Public workers according to Posner and Becker

Posner and Becker discussed the problem of the number of public workers and the fiscal problems involved.

The gap in state pension increases

In the U.S., the pension gap grew 26% in one year. The States need $ 1.26 trillion to pay public employee pensions and other retirement benefits. Complete note here.

Maine may move to the federal pension program

The large federal countries have been moving towards integrating state/provincial and municipality/county public workers to federal pension schemes, while allowing complementary plans. Yet, sometimes local governments refuse to integrate. This note on Maine shows the problems associated with not participating in the general, national program.

Some countries pay a paternity leave period

Several countries in the Americas grant a paid paternity leave, in addition to the maternity leave (see here). The days of paid leave conceded to fathers range from two to 21 days, but in Canada the grant is for 35 weeks of parental leave. In Uruguay the benefit is granted only to fathers employed in the public-sector. Furthermore, Ecuador and Venezuela differentiate the amount of days paid depending on simple or multiple births.

Some data on Luz y Fuerza pension scheme

This weekend the Mexican president closured the public electric organism Luz y Fuerza del Centro (LyFC) that provided service to Mexico City and other nearby municipalities. The onerous pension scheme was one of the factors that explain the high deficit this public enterprise had every year (at about three billion dollars). Here some data that put into context the pension scheme of the workers of LyFC:

• The average pension over the average wage (an empirical measure of replacement rate) equals 2.12. For example this ratio in other pension scheme of public organism equals 0.8 in ISSSTE (old regime) and 0.7 in the oil company PEMEX. It has been calculated that workers of private firms will have a replacement rate at about 0.4

• The minimum age for retirement in old age is 55 years old, five years lower than in IMSS (own workers) and for workers of private firms, for example

• Early retirement was used to be granted with only 25 years of tenure, this number was 28 and 30 in ISSSTE and every years is increasing as a result of the recent reform to this pension scheme

• Average retirement age in LyFC thus fluctuates around 50 years old

ANIESS

The Mexican association of state social security agencies has published a new web page. These are agencies that provide pension plans, health insurance and other social services to public sector workers.

The most important social security institutions in Mexico signed a portability agreement

Last week, IMSS and ISSSTE, the social security institutions for the workers of the private and public sector in Mexico respectively, signed a portability agreement. The agreement establishes that workers´ contributions to both schemes will be recognized in the calculation of minimum requirements to get benefits and in the amount of benefits. The agreement contemplates old age pensions, medical services and other social benefits. The agreement could be reached after the reform to the ISSSTE scheme that took place in 2007. We have analyzed the social security international agreements at the CISS in our Annual Report of 2006.

Coverage of public sector employees in the United States

The issue of segmentation of the social security system has technical complexities and it takes time to solve it. A recent study by the General Accounting Office points out that:

Social Security covers about 96 percent of all U.S. workers; the vast majority of the remaining 4 percent are public employees.

This does not mean that public employees do not have a pension plan, but that special solutions have to be developed to solve the issues of portability and recognition of contributions. The document can be found in: http://www.gao.gov/new.items/d08248t.pdf

Mexico is looking forward to transform the state pension systems using the oil revenue surplus

On December 2007 Mexican congress approved the Federal Law of Budget. This law allows the use incomes from oil to create a found named fund for Supporting Pensions Systems Reorganization (FARP in Spanish).

Oil surplus is used to stabilize the incomes of the states and the investments of PEMEX on infrastructure, after, surplus are divided in four parts which are used for federal general infrastructure; general infrastructure on states; general infrastructure on PEMEX and the FARP.

The Ministry of finance determines the use that can be given to the fund and the rules states need to meet in order to have access to the FARP. The fund can be used for:

1. Pay operating expenses
2. Support liabilities of the federal government resulting from current obligations, the payment of the minimum pension and/or the cost associated to the restructuring of IMSS and ISSSTE.
3. Support obligations of other federal entities, including the armed forces
4. Support the states in cost associated to the restructuring of their plan.

In order to access the fund it is required to:

1. Establish a system based on individual accounts for new workers
2. Establish mechanism that allow active workers to migrate to the new system without losing accrued benefits
3. Reduce the net present value of future liabilities

In Mexico in general the states have pension funds for workers of the public sector, which in many cases include the workers of the municipalities. There are a few states that have contracted out this benefit to ISSSTE. Unfortunately, there is little information on states systems and there is not a consolidated number of the value of future liabilities, although some specialists have calculated is over 10% of the GDP.

In Brazil, the Ministry of Social Protection works with the municipal plans and this have allowed them an important coordination in fundamental aspects. A review of this experience can lead to important lessons.

Deadline imposed by ISSSTE to state workers for choosing pension regime has concluded

November 14 was the deadline given by ISSSTE to workers covered by 1983 Law to choose the pension system most convenient for them. There were two options: a) a transition regime similar to the old one but with changes in the wage eligible for pension calculations and the minimum retirement, among others; or b) the delivery of a pension bonus through an individual account aimed to recognize the rights entitled in the old regime.
However, as recently informed by the director of the institute, up to date there is not an exact figure of how many workers chose to change to the individual account regime, but in a visit to the legislative he gave the figure of five millions individual accounts managed by PENSIONISSSTE (Institute’s own pension fund manager that will be the monopoly of this sector during 3 years). This figure can be explained considering that more than two million public service workers not covered by the old law as they were hired as independent workers, became eligible for the mandatory regime under the new law implemented in 2007. The remaining accounts can be the result that under the old law, government agencies contributed 2% of worker’s wage to an account managed by a bank institution. With the new law this amount is managed now by PENSIONISSSTE, except in cases where state workers also contribute or have contributed under the 1997 Social Security Law which rules social security for general workers.