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People will have to pay a little more, a little longer, and take out a little less in some combination. I am sure the actuaries are smart enough to figure it ou

People will have to pay a little more, a little longer, and take out a little less in some combination. I am sure the actuaries are smart enough to figure it out.

blindwatchmaker 9y ago
A lot of solutions for budget shortfalls seem to be focused on increasing burdens and reducing services for the lower classes. Maybe some of these shortfalls could be made up for by bringing the tax rates on the wealthy and corporations back up to pre-Reagan era levels, and also recouping some of the trillions in tax avoidance money hiding in offshore shelters? This seems more preferable to me than nickle and diming the elderly.
- anovikov 9y ago
  Well, people are supposed to fund their own pensions. This is not a tool of redistribution. If they life longer, it is logical they have to either retire later, get lower pensions, or contribute more, or all of the above.
  - mikeash 9y ago
    Or get paid more.
  - gulbanana 9y ago
    Why are they "supposed to" do that? It's in the interest of society as a whole to make sure that everyone is looked after in their old age.
    - lr4444lr 9y ago
      Because their union negotiates benefits on behalf of only their members, not society at large. That's not meant to imply general social security is bad or should be done away with. But these funds are public charter corporations that operate on behalf of a single labor group of voluntary association by its members.
    - throwaway91111 9y ago
      And you really think a pension is the best way to provide for the elderly? Please.
    - verelo 9y ago
      The US has to pick model for right or wrong. Saying it's in everyone's best interests to look after people is totally true, but it's not really the design of the US social system. The US is free market, in a free market you look after yourself and in return are a little less regulated and/or taxed. Both work, but yeah...in the current model, it anticipates people looking after their own retirement plans. In my opinion, most people are incapable of planning for their future. I've probably done a great job in comparison to others, but I often wonder if it's going to be enough.
      - Retric 9y ago
        US pension model (Social Security) does do redistribution just from the middle class to the lower class and single people to married people.
        lr4444lr 9y ago
        I doubt that's true, in fact, could be the reverse. SS is not enough in many cases for poor people to live on because they have less in savings, but if they earn too much working, they can't qualify for SS. They also have shorter lifespans. Middle class people in general live longer and can afford to retire earlier because SS complements their savings, which transfers to them the taxes on the wages of the poor.
        Retric 9y ago
        The gap is large enough it's really just math. TLDR; Some people get 70+% more per dollar put into the system. Further, there is no income cap on social security, you simply get deferred payments, but at 70 earnings stop counting. AKA if you take it at 62 and make enough money to get 1/2 as much from SS at 70 it's recalculated and you get more money than if you had started at 62. Anyway try some numbers: https://www.ssa.gov/OACT/quickcalc/index.html https://www.ssa.gov/OACT/quickcalc/index.html Date of birth: 6/15/1950 Current earnings: $40,000.00 Retirement month: 6/2020 = $1,564.00/month. Double earnings to 80k and keep other number the same and you get: $2,510.00 which is much less than 3,128 or 2x $1,564.00/month. Drop that to 20k and it's still $1,090.00.per month which 73.7% better ROI than someone making 80k per year. Now yes lifespan is critical, but not enough to make up the 73+% gap. Marriage on the other hand can provide more than a 50% benefit on it's own which shifts things even more dramatically.
  - blindwatchmaker 9y ago
    I don't think it's axiomatic that individuals should be funding their own pensions. I feel a lot of these problems that keep popping up have the same fundamental root cause: governments (and the non-wealthy) have less resources, as more of those resources end up concentrated in fewer hands over time which has certainly been the case in first world countries over the last few decades. Proposed solutions of austerity and cutting and degrading services even further for the lower classes are exacerbating this tendency. I'm not sure what the endgame here is supposed to be.
    - orangecrush4000 9y ago
      Oh, so other people should fund their pensions?
SilasX 9y ago
No. That is a dangerous attitude on this. There are limits to how much you can raise through taxes before you trigger a death spiral, where you scare off working age contributors, which increases the burden the rest have to pay, which scares off more contributors, and so on. That's exactly what happened with the dinosaur companies (GM, Bethlehem, etc) with unfunded pension obligations. The "legacy costs" made it so they couldn't compete. True, it's harder to switch countries than avoid employment at a dinosaur, but that's a difference of degree, not kind; the dynamics are all the same. Don't start from a model that assumes no one will ever leave. That's how earlier generations of actuaries "didn't figure it out". Edit: It's not even necessary that workers flee the country; it could also be that more of the economy is driven underground, which has its own nasty side effects.
- lr4444lr 9y ago
  Pension funds are usually funded by the contributions of the qualifying members in their tier, much less by taxes receipts in state funds in some kind of general debt obligation. You may also be confounding private and public pension funds, the latter of which I am guessing makes up the lion's share of what the article is talking about. Of what I know of actuarial work (not much, admittedly,) outlooks are calculated on the combination of many risk dimensions. Changes to pay outs and qualifications are made decades in advance to attenuate the effect. But to address your concern head on - yes, the fund can go broke, and it's not the rest of the public's problem. That's the kind of loss that creates healthy risk aversion and should make for sensible negotiation by labor leaders and the politicians they put into office in order to limit corruption.
  - SilasX 9y ago
    >Pension funds are usually funded by the contributions of the qualifying members in their tier, much less by taxes receipts in state funds in some kind of general debt obligation. You may also be confounding private and public pension funds, the latter of which I am guessing makes up the lion's share of what the article is talking about. I'm not confounding anything; it's the same the problem in both cases: your organization accrued a liability with no asset to pay it, so you had to take the payments from newcomers to this system. Whether that happens within a private or a public pension fund doesn't change the dynamics of the core problem, which is that your organization is at a cost disadvantage to competing organizations, which then spirals out. The example I gave was the dinosaur companies. Bethlehem offers $15/hour but must take out $1/hour to pay for unfunded pension obligations. NewSteelCorp offers $15/hour but needn't take out anything for legacy pension obligations. Where do the best workers go? And what does that to do the burden on remaining workers? Likewise, every time you raise SS taxes to cover increased obligations, you're risking the flight of contributors to other countries and the underground economy. I don't know what you think I'm "confounding" there; I see a recognition of a common pattern that I tried to explicate, with implications for the current problem. "Oh, this is public, not private" is non-responsive. >Of what I know of actuarial work (not much, admittedly,) outlooks are calculated on the combination of many risk dimensions. And my point was that the actuaries missed a big dimension, which is that the organization has actual competition. So when you say "oh, we'll just take one more dollar an hour from workers to shore it up, what's the problem?" you're failing to model the loss of contributing workers to companies that don't have to thusly gore them. You're right that pension funds can retroactively change pension formulas, but they typically don't, and Social Security definitely hasn't cut pensions to something sustainable. >But to address your concern head on - yes, the fund can go broke, and it's not the rest of the public's problem. That's the kind of loss that creates healthy risk aversion and should make for sensible negotiation by labor leaders and the politicians they put into office in order to limit corruption. So you agree a pension fund can go broke, but are simply claiming that governments are immune to an analogous problem? I'd say it becomes the public's problem at that point, when there are millions of seniors that expected payments they can't get without raiding other critical government services. Why don't you?
payne92 9y ago
The problem isn't the actuaries, it's the assumptions. For example, NOBODY KNOWS how much health care will cost in 20 years, but that's central to figuring out defined benefit obligations (as just one example). Or, what's a good investment rate of return assumption to use? Small differences (e.g. fractions of a percent) compounded over decades lead to huge differences. How do you model black swan events (e.g. 2008 crash)?
- orangecrush4000 9y ago
  Those crashes hapoen every 40-70 years. Deleveraging is the term you are looking for
nugget 9y ago
What should scare people the most is the Illinois pension funds' assumption of ~ 7% real returns going forward. If the market stays flat in real terms for the next decade, which seems at least possible (if not plausible), it's significantly worse than their worst-case scenario, which is already probably unsolvable without some form of default.
- lr4444lr 9y ago
  I trust saner heads will eventually prevail. New York Teacher Retirement System had a similar expected return (even a big higher) under which they offered an investment option of 7% return under any market - no more, no less. That's an insane risk-free rate now, and the option no longer exists to new incoming members.
awkwarddaturtle 9y ago
> I am sure the actuaries are smart enough to figure it out. It's not that simple when you have politics involved. We will keep borrowing more and kicking the can down road so that the next for the next generation to deal with until we can't borrow anymore. No different than how terribly indebted households keep borrowing and moving debt from credit card to credit card until there run out of options. What politician is going to ruin his chance of re-election or election by supporting "people having to pay more, a little longer" or "people getting less".

People will have to pay a little more, a little longer, and take out a little less in some combination. I am sure the actuaries are smart enough to figure it out.

blindwatchmaker 9y ago

A lot of solutions for budget shortfalls seem to be focused on increasing burdens and reducing services for the lower classes. Maybe some of these shortfalls could be made up for by bringing the tax rates on the wealthy and corporations back up to pre-Reagan era levels, and also recouping some of the trillions in tax avoidance money hiding in offshore shelters? This seems more preferable to me than nickle and diming the elderly.

anovikov 9y ago
Well, people are supposed to fund their own pensions. This is not a tool of redistribution. If they life longer, it is logical they have to either retire later, get lower pensions, or contribute more, or all of the above.
- mikeash 9y ago
  Or get paid more.
- gulbanana 9y ago
  Why are they "supposed to" do that? It's in the interest of society as a whole to make sure that everyone is looked after in their old age.
  - lr4444lr 9y ago
    Because their union negotiates benefits on behalf of only their members, not society at large. That's not meant to imply general social security is bad or should be done away with. But these funds are public charter corporations that operate on behalf of a single labor group of voluntary association by its members.
  - throwaway91111 9y ago
    And you really think a pension is the best way to provide for the elderly? Please.
  - verelo 9y ago
    The US has to pick model for right or wrong. Saying it's in everyone's best interests to look after people is totally true, but it's not really the design of the US social system. The US is free market, in a free market you look after yourself and in return are a little less regulated and/or taxed. Both work, but yeah...in the current model, it anticipates people looking after their own retirement plans. In my opinion, most people are incapable of planning for their future. I've probably done a great job in comparison to others, but I often wonder if it's going to be enough.
    - Retric 9y ago
      US pension model (Social Security) does do redistribution just from the middle class to the lower class and single people to married people.
      - lr4444lr 9y ago
        I doubt that's true, in fact, could be the reverse. SS is not enough in many cases for poor people to live on because they have less in savings, but if they earn too much working, they can't qualify for SS. They also have shorter lifespans. Middle class people in general live longer and can afford to retire earlier because SS complements their savings, which transfers to them the taxes on the wages of the poor.
        Retric 9y ago
        The gap is large enough it's really just math. TLDR; Some people get 70+% more per dollar put into the system. Further, there is no income cap on social security, you simply get deferred payments, but at 70 earnings stop counting. AKA if you take it at 62 and make enough money to get 1/2 as much from SS at 70 it's recalculated and you get more money than if you had started at 62. Anyway try some numbers: https://www.ssa.gov/OACT/quickcalc/index.html https://www.ssa.gov/OACT/quickcalc/index.html Date of birth: 6/15/1950 Current earnings: $40,000.00 Retirement month: 6/2020 = $1,564.00/month. Double earnings to 80k and keep other number the same and you get: $2,510.00 which is much less than 3,128 or 2x $1,564.00/month. Drop that to 20k and it's still $1,090.00.per month which 73.7% better ROI than someone making 80k per year. Now yes lifespan is critical, but not enough to make up the 73+% gap. Marriage on the other hand can provide more than a 50% benefit on it's own which shifts things even more dramatically.
- blindwatchmaker 9y ago
  I don't think it's axiomatic that individuals should be funding their own pensions. I feel a lot of these problems that keep popping up have the same fundamental root cause: governments (and the non-wealthy) have less resources, as more of those resources end up concentrated in fewer hands over time which has certainly been the case in first world countries over the last few decades. Proposed solutions of austerity and cutting and degrading services even further for the lower classes are exacerbating this tendency. I'm not sure what the endgame here is supposed to be.
  - orangecrush4000 9y ago
    Oh, so other people should fund their pensions?

SilasX 9y ago

No. That is a dangerous attitude on this. There are limits to how much you can raise through taxes before you trigger a death spiral, where you scare off working age contributors, which increases the burden the rest have to pay, which scares off more contributors, and so on. That's exactly what happened with the dinosaur companies (GM, Bethlehem, etc) with unfunded pension obligations. The "legacy costs" made it so they couldn't compete. True, it's harder to switch countries than avoid employment at a dinosaur, but that's a difference of degree, not kind; the dynamics are all the same. Don't start from a model that assumes no one will ever leave. That's how earlier generations of actuaries "didn't figure it out". Edit: It's not even necessary that workers flee the country; it could also be that more of the economy is driven underground, which has its own nasty side effects.

lr4444lr 9y ago
Pension funds are usually funded by the contributions of the qualifying members in their tier, much less by taxes receipts in state funds in some kind of general debt obligation. You may also be confounding private and public pension funds, the latter of which I am guessing makes up the lion's share of what the article is talking about. Of what I know of actuarial work (not much, admittedly,) outlooks are calculated on the combination of many risk dimensions. Changes to pay outs and qualifications are made decades in advance to attenuate the effect. But to address your concern head on - yes, the fund can go broke, and it's not the rest of the public's problem. That's the kind of loss that creates healthy risk aversion and should make for sensible negotiation by labor leaders and the politicians they put into office in order to limit corruption.
- SilasX 9y ago
  >Pension funds are usually funded by the contributions of the qualifying members in their tier, much less by taxes receipts in state funds in some kind of general debt obligation. You may also be confounding private and public pension funds, the latter of which I am guessing makes up the lion's share of what the article is talking about. I'm not confounding anything; it's the same the problem in both cases: your organization accrued a liability with no asset to pay it, so you had to take the payments from newcomers to this system. Whether that happens within a private or a public pension fund doesn't change the dynamics of the core problem, which is that your organization is at a cost disadvantage to competing organizations, which then spirals out. The example I gave was the dinosaur companies. Bethlehem offers $15/hour but must take out $1/hour to pay for unfunded pension obligations. NewSteelCorp offers $15/hour but needn't take out anything for legacy pension obligations. Where do the best workers go? And what does that to do the burden on remaining workers? Likewise, every time you raise SS taxes to cover increased obligations, you're risking the flight of contributors to other countries and the underground economy. I don't know what you think I'm "confounding" there; I see a recognition of a common pattern that I tried to explicate, with implications for the current problem. "Oh, this is public, not private" is non-responsive. >Of what I know of actuarial work (not much, admittedly,) outlooks are calculated on the combination of many risk dimensions. And my point was that the actuaries missed a big dimension, which is that the organization has actual competition. So when you say "oh, we'll just take one more dollar an hour from workers to shore it up, what's the problem?" you're failing to model the loss of contributing workers to companies that don't have to thusly gore them. You're right that pension funds can retroactively change pension formulas, but they typically don't, and Social Security definitely hasn't cut pensions to something sustainable. >But to address your concern head on - yes, the fund can go broke, and it's not the rest of the public's problem. That's the kind of loss that creates healthy risk aversion and should make for sensible negotiation by labor leaders and the politicians they put into office in order to limit corruption. So you agree a pension fund can go broke, but are simply claiming that governments are immune to an analogous problem? I'd say it becomes the public's problem at that point, when there are millions of seniors that expected payments they can't get without raiding other critical government services. Why don't you?

payne92 9y ago

The problem isn't the actuaries, it's the assumptions. For example, NOBODY KNOWS how much health care will cost in 20 years, but that's central to figuring out defined benefit obligations (as just one example). Or, what's a good investment rate of return assumption to use? Small differences (e.g. fractions of a percent) compounded over decades lead to huge differences. How do you model black swan events (e.g. 2008 crash)?

orangecrush4000 9y ago
Those crashes hapoen every 40-70 years. Deleveraging is the term you are looking for

nugget 9y ago

What should scare people the most is the Illinois pension funds' assumption of ~ 7% real returns going forward. If the market stays flat in real terms for the next decade, which seems at least possible (if not plausible), it's significantly worse than their worst-case scenario, which is already probably unsolvable without some form of default.

lr4444lr 9y ago
I trust saner heads will eventually prevail. New York Teacher Retirement System had a similar expected return (even a big higher) under which they offered an investment option of 7% return under any market - no more, no less. That's an insane risk-free rate now, and the option no longer exists to new incoming members.

awkwarddaturtle 9y ago

> I am sure the actuaries are smart enough to figure it out. It's not that simple when you have politics involved. We will keep borrowing more and kicking the can down road so that the next for the next generation to deal with until we can't borrow anymore. No different than how terribly indebted households keep borrowing and moving debt from credit card to credit card until there run out of options. What politician is going to ruin his chance of re-election or election by supporting "people having to pay more, a little longer" or "people getting less".