie to blame public employees for underfunding of the NH Retirement System. The fact is that in 1999, the NHRS was 100% funded – until Wall Street shenanigans started cutting into its value.

As reported by Liz Iacobucci, “the Trust Fund lost 10% of its value in the recession of 2001.” The NHRS Trust Fund continued to decline and hit rock bottom during the 2008 economic meltdown. “It lost another 25% of its value in the 2008 recession,” said Iacobucci. In 2008, the NHRS had more than $5.9 Billion in investments – and when the stock market crashed, that created what many are calling an unfunded liability.

Think tanks often spin the numbers, calculating that if every employee retired today, the trust fund would be short by “X” amount of money. The fact is that new employees replace the retiring workers, and the new employees pay into the Trust Fund. Investment returns are hugely important to the Retirement System: about 75% of NHRS pension benefits are funded by investment returns. The employers’ contributions are – literally – just pennies of each dollar paid.

Wall Street has rebounded nicely from the 2007-08 crash. The stock market has been setting new records for almost 18 months now. The NHRS has recovered much of its lost ground – and as the market continues to grow, so will the NHRS Trust Fund.

I also can’t believe that Charles Arlinghaus, president of the Josiah Bartlett Center for Public Policy Studies, is suddenly so concerned about municipal budgets. His conversion is almost laughable. In the article, he says “Your town budget is higher than it would be because the pension system is more expensive than it should be. That’s money that’s not going to hospitals, to universities.”

But the Bartlett Center was one of the biggest proponents of “pension reform” bills during the 2011-12 legislative session – and back then, Arlinghaus didn’t talk about the impact those bills would have on municipalities. Cities and towns are paying more now for employee pensions thanks to the hard work of Arlinghaus and the JBC.

Enough is enough!

We need our elected leaders and these Koch-funded “think tanks” to stop lying to the people. The media pits worker against worker when these think tanks are given unwarranted publicity.

Blaming workers for the consequences of two stock market crashes isn’t “new research” – it’s political spin.

Calling retirement benefits unaffordable – without mentioning the fact that the Legislature underfunded the NHRS for years – isn’t honest “research,” it’s political spin.

And we as workers need to change the conversation away from “look at what he gets” – and start asking, “why am I not getting that?”   We as workers, both public and private need to stop blaming each other, and start demanding better from our employers.

Public Pensions: Still Waiting to be ‘Made Whole’

IOU in a piggy bank by Images of Money via FlikrLooks like the Justice Department is settling cases with banks responsible for the 2008 financial meltdown. Citigroup is next up: and reported to be paying $7 billion to end Justice Department investigations.

But I don’t see any of that money headed back to public pension systems.

…like, say, New Hampshire? In June 2007, the New Hampshire Retirement System Trust Fund held $29.7 million in Citigroup stock. Within two years, that stock had lost 94% of its value. (That’s a lot of retirees’ COLAs, right there.)

…like, maybe, Detroit? In June 2007, the two retirement systems covering Detroit public employees had a total of $343 million invested in mortgages. But after the crash, the systems’ “unfunded pension liability” was one of the main justifications for declaring that Detroit was “bankrupt.” (Read “Detroit’s Pension Systems: not ‘unaffordable’, just battered by Wall Street” here.)

State and local pension funds lost a total of $1 Trillion (yes, with a “T”) in value between 2007 and 2008. NOT a coincidence: those state and local pension funds are now “underfunded” by $1 Trillion.

And now the Justice Department is wrapping up its investigations, with fines to the federal government and assistance to homeowners…

… and nothing, as far as I can tell, in the way of restitution to all those public employees whose retirement dreams were destroyed.

Meanwhile, Wall Street broke more records last week…

…and Governor Chris Christie has decided not to pay New Jersey’s pension system more than $2 billion in employer contributions.

New Hampshire public sector retirees haven’t received a cost-of-living adjustment since 2010.

Detroit’s retirees are voting on whether to accept benefit cuts.

And so far, only one banker has gone to jail (compared to 839 people who were convicted for crimes during the savings-and-loan scandals of the 1980s)…

…and as far as I can tell, nothing whatsoever in the way of restitution to public pension funds.

Does that $7 billion settlement sound like a lot to you? Here’s some context:

  • That’s just slightly higher than the $6.4 billion Citigroup had originally planned to spend next year to buy back corporate stock. (Why would a company buy its own stock? “To counteract the dilution of bank shares when executives are awarded stock as incentives.”)
  • It’s roughly equal to six-months’ profit for the corporation.
  • It’s less than 2% of what Citigroup received in the federal bailout.
  • It’s less than one percent of what public pension funds lost in the meltdown.

Mad, yet?

Read the Rolling Stone’s “Looting the Pension Funds” here.

Read “The Plot Against Pensions” here.

 

Opposing Ideas On How We Can Fix The NH Retirement System: The NH Labor News Vs Fosters Daily Democrat

Fosters Daily Democrat is basically a right-wing talking machine. Between Fosters and the Union Leader, they cover a majority of the state pushing half-truths and dis-information to drive the right wing, Tea Party agenda in NH.

Take for example this week’s Sunday editorial “Sharing the burden of reform,” talking about the NH Retirement System’s fiscal problems.

Fosters is arguing against a recent op-ed penned by John Broderick Jr., NH State Supreme Court Justice and the current Dean of the UNH Law School, entitled “State employee pensions are a promise, not a gift.” Both editorials agree that the NH Retirement System is not fully funded and that changes need to be made to protect the taxpayers, and the workers.

Broderick argues that the William (“Bully”) O’Brien legislature forced through pension reforms that were unjust, unfair, and unconstitutional. Since the NH Supreme Court has already ruled in Broderick’s favor, it is simple to see that he is correct.

Fosters, on the other hand, argues that fixing the “broken pension system” means gutting the defined pension system, and forcing all employees to pay more of their money to the pension fund. Forcing employees to pay more for retirement, Fosters argues, would relieve the overpaying, taxed enough already, taxpayers from having to pay more to fix the NH Retirement System. The part that Fosters ignores is that over 75% of retirees’ pension benefits are paid out from investment returns. Increasing employees’ contributions is NOT going to fix Wall Street.

Long gone are the days when companies, and municipalities cared about ensuring that their workers could live happily in retirement after years of dedication to their employer. As Pulitzer Prize winning author Hedrick Smith explains in his book, “Who stole the American Dream”: just three decades ago, 84% of large companies offered a full pension. In 2010, only 30% did. Companies and municipalities have been pushing workers away from pensions and into defined contribution (401K) plans – which makes employees responsible for funding their own retirement. Yet workers’ wages haven’t been raised to compensate for the benefit cuts.

This pro-business mentality of reducing benefit expenses while refusing to raise wages has made corporations billions in additional profits. Workers are getting screwed out of their retirements, while the corporate giants and Wall Street hedge fund managers add more zeros to their already inflated paychecks.

Fosters is arguing the same for the NH public workers: “make the workers pay more, to save the taxpayers money.” There are a few problems with this idea. The NH Retirement System is underfunded due to the Legislature over-estimating the investment returns (not putting enough in to cover their share of the cost) and the 2008 recession.

“As recently as 1999, the New Hampshire Retirement System was more than 100% funded.  But then the Trust Fund lost 10% of its value in the recession of 2001.  It lost another 25% of its value in the 2008 recession,” wrote Liz Iacobucci in her blog post entitled, “Going Behind the Rhetoric on Public Employee Pensions.”

During the O’Brien reign of terror, they created legislation to absolve the state from have to uphold their end of the retirement bargain. O’Brien and his Tea Party buddies re-wrote the pension laws to make employees pay more to cover the money. Thankfully, the NH Supreme Court has ruled those changes unconstitutional.

No matter what Fosters tries to tell you, the taxpayer already has an obligation to their public employees. They made an agreement when they hired the employee and that includes paying the costs associated with hiring these workers. Taxpayers and the Legislature have been avoiding paying their portion of the bill.

Avoiding a problem does not make it go away, it only makes the problem worse. I believe it was the GOP who really coined the phrase “kicking the can down the road.” Well, now that can is kicking back.

Wondering Where Your Retirement Has Gone?

 

If you’re wondering what happened to your retirement security, then you really need to read the NY Times excerpt from “The Wolf Hunters of Wall Street.”

The same system that once gave us subprime-mortgage collateralized debt obligations no investor could possibly truly understand now gave us stock-market trades involving fractions of a penny that occurred at unsafe speeds using order types that no investor could possibly truly understand…

“It was so insidious because you couldn’t see it,” Katsuyama says. “It happens on such a granular level that even if you tried to line it up and figure it out, you wouldn’t be able to do it. People are getting screwed because they can’t imagine a microsecond.”

…Even giant investors simply had to take it on faith that Goldman Sachs or Merrill Lynch acted in their interests, despite the obvious financial incentives not to do so.

“Giant investors” would include – yes, that’s right – public pension trust funds.

Like the NH Retirement System Trust Fund… which was 100% funded, as recently as 1999.

Or Detroit’s public pension systems, which were fully funded as recently as 2008 – but are now being used as the “reason” that the City “has” to go through bankruptcy.

Wonder where your retirement has gone?

Read about Wall Street’s “dark pools”… then get really, really mad.

Senate GOP Sentences Future Retirees onto Social Services

Image by Marc Nozell (CC Flickr)

Image by Marc Nozell (CC Flickr)

CONCORD – THURSDAY, on a party-line vote, the Republican-controlled Senate killed SB 364, a bill sponsored by Sen. Sylvia Larsen, (D-Concord), to create real pension reform for employees hired on or after July 1, 2011. Hard-working new public employees harmed by the disastrous retirement changes in 2011’s HB2 told their personal stories during the bill’s committee hearing. Today they came back to Concord in hopes to convince their Senators to vote for their families, for the economy, and against resource-shifting to the social services net.

“It’s a sad day in New Hampshire when our legislators refuse to listen to their constituents, kicking the can of real pension reform down the road again to burden a  future generation. Our public employees deserve better than partisan politics being  placed ahead of common sense and dignity.” said Laura Hainey, President of AFT-NH.

Chris Cummings, representing NH Troopers’ Association, noted the impacts this low new member benefit program is having on recruiting and retaining high-quality employees in the Granite State. “This bill would have given us an opportunity to compete for the best and brightest recruits to address today’s law  enforcement challenges. With this vote, Senate Republicans have turned their backs on the public safety of New Hampshire.”

For more information on the New Hampshire Retirement Security Coalition, please visit nhretirementfacts.com and follow us @NH_RSC

UPDATED 1715

Senator Larsen Comments on Senate Bill 364

CONCORD – Senator Sylvia Larsen released the following comments after the defeat of Senate Bill 364 which would create real pension reform for newly hired public employees.

“I am disappointed we could not get a Senate majority to help pass SB 364. This bill would not change the fact that new hires are now required to work longer, retire at an older age, and pay more for their retirement benefit. It does however, include a compromise in the form of a defined contribution plan for Group I, which until recently has long been opposed by workers. I believe this bill represents real pension reform.”

“I believe there were unintended consequences during the 2011 legislative changes to the New Hampshire Retirement System, that’s why I introduced Senate Bill 364. After reviewing data last year from the New Hampshire Retirement System, I came to the conclusion that the Legislature must act now or else there will be a substantial social cost down the road.”

The current retirement plan creates a future generation of impoverished public employee retirees. It will provide only 45-49% salary replacement in retirement. Experts say that all retiring workers whether in the private or public sector need to receive between 80-85% of your last working year’s salary. Current law leaves the average firefighter retiring in 25 years with only $34,000 and teachers averaging $24,000 in retirement pay. That’s hardly a liveable wage now, let alone 25 years from now”

“Under the changes made in 2011, retired police, firefighters, and teachers thirty years from now could qualify for social services. It’s unacceptable to think that firefighters – who don’t receive social security and who spent decades running into burning buildings – would now be forced to survive on food stamps. We know we have problem now and have the advantage of years to offset the shortfall,” said Senator Larsen. “If we don’t act now, the Legislature will be kicking the can down the road and hoping a future Legislature will find a way to foot the bill and avoid thousands of police officers, firefighters, and teachers living on social services.”

“By failing to address the problem now and pass real pension reform, we are pushing costs for the state and taxpayers further into the future.”

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