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  #1381  
Old 07-17-2019, 02:03 PM
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Mary Pat Campbell
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OHIO

https://perspective.opers.org/index....rt-released-2/

Quote:
New financial report released
OPERS’ CAFR focuses on working together to preserve our system


Spoiler:
By Michael Pramik, Ohio Public Employees Retirement System

July 17, 2019 – OPERS has released its 2018 Comprehensive Annual Financial Report, a yearly look at our financial, investment, actuarial and demographic measurements.

This year’s theme is “Working Together: Responsible actions take us forward.” It focuses on the change that often must take place to ensure sustainability of a pension system: “Only with responsible change can OPERS continue to provide the financial security enjoyed by current retirees and to be enjoyed by the retirees of the future.”

OPERS employees work daily to make sure each step we take propels the organization forward to achieve five main goals:

Provide a stable pension for all OPERS retirees.
Continue to provide a meaningful retire health care program.
Minimize drastic plan design changes.
Be financially positioned to react to market volatility.
Maintain intergenerational equity.
Here are some of the facts you’ll discover about OPERS in the 2018 CAFR:

OPERS had a net position of $94.1 billion at the end of 2018.
The system’s funded status at yearend was 78 percent.
We are able to pay off our unfunded liabilities within 27 years, within the 30-year period mandated by Ohio law.
Health care expenses in 2018 were $0.9 billion, down from $1.0 billion a year earlier.
The OPERS defined benefit investment portfolio returned a loss of 2.99 percent for the year; the health care portfolio lost 5.76 percent; the defined contribution portfolio had a loss of 6.65 percent.
In 2018, member and employer contributions in all our pension plans totaled $3.5 billion.
Of the 303,920 active members in our system, 94 percent have chosen the defined benefit plan, 3.5 percent the defined contribution plan and 2.5 percent the hybrid plan.
Our new retirees’ average pension was $2,281.
Of the 212,937 retirees in OPERS, 89.3 percent remained Ohio residents as of Dec. 31, 2018.
OPERS made $5.5 billion in pension benefit payments last year to Ohio residents.

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  #1382  
Old 07-17-2019, 02:10 PM
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https://wirepoints.org/unfunded-pens...mpetitiveness/

Quote:
Forever Behind: Unfunded Pensions as a Permanent Hindrance to Competitiveness
Spoiler:
Why worry about unusually large unfunded pension liabilities? Why not let them run, or maybe even let them grow until the pensions become simple pay-as-you-go systems? Some pension reform opponents say that’s the best approach. In truth, with ever-growing unfunded pension liabilities, that’s effectively the path Illinois and some other states have been on.

The answer is that the enormous cost renders those states permanently uncompetitive. Every state seeks to maintain levels of services and tax burden that are at least competitive with other states. Exceptionally large legacy pension debt, however, makes that impossible. Services suffer and taxes increase, as they have in Illinois, because of out-sized pension costs.

Most importantly, the disparity between the least funded and best funded states accelerates. Illinois and the other worst-off states are becoming less and less able to maintain competitive levels of service and taxation compared to more responsible states.

New data from Pew Charitable Trust illustrate that result.

Their report released last week shows that the gap between well-funded public pension systems and those that are fiscally strained has never been greater. To illustrate, Pew focused on the best three states and the worst three. South Dakota, Tennessee, and Wisconsin had, on average, 97 percent of the assets needed to fully fund their pension liabilities in 2007 and remained at 95 percent funded or higher in 2017. Conversely, the three states with the lowest funded ratios—Illinois, Kentucky, and New Jersey—saw a drop from 69 percent funded, on average, in 2007, to 36 percent funded in 2017.

The same pattern applies to other states. According to Pew:

Across the country, we see this same pattern of disparity…. And although all states suffered declines in reported funded status over the five years between 2007 and 2012, states that were at least 90 percent funded by 2017 had seen their funding levels increase in the years following 2012. On the other hand, states that were less than two-thirds funded in 2017 reported further declines in financial position from 2013 to 2017 despite strong investment performance over that period.

The result? The better-off states feel little pressure on their budgets and the worse-off states have enormous portions of their budgets gobbled up by pension costs. Those three healthy states – South Dakota, Tennessee and Wisconsin – face true, total costs for pensions, pensioner healthcare and bonded debt** of less than 7% of their budget towards pensions and pensioner healthcare. But Illinois, Kentucky and New Jersey face costs of 50%, 27% and 37%, respectively.

Or look at unfunded liabilities as a percentage of personal income, also provided by Pew. For the country as a whole, unfunded pension and pensioner healthcare debt represents 11.1% of personal income. For those three best-off states, it’s under 2%. But in Illinois, Kentucky and new Jersey those costs represent 26%, 18% and 23% of personal income.

The disparity is worsening for several reasons. Pensions as badly unfunded as Illinois’ cost three or four times as much to service annually as properly funded pensions because they don’t have assets invested, returns from which funds the bulk of the cost for healthy funds. A healthy stock market like we’ve had since the Great Recession doesn’t help much if the assets simply aren’t there. Finally, at least in Illinois, we don’t even pay interest effectively accruing. The hole deepens every year just like a negative amortization mortgage, even though a quarter of our budget goes to pensions alone.

In short, the most underfunded states are tied to a ball-and-chain, consuming their budgets and overburdening their citizens. States that have addressed their pension problems properly are free to improve service, cut taxes or both.

And the gap is growing.

*Mark Glennon is founder of Wirepoints.

**See our report on this analysis prepared by Michael Cembalest at J.P. Morgan Asset Management linked here. Service on bonded debt is a small part of the total.
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  #1383  
Old 07-22-2019, 09:21 AM
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ILLINOIS

https://wirepoints.org/sham-buyout-s...sed-quicktake/
Quote:
Sham Buyout Solution For Illinois Pensions Now Being Exposed - Quicktake
Spoiler:
Remember two years ago when politicians from both parties bragged about the new pension buyout plan? It would save over $445 million per year, they said, and they booked the savings into the 2019 budget.

We’ve told you repeatedly not to believe it, and now the evidence is coming in. The Civic Federation has now published an analysis. Actual results show savings to the state pensions of just $13 million for the fiscal year that just ended. For a little perspective, that’s less than two-tenths of one percent of what taxpayers contribute to pensions each year. And the buyout scheme “does not appear likely to meet the annual cost-reduction target over the next few years,” the Civic Federation says.

That’s only half of the bad news. Aside from the failed savings, you have to look at how the buyouts are paid for. The Civic Federation started to tackle that, too. To pay for the buyouts, taxpayers are on the hook for $300 million of bonds issued by the state at an interest cost of 5.74%. Of the $298.5 million in net proceeds, according to the Civic Federation, only about $50 million has gone towards buyouts. The remaining bond proceeds continue to cost the State interest, but have not yet resulted in any pension savings.

The fact is that the state never provided any honest analysis of true costs and benefits. There were no public hearings or evaluations by pension actuaries. That’s because the savings were fake. The fake savings were stuck into the 2019 budget in May 2018.

We weren’t the only ones to question the scheme. Reuters, The Bond Buyer and The Associated Press had skeptical stories, as did the Illinois Policy Institute, all of which we published here. Two of our favorite, honest actuaries – Mary Pat Campbell and Elizabeth Bauer, also saw through it. The “shammiest of shamtaculars,” Mary Pat called it.

Three lessons here:

First, don’t expect much from the buyout program going forward. The Civic Federation said that, and pension officials have told us the same off the record.

Second, believe nothing Illinois politicians tell you about pensions. Nothing.

Third, pension debts aren’t going away without real reforms, and that starts with a constitutional amendment that’s needed to permit real reforms.

–Mark Glennon, founder, Wirepoints.
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  #1384  
Old 07-22-2019, 09:31 AM
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https://www.governing.com/week-in-fi...m_medium=email
Quote:
What Crisis? The Case for Not Panicking Over Pension Debt.
New research released this week shows that even pension plans with big unfunded liabilities are likely to survive in the long term.

Spoiler:
Over the past decade, public retirement costs have spiked while governments' unfunded liabilities --now totaling more than $1.2 trillion -- have continued to grow.

But according to research that debuted this week, lawmakers shouldn’t worry too much about accumulating pension debt. “There’s an assumption that fully funding pensions is the right thing to do,” said the Brookings Institution’s Louise Sheiner at the paper’s presentation. "Most of the work in this area has been about calculating how unfunded these plans are [and] that’s led to a lot of concern that these plans are in a huge crisis.”

Sheiner, along with co-authors Byron F. Lutz of the Federal Reserve Board and Jamie Lenney of the Bank of England, say that's not the case. They argue that pension debt is stable as long as its size relative to the economy doesn’t increase. “When you approach the pension situation from a public finance [and sustainability] angle,” Sheiner said, “there’s less of a crisis than is typically portrayed.”

RELATED
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The paper, which was presented at the Brookings Institution’s annual municipal finance conference in Washington, D.C., finds that pension benefit payments as a share of GDP are currently at their peak level and will remain there for the next two decades. That's because the 2008 market crash came at a time when pension plans were starting to see baby boomers retire, meaning they dropped in value just when payments to retirees were starting to increase.

By 2040, however, the reforms instituted by many plans following the financial crisis will gradually cause benefit cash flows to decline significantly. Since those changes were to current employees’ plans, governments won’t see the full effect of those savings until those workers retire.

All of this means that, according to the research, the worst of it is over for most pension plans. For the next 40 or so years, the ratio of pension debt as a share of the economy is expected to remain the same, as long as the plans achieve moderate investment returns and governments continue to make consistent payments equal to or slightly higher than they are now.

Those, however, are two big conditions. Consistent payment schedules that last more than a few election cycles can be difficult for politicians.

Take Illinois. In 1994, it set a 50-year payment schedule that would fund the plan at 90 percent. For the first decade of the schedule, the payments were low. They've since started ramping up. As costs have increased, lawmakers have consistently found ways to avoid making them, meaning that the expected contributions are getting even bigger and bigger. Illinois now has one of the highest state contribution rates as a share of payroll, around 50 percent.

Sheiner said there are some plans, such as Puerto Rico’s, that are essentially out of money and probably in need of a bailout. But most plans could achieve their definition of stability by maintaining or slightly increasing their current contribution rate as a percentage of payroll. (The U.S. average is 17.4 of payroll.)

The main concern, she adds, is with all this pressure to be fully funded, what are states giving up? And is that even necessary? “You do hear a lot of stories about people wanting to do things that are incredibly valuable, like getting lead out of water and investing more in education. These have huge rates of return that affect people’s health, inequality, basically everything that’s really important,” she said. “And they can’t do it because they have to fully fund their pension.”


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  #1385  
Old 07-22-2019, 02:35 PM
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DISCOUNT RATE

https://www.pionline.com/industry-vo...ty-rate-return

Quote:
Commentary: The Fed's new mandate – target an equity rate of return

Spoiler:
The Federal Reserve's about-turn in monetary policy in January, after the equity market swoon in the fourth quarter, showed that even Jerome "Straight-Talking" Powell joined his predecessors Alan "Irrational Exuberance" Greenspan, Ben "Taper Tantrum" Bernanke, and Janet Yellen in falling prey to the wiles of the equity market. The Fed should give up the pretense that it is focused on just unemployment and inflation and publicly acknowledge that the equity market matters. Heck, it should go one step further and make the lives of many pension funds much easier by explicitly stating that it is targeting a rate of return. It would clean up a lot of the chaos, mistakes and inefficiencies in managing pension funds. The fact that defined benefit plans were overfunded in the late 1990s and are now well below full funding is evidence of the havoc monetary policy has had on retirement security.

Professor Robert C. Merton and I argued that traditional monetary policy, by trying to increase absolute wealth (i.e., "boosting the stock market") of investors through lower interest rates did great damage to retirees and pension funds. In short, by lowering interest rates, the Fed raised the value of retirement liabilities of both DB plans and DC accounts by more than they raised the value of assets, thereby making pension portfolios worse off because the funded status, or "relative wealth," declined. This move, in turn, caused these funds to have to "save more" through additional contributions, taking precious resources away from consumption (of individuals saving in defined contribution plans), investment (of companies sponsoring defined benefit plans) and government spending (from government entities sponsoring pension plans). By backing off interest rate increases in 2019, and even potentially lowering them by 50 basis points this year, it runs the risk of exacerbating its original sin and further worsening relative wealth in DB and DC plans.



Return forecasts
To take a step back, typical pension plans make forecasts of expected returns of equities and other assets, and then establish a long-term asset allocation (with a target expected return) to which they adhere to over many years. The expected return on equities and the full portfolio is invariably, if not always, a positive number and in range of 7% to 10% a year. The fact that our ability to forecast expected returns is poor at best and wrong in direction at the worst has not changed behavior one bit over the last 20 years. Further, despite the inability to forecast returns, most, if not all investors, naively and regularly rebalance back to this "optimized portfolio" in the mistaken belief that this is good portfolio management.

Many private equity managers talk privately about being massively outbid on deals, suggesting that weak forecasts of equity returns are driving more money into the private markets and causing a bit of a bubble. Missing consumer price inflation is rearing its ugly head in (private) asset inflation — a movie we have seen before. In an additional twist, most pension plans are now in a "net cash out" situation — namely, payments on benefits exceed receipts from contributions, which means they have to periodically liquidate assets and loading up on illiquid assets starts to pinch.

Enormous pain
When the equity market swoons as it did in the fourth quarter of 2018 through the Fed's actions, it causes enormous pain. The realized return of the pension portfolio is negative, forcing new savings and contributions from individuals, companies, and state and local governments that missed their expectations, further disrupting operations. Corporate pension fund chief investment officers have been told by their treasurers to derisk the pension plan — in plain speak, the treasurer does not want to be on the next earnings call reporting how the pension plan needs additional contributions when eager investors want dividends or share buybacks or new investment plans. Higher contributions to pension funds diverts resources from schools, safety personnel and essential services. Furthermore, naive rebalancing policies that take pension plans back to their original "optimized mix" are an exercise in futility because rebalancing to a target level of equity when equity returns are negative is further exacerbating the pain.

Instead, if the Fed announced its annual equity return target (much like it does on unemployment and inflation), pension plans and the overall economy might greatly benefit. First, the entire exercise of setting expected returns and optimal portfolios would be simplified and the precision of the realized return to the expectation greatly improved. A fund targeting a high expected return could be 100% in equities; one with a lower expectation could blend in some bonds or cash. Second, these same funds could go largely passive and save on paying high fees, and improve liquidity, with potentially better and more predictable outcomes than currently achieved. This would obviously impact compensation and employment in the financial services industry, but the greater good might be worth striving for. Corporate treasurers, individuals and government entities could plan much more efficiently how they hope to get their pension plans back to full funding (and then ideally immunize these cash flows) and other areas of the economy might benefit from not having resources diverted away from them.

Intelligently rebalance
Essentially, if the market, at some point in a year, was running above (or below) its target annual rate of return, funds should intelligently rebalance their portfolios by selling (or buying) equities because maintaining an equity overweight (or underweight) is not sensible. Just the threat of the Fed intervening to achieve its target equity return will improve pension plan investment behavior. Current operations, however, attempt to get the portfolio back to some arbitrary weight without any focus on the target return, often with disastrous consequences as in 2008. In this fashion, the market would potentially self-correct with the knowledge that if it does not, the Fed could intervene and adjust liquidity from the market by trading equities outright.

Gone are the days when central banks stayed away from the stock market that such a recommendation would be blasphemy. The Bank of Japan and the Swiss central bank are active participants in equity markets, and the Fed balance sheet has lots of non-traditional assets, so why not go the extra step and use equity purchases and sales to achieve financial stability? No more crazy distortions of relative wealth from massaging interest rates to improve absolute wealth — interest-rate and equity-market management would be easily separated.

In summary, central bankers have tried to pretend that they are not beholden to the stock market, but 2018-'19 appears to have peeled back the curtain once and for all. Let's give up the pretense and make life much simpler for pension fund investors and also set an annual equity target, which would allow every pension plan, and related sponsoring entity, to clearly plan how to manage its fund and other core activities. The current distortion from wildly gyrating markets does nobody any good. It's time to change the "Powell (Greenspan, Bernanke and Yellen) Put" to the "Pension Put."

Arun Muralidhar is co-founder of Mcube Investment Technologies LLC in Great Falls, Va. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.


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  #1386  
Old 07-22-2019, 02:45 PM
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https://www.forbes.com/sites/chasewi.../#776ae70f4835
Quote:
How Mike Pence Became A Millionaire From Government Pensions
This is the first in a series that explores the personal fortunes of President Trump’s cabinet officials.
Spoiler:

Mike Pence doesn’t have all that much to his name. He doesn’t appear to own a home, and he hasn’t saved much besides $65,000 in index funds, at most, and his bank account holds less than $15,000.

Luckily, Pence works for the government. That means taxpayers are on the hook to fund the 60-year-old vice president’s retirement through his state and federal pensions. Those pensions, which will likely pay Pence at least $85,000 per year for the rest of his life, are worth a combined $1.2 million—enough to push Pence’s net worth to an estimated $1 million after factoring in his six-figure student loan debt.

Read more in our series: Attorney General Bill Barr's $40 Million Fortune

Unlike Wilbur Ross and Steven Mnuchin, who built immense portfolios, or even Betsy DeVos, who grew up with one business fortune and married into another, Mike Pence has little notable experience in the private sector. Instead he has spent two decades earning government paychecks and banking on hefty, taxpayer-funded plans to cover his retirement.


These programs, long exploited by career politicians, have drawn conservative ire for years. “Most people don’t get that kind of golden handshake,” says Grover Norquist, president of the right-leaning Americans for Tax Reform. “It’s a good deal for Congress and it’s not a good deal for taxpayers.”

The son of a Korean War veteran, Pence spent a few years at a small law firm before mounting an unsuccessful campaign for Congress in 1988. A second attempt two years later erupted in scandal after he used political donations to cover a mortgage, credit card and even grocery bills. “I’m not embarrassed that I need to make a living,” he told the press at the time. Such personal spending was legal then (though it has since been banned) but proved unpopular with voters.

Defeated again, Pence joined a conservative think tank and established himself as a local radio star, billed as “Rush Limbaugh on decaf.” He offered his take on the news of the day (“Is adultery no longer a big deal in Indiana and in America?” he asked during a 1997 national sex scandal) and chatted with state and local politicians. By 2000, Pence was a minor celebrity in the conservative Midwest. He made a third run for Congress and won.


With no significant business experience, he ranked among the Capitol’s poorer members, with few assets besides stock in an Indiana gas station and convenience store chain called Kiel Bros. Oil Co. Pence likely inherited the shares from his father, who was an early employee. The future vice president helped out at Kiel Bros. growing up, but he never went into the business. In the early 2000s, the company had grown to more than 200 locations and Pence’s brother Greg was president. When profit margins on gas and tobacco products fell, the debt-burdened Kiel Bros., also dealing with a handful of environmental fines, was forced to file for bankruptcy.

Mike's Million
The vice president is worth about $1 million, almost entirely thanks to his state and federal pensions.
Pie chart of Mike Pence's net worth
Pence, then in his second term in Congress, watched his nest egg crack. In 2004 he disclosed owning a stake in Kiel Bros. worth between $200,000 and $450,000. The next year, with the company bankrupt, the value of those shares dropped to zero. Pence, who had only a few thousand dollars in savings, accumulated more than $600,000 in losses from the business going under, according to his 2006 tax returns.

The government came to the rescue. In 2006, Pence hit his fifth year of federal service—making him eligible for a federal pension, a guaranteed stream of income in retirement.


Pence would further benefit from an act of Congressional self-dealing. A 1986 federal law based pension payouts for members of Congress and their staffers on a higher percentage of their annual pay than regular federal workers’ pensions. Pence voted in favor of closing this benefit for future Congressmen in 2012, though he remains one of many lawmakers grandfathered into the older, more lucrative pensions.

“They’re almost twice as valuable as a regular federal pension,” says Tim Voit, a financial analyst who runs a firm that specializes in pensions. “Congress passes laws for their own benefit, and they’ll never shortchange themselves.”

Between the 12 years Pence served in the House and his two years as vice president, he is currently eligible to collect an estimated $50,000 per year from the federal government for the rest of his life. If he were able to sell that annuity today, he could get around $700,000 for it.


Then there’s his state pension. Pence left Congress in 2013 to become governor of Indiana. He served a single term in the statehouse before being elected vice president. For those four years of gubernatorial work, he’s entitled to 30% of his salary for the rest of his life. (If he waits until he’s 65 to retire, he can get 40%.) Pence earned nearly $112,000 in his final year as governor, so Indiana will owe him around $35,000 per year starting at age 62, an income stream worth at least $500,000. A spokesperson for Pence declined to comment for this story.

The rest of his assets stem almost entirely from the government as well. Pence disclosed two Indiana state-run retirement accounts, worth up to $65,000. He has also likely been saving a chunk of his federal salary through the Thrift Savings Plan, essentially a 401(k) for government employees. If Pence has been making regular contributions, he could have hundreds of thousands in additional funds stashed in a plan that ethics laws do not require public officials to disclose.

Meanwhile, Pence and his wife owe between $100,000 and $245,000 across eight Parent PLUS student loans they took out to help put their three children through college. By 2013, around the time the couple moved into the Indiana governor’s mansion, they had sold their modest, three-bedroom home outside D.C. and their 1,400-square-foot residence in their hometown of Columbus, Indiana. Four years later, they essentially moved right from the governor’s mansion in Indianapolis to the United States Naval Observatory, the vice president’s official residence. The Pences are likely expected to pay for their own household items and meals, but taxpayers foot the bill for their major living expenses.

And when Pence leaves office in 2021 or 2025, the public will remain on the hook—even if he follows his predecessor, Joe Biden, and rakes in millions from books and speeches—since Pence will be right at the government’s retirement age, ready to start cashing in on his government pensions.


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Old 07-22-2019, 03:14 PM
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Originally Posted by campbell View Post
I'm no Pence fan, but what a terribly unintelligible hit piece.
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Old 07-22-2019, 03:23 PM
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Originally Posted by KernelMustard View Post
I'm no Pence fan, but what a terribly unintelligible hit piece.
It doesn't help that the Forbes folks are primarily bloggers with little editing.
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Old 07-22-2019, 07:18 PM
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Brookings and Governing are both institutions that cater to govt workers. Neither is addressing the concept that a benefit should be funded during the years of service, and neither cares that benefits are provided that are not paid for.
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Old 07-22-2019, 07:54 PM
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Brookings and Governing are both institutions that cater to govt workers. Neither is addressing the concept that a benefit should be funded during the years of service, and neither cares that benefits are provided that are not paid for.
They've moved on from "80% funded ratio is great!" to "Pay-as-you-go is no big deal!"

Which is quite the drastic goalpost-moving.

I loved the "we'd rather spend money on all these other things instead of funding pensions!" line.

I mean, if we're going to go that far, why not just cut pay for government workers? After all, we'd rather pay for other things, apparently.
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