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In the US, public sector pensions have been mismanaged so frequently that no conflation is required. EDIT: Further, there's a basic accountability problem. It

by Kalium 9y ago

In the US, public sector pensions have been mismanaged so frequently that no conflation is required. EDIT: Further, there's a basic accountability problem. It was - is - easy to gain politically in the short term by making promises about pensions. Promise bigger pensions, smaller contributions, and so on. The gains can be realized almost immediately. The price is paid much later, often decades later, and the people who made those unwise promises cannot be held to account so long after the fact. For many states and cities, pensions act as a counterweight to the ability to do anything other than pay pension costs. As before, you are absolutely right that there are mountains of waste to be investigated and addressed. You're completely right that there's a lot of money to be freed up there. Those issues are real, and they are pressing. Yet it is perhaps no more real or more pressing than the burden imposed by decades of financial mismanagement around pensions.

tomc1985 9y ago
Out of curiosity I checked my admittedly-boring hometown's financials for 2017, and found their pension spend to be less than 10% of overall budget for the year (though they note a pending crisis and potential doubling of pension expenses over the next few years). Not knowing what other entities' books look like, and also knowing that one town is hardly representative, pension spend looks large (large enough that I'd guess many different types would like to optimize out of the equation) but not that large. How big of a crisis are we looking at -- 50% of total budgets? 30%? 20%? You're right- mismanagement needs to be addressed. And I have no idea how to bring these firms to heel -- I just think that a market-based solution ("let them have 401(k)s!") is not the right answer here.
- Kalium 9y ago
  https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-level_issues https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-lev... In general, underfunded pensions and large increases in expenses are a looming threat to many state and local governments. In California, many cities are expecting their pension costs to increase by 50% or more. Few have much in the way of spare cash to begin with. It's not just the mismanagement of professional pension management funds, though you are of course right that that is a major concern. Broadly, the crisis is the result of applying unreasonable discount rates (8% or more) and making unrealistic promises about contributions and payouts. This is very, very easy to do when you're negotiating a union contract, as a state generally has little choice but to pay up when the time comes. It's also easy to do when you can bump up the assumed discount rate a bit and use the cash this frees up for goodies for your voters. These weren't just poor management decisions made by self-interested private companies. Indeed, private pensions often assumed much less rosy discount rates and fared much better. These poor financial management decisions were quite often made by union leadership and local officials, some of them elected. Sad to say, shifting from a defined-benefit system to a defined-contribution system seems to be the only way to guarantee that this particular form of politically expedient mismanagement will not recur. This doesn't have to be 401(k)s, 403(b)s, or other market-oriented system. But whatever the eventual system is, it clearly cannot look anything like the pensions of yesteryear. That system has failed, and the kindness and compassion and pure intentions at its heart has gone to waste. Let there be no doubt - this is tragedy.

by Kalium 9y ago

tomc1985 9y ago

Out of curiosity I checked my admittedly-boring hometown's financials for 2017, and found their pension spend to be less than 10% of overall budget for the year (though they note a pending crisis and potential doubling of pension expenses over the next few years). Not knowing what other entities' books look like, and also knowing that one town is hardly representative, pension spend looks large (large enough that I'd guess many different types would like to optimize out of the equation) but not that large. How big of a crisis are we looking at -- 50% of total budgets? 30%? 20%? You're right- mismanagement needs to be addressed. And I have no idea how to bring these firms to heel -- I just think that a market-based solution ("let them have 401(k)s!") is not the right answer here.

Kalium 9y ago
https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-level_issues https://en.wikipedia.org/wiki/Pensions_crisis#U.S._State-lev... In general, underfunded pensions and large increases in expenses are a looming threat to many state and local governments. In California, many cities are expecting their pension costs to increase by 50% or more. Few have much in the way of spare cash to begin with. It's not just the mismanagement of professional pension management funds, though you are of course right that that is a major concern. Broadly, the crisis is the result of applying unreasonable discount rates (8% or more) and making unrealistic promises about contributions and payouts. This is very, very easy to do when you're negotiating a union contract, as a state generally has little choice but to pay up when the time comes. It's also easy to do when you can bump up the assumed discount rate a bit and use the cash this frees up for goodies for your voters. These weren't just poor management decisions made by self-interested private companies. Indeed, private pensions often assumed much less rosy discount rates and fared much better. These poor financial management decisions were quite often made by union leadership and local officials, some of them elected. Sad to say, shifting from a defined-benefit system to a defined-contribution system seems to be the only way to guarantee that this particular form of politically expedient mismanagement will not recur. This doesn't have to be 401(k)s, 403(b)s, or other market-oriented system. But whatever the eventual system is, it clearly cannot look anything like the pensions of yesteryear. That system has failed, and the kindness and compassion and pure intentions at its heart has gone to waste. Let there be no doubt - this is tragedy.