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Sunday, August 30, 2009

Pension Spiking is "Legalized Fraud" according to Moneytalk Host Bob Brinker

This weekend a caller asked Bob Brinker about a practice called "pension spiking." According to Wikipedia,
Pension spiking is the process whereby public sector employees grant themselves large raises or otherwise artificially inflate their compensation in the years immediately preceding retirement in order to receive larger pensions than they otherwise would be entitled to receive. This inflates the pension payments to the retirees and, upon retirement of the "spikee", transfers the burden of making payments from the employee's employer to a public pension fund. This practice is considered a significant contributor to the high cost of public sector pensions.
Bob Brinker agreed with the caller that pensions in CA are a problem that need to be fixed.

Brinker said
it was legalized fraud.
"The loser in the pension spiking is...I am tempted to use the word fraud, but it is legal.... legalized fraud.... the losers in that are the tax payers...."
The caller pointed out the income tax rate in California is 9.3% of anything over $47,000. Brinker agreed with the caller that CA tax payers are very generous.

The caller probably missed my article here titled "2009 California Tax Rates" where I compare 2008 to 2009 and show the 9.55% rate for income of $46,439 and up.
Not only is the rate for California's top bracket going up 2.7% from 9.3% to 9.55% but California is lowering the income level at which this takes effect by 1.31% from $47,055 to "only" $46,439
Brinker said:
"I know you have a very high sales tax (9.75% in Los Angeles and many other counties).

I guess in California.....kinda reminds of me of that old Johnny Cash song.... How high are the taxes Mama? Nine and a Half and rising!"
Bob agreed with the caller that there is a problem in California where tax payers are "held up" by "pension spiking."
"It is a problem. Oh that pension fund spiking in the last few years of employment and the tax payers get HELD UP!"
This chart shows the wage gap between federal "civilian" and private sector employees is growing according to the Cato Institute. Note that the table shows the total compensation package that includes benefits like pensions.
Chart courtesy of Agorafinancial.com

Back in 2000, about nine years ago, the average federal civilian employee earned 66% more than the typical worker in private industry. Today, that gap in compensation has grown to be MORE than double the average! Much of that wider gap is due to pension spiking for government workers at the same time private companies were eliminating pensions (FedEx that competes with the US Post Office eliminated 401k Matching to save money!) or going bankrupt (like United Airlines, Chrysler and GM) and cutting pensions.

It is positive feedback. Put more and more people on the government payroll, pay them well and of course they will vote for bigger government which will put even more on the government payroll. Add in "pension spiking" and you can see we have a problem.

By Noodles Aug. 30, 2009

Make sure you read: Best Investment Newsletter

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 131% (over a double!) vs. the S&P500 DOWN 1.7% vs. NASDAQ down 7.9% (All through 9/5/09)

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5 comments:

  1. It can also be called PENSION PONZI scheme, where the early retirees receive high pensions and the later retirees will end up with much smaller pensions.

    ReplyDelete
  2. The caller pointed out the income tax rate in California is 9.3% of anything over $47,000.

    Actually, it's now 9.55% as those nice politicians in Sacramento who are just here to help (themselves to every penny they can steal from you) raised the tax a quarter percent along with the 1% sales tax increase in additon to increases on a host over other taxes/fees they put into law earlier this year.

    And I believe that 9.55% rate kicks in around $43-44k but I'd have to look again at the tax tables.

    ReplyDelete
  3. The caller probably missed my article here titled

    2009 California Tax Rates where I compare 2008 to 2009 and show the 9.55% rate.

    I'll add a link in the article. Thanks for pointing it out.

    ReplyDelete
  4. Until California taxpayers actively revolt against increased taxes and government fees to fund their past and present excesses they deserve to pay what they do. I don't live in California, but I've written my federal legislator and senators warning them about bailing out California and the likes of Nancy Pelosi. You have three options: Pay your excessive taxes. Revolt. Move to another state.
    Good luck!

    ReplyDelete
  5. Actually N C is getting quite bad. You guessed it, the culprit is high pensions and local politicuans getting various sweet heart deals. N C is the only state Im aware that an elected official can hold a full time job with the government entity that they are elected to oversee and manage. You have school teachers setting county budgets and salarys for teachers. You have county comissioners working for the N C association of county comissioners in full time jobs. It seems out of control to me and Im sure this applys to many states.

    ReplyDelete

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