20 ms·

The State Pension Funding Gap

85 points by Four_Star 9y ago

brudgers 9y ago
Original report, http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/04/the-state-pension-funding-gap-2016 http://www.pewtrusts.org/en/research-and-analysis/issue-brie...
PeterStuer 9y ago
Why not just 'quantitative ease' the differences? We seem to have no qualms about it when it comes to burning cash on private corporate initiatives.
- lotsofpulp 9y ago
  That is what will happen. Each US dollar will become less valuable, and the nominal debts will be satisfied. Hope you're invested in inflation resistant assets. Some of the pension recipients who don't have enough clout to force the federal government's hand will lose though.
  - stephen_g 9y ago
    That's an intuitive theory, but inflation doesn't really have that much to do with the quantity of money, because the value of money is almost entirely based on what you can buy with it. Price inflation happens when the aggregate demand (the sum of all the spending over a certain period) outstrips the amount of goods and services produced (or held in inventory) in the economy. Yes, adding more money can increase aggregate demand, but it is also saved or invested in productive ventures that mean more goods or services are produced. If it was simply a fact of more money == inflation, we'd be screwed since the money supply is almost constantly growing through bank lending. At the end of the day, all spending carries inflation risk (since all spending adds to aggregate demand). This equally applies to money saved earlier, new money created in the banking system, or new money created by the Government (say, QE). It's at the time of spending that's the risk, not the time of creation. The limits of Government money creation therefore have more to do with the productive capacity of the economy.
    - lotsofpulp 9y ago
      In an environment where income and wealth disparity is growing, and birthrates are just at replacement level or lower for those with wealth, wouldn't aggregate demand outstrip goods and services produced?
LanceH 9y ago
Maybe stop guaranteeing returns on investment? "It worked in the past" isn't financially sound decision making. It might be lucky from time to time.
- mjfern 9y ago
  Or stop raiding pensions and other tax receipts to pay for other underfunded government obligations (resulting from inane tax cuts that only benefit the very wealthy)?
  - maxerickson 9y ago
    What do you mean by raiding? Do you have a particular state in mind that diverted funds in a controversial way? (the report places much blame on aggressive assumptions about investment performance)
    - westpfelia 9y ago
      Several times now various bills and projects have relied on withdrawing funds from social security/pension pools. On the promise that the money will be returned of coarse.
      - maxerickson 9y ago
        The Social Security Trust Fund owns an awful lot of US treasuries (almost $3 trillion), but I don't think that really meets the bar for "controversial" as treasuries are the only investment it is allowed to buy (by law). For states, I am interested in specific cases.
        dashundchen 9y ago
        There are additional cases I can find, but a quick search turned this up about Kentucky doing this to the state employee health insurance fund for nearly a decade. I believe they have done this to the general pension fund as have other states. If a state is going to have pensions they need to be independently managed and firewalled from the hands of politicians. https://kypolicy.org/shifting-health-costs-employees-become-way-state-plugs-budget/ https://kypolicy.org/shifting-health-costs-employees-become-... >Kentucky has shifted more of the responsibility to pay for health benefits to public sector workers in recent years and then used the savings to help fill holes in the budget. Even after these transfers from the employees’ health plan, its fund balance is continuing to grow, making it a target in the new budget. Governor Bevin’s budget plan includes transferring $500 million out of the plan in 2018 into a new “permanent fund.” >Over a period of years, balances built up in the state’s plan as more was collected in employer and employee contributions than was paid out in claims. In recent years, the state began to transfer those monies to plug other holes in the budget. Kentucky transferred $50 million in 2009 and $93 million in 2015. For budget year 2016, the state will shift another $63.5 million from the plan to the state’s rainy day fund.
replicatorblog 9y ago
Reading about municipal finance makes the freewheeling world of VC look positively conservative. E.g. there's this concept of a "13th check," at the end of the year in many poorly run cities. Basically, and surplus growth in the city's retirement funds were distributed to pensioners as a sort of annual bonus, rather than left in the general account to help make up for eventual shortfalls. http://www.mlive.com/news/detroit/index.ssf/2013/10/10_things_to_know_about_detroi.html http://www.mlive.com/news/detroit/index.ssf/2013/10/10_thing... There's a serious moral hazard for politicians. It's easy to give constituents services today at the expense of benefits in the future, when they'll be out of office. I wonder if a law that clawed back these government official's pensions if they were found to break from good accounting practices, would be a deterrent?
- Clubber 9y ago
  >I wonder if a law that clawed back these government official's pensions if they were found to break from good accounting practices, would be a deterrent? Yes, but the people who pass the laws are the people who would be affected. You'd have to find a simple majority of people moral enough to do it. I think today, that's a hard sell.
  - koolba 9y ago
    The only way that'd happen would be via a direct ballot measure[1]. Even then it'd be a tough sell. More and more I'm thinking the only outcome for a lot of these States and municipalities is going to be bankruptcy. The long term austerity measures that are needed are too onerous and the entrenched powers are too corrupt to do anything about it until it's too late. [1]: https://en.wikipedia.org/wiki/Ballot_measure https://en.wikipedia.org/wiki/Ballot_measure
    - crdoconnor 9y ago
      The states could raise property/land taxes and eliminate corporate tax cuts and tax loopholes. That wouldn't be a 1% friendly solution though - too much of their wealth is tied up in land and equities. It might mean that landlords in the Bay Area couldn't collect rents of $6,000 a month for doing nothing. Most of that unearned cash would flow in to state coffers instead. It's ironic, because the Howard Jarvis Taxpayer foundation (the group behind prop 13) tried to justify prop 13 by saying that raising property taxes would hurt the elderly. Californian voters believed them. Now that their actions created a massive hole in California budgets, they advocate for stripping California pensioners of their money as the "fiscally responsible" solution. People believe them now too. Edit: For those erroneously believing propaganda that hiking taxes leads to an automatic exodus: https://www.cbpp.org/research/state-budget-and-tax/state-taxes-have-a-negligible-impact-on-americans-interstate-moves https://www.cbpp.org/research/state-budget-and-tax/state-tax...
cs702 9y ago
...and that's after one of the longest bull markets in recorded history.[a] [a] http://www.finra.org/investors/5-longest-bull-markets-infographic http://www.finra.org/investors/5-longest-bull-markets-infogr...
- youpassbutter 9y ago
  This is what is so weird. The stock market is at historic highs. https://upload.wikimedia.org/wikipedia/commons/7/7e/S_and_P_500_chart_1950_to_2016_with_averages.png https://upload.wikimedia.org/wikipedia/commons/7/7e/S_and_P_... Our housing bubble just surpassed the housing bubble of 2007. Interest rates are at all time lows and unemployment is at all time lows. If they are having trouble now when it's the best of times, what are they going to do when we have a recession?
jknz 9y ago
Elected Politician: what so you want? Union: pay raises! Elected Municipal CFO: we can't. No more money. Elected Politician: what about retiring 5 years earlier? Unions: we will take that! Elected Politician: retiring earlier costs nothing right now correct? Municipal CFO: yes but... Elected Politician: Fine let's give everyone 5 years earlier retirement. My successor will deal with that when I will be gone.
- lotsofpulp 9y ago
  More like politician or candidate hires the actuarial consultant which will use the most liberal assumptions they can to make the costs appear as cheap as possible. And then not even fund to those calculations, because who is going to force them to?
  - dashundchen 9y ago
    Or in many states, use the surplus from pension funds to operate the government, writing an IOU they know future governments won't be able to pay. Unsurprisingly when the shortfall comes the same politicians who borrowed will be shouting how pensions are unsustainable. In New York, the pension fund is firewalled from the state budget and run fairly independently. After the last recession, the pension fund made several changes in conjunction with the unions: * Ensured the forecasted return estimates were in-line with reality (7%, which it has exceeded in the past decade) * Introduced a new tier so new employees contribute for their whole career, with contribution rates progressively increasing as you earn more * Introduced a limit on the final average salary that determines pension payout * Lengthened the window of final salary calculation and introduced rules preventing large overtime variances counting towards this calculation. Still a decent pension system if you can vest, but with reasonable expectations set. As a result, NYS is one of the best funded pensions in the country and in the upper 90s% of future funding levels.
- deleted 9y ago
  [deleted]
nontechdude1 9y ago
The cumulative result of years of overpromising to employees. Only seems to happen with one party...
- intrasight 9y ago
  Do you have data to backup that assertion?
  - nontechdude1 9y ago
    see wikipedia page for state credit rating. all aaa states are gop led
    - NeonVice 9y ago
      I just checked the facts. You're not necessarily wrong. An exception is DNC-led Delaware. DNC strongholds tend to have the worst credit ratings.
    - intrasight 9y ago
      And the worse state - Kentucky - is Republican
rufusroflpunch 9y ago
In Kentucky, we're going through a pension reform as we speak. Of course, the Republicans are claiming to have fixed it and the Democrats are protesting it, saying they're hanging future retirees out to dry. What no one is saying is that the hole is so deep there's no way to get out of it. If I were a state employee, I would start planning now for my pension not to be there when I retire.
- Someone1234 9y ago
  As someone who works in a different state, this is why when given the option I went 401K only. 401Ks have a lot of issues, and definitely aren't superior to a pension scheme in general, but pension schemes are so poorly run and have so many corruption-like issues that at least with a 401K it is just a simple vested savings account I can move if need-be. I guess what I am saying is, trust in traditional pensions is so low to some, getting a worse but safer alternative looks nice by comparison.
- intrasight 9y ago
  That is why those pensioners, who are allowed to do so according to their contract, are taking their pension as a lump sum payment when they retire. And they are doing so in larger numbers which is further eroding the financial health of the municipalities.
justin66 9y ago
The underfunded part is sadly not unusual or unpredictable and neither are the unrealistic performance expectations. On the other hand, the poor returns some of the funds have seen in recent years is quite a surprise. How badly designed did the average portfolio have to be to only gain 1% in 2016?
roenxi 9y ago
My memory of the statistics is that the median voter does not save. The government's approach to creating reserves of wealth follows on from that naturally. An aspect in this that I find very interesting is the realities behind the numbers which will be revealed as the situation plays out. The money is a bit of an illusion, retirees need an available reserve of wealth (be it in the form of productive land, goods, labour, rock solid infrastructure and houses with little need of maintenance) to sustain them when they can no longer produce. Where will this wealth reserve come from? Who will have to go without? What compromises will be made? Undoubtedly one part of any proposed solution is 'tax the rich', because there are no other wealth reserves in America, but if this is a more fundamental problem of demographics and ratios the real resources might not be available to meet peoples expectations. Somebody is in for a very rough 20 years.
citilife 9y ago
I wonder how much Illinois impacts the average... At this stage, there is literally no way to even pay back the pension (it'd be $20k per person in the state, if we needed to pay it back today).
- nfriedly 9y ago
  Yea.. Illinois is in bad shape. My father-in-law retired from Western Illinois University a little earlier than he had initially planned so that it would be before his union contract expired. That was over a year ago - the folks left are still working without a contract. That doesn't necessarily mean they won't get any pension if they retired today, but it puts it at even more risk than it already was.
deleted 9y ago
[deleted]
wolfspider 9y ago
I imagine not too many devs have the option of a pension like I do so I'll relay what was told to me about my pension. ~4.5 years ago I was told along with all the new hires in the room we would be the last generation of new hires with an option for pension. I opted not to take it as that said to me this would be the hardest to fund pension ever. Really my matching 401K and superior insurance do the trick for me even if the returns aren't high. After the '08 crash I've hedged against private stubbornly and admittedly have been pretty jealous of other benefits devs in the private sector get.....until now.
- frockington 9y ago
  What has recently happened to curb your jealousy?
  - wolfspider 9y ago
    serious illness
oflannabhra 9y ago
In Kentucky, the situation is dire. KY’s pension system is ranked as the worst in the nation across several metrics and agencies. The pension system was written into our constitution as an “inviolable contract” with state employees. [0] Our current governor is the first to attempt to do anything about it in decades, and is being blasted by unions, the press, and the public for it. He’s most likely destroyed any chance of re-election by pushing hard for reform. He also hasn’t done a great job of building consensus, to be fair. The NEA/KEA especially has vehemently disagreed with any proposed reform. Teachers have walked out today in protest of a bill that did not affect any current state employees. It boggles my mind that people respond to this topic so irrationally. It’s like a patient arguing with their doctor over a diagnosis of cancer. [0] - https://www.courier-journal.com/story/news/politics/2017/08/24/kentucky-pension-crisis-question-answers/549085001/ https://www.courier-journal.com/story/news/politics/2017/08/...
- justin66 9y ago
  > Teachers have walked out today in protest of a bill that did not affect any current state employees. That bill is essentially a reduction in compensation for future employees, isn't it? You might not agree with their priorities, but there's nothing irrational about teachers objecting to that. > The NEA/KEA especially has vehemently disagreed with any proposed reform. Did any of the proposals include just raising taxes to fix the pension fund? Mathematically, it's not like there is really a wide array of options if you're going to honor the constitutional "inviolability" of that contract (which I'm sure the teachers want KY to do) and actually keep the pension going.
  - oflannabhra 9y ago
    KY annually generates $2,600 of revenue Per capita through taxes. There is an estimated $15,000 liability Per capita over the next 30 years. That is if nothing gets worse. Some oversimplified calculation: $15,000 over 30 years would be $500/year, equivalent to a 20% tax increase. Increased taxation cannot resolve the crisis alone. But, the larger point is that there has not yet been any reform of the current situation
arca_vorago 9y ago
You think states are bad, you should check some of the city level pension issues, which I think are much larger in aggregate per state than the state pension funds. A really good intro to the city level issues would be the Dallas police and firefighters pension (just duckduckgo it)
hackermailman 9y ago
All these pensions are going to be wiped out soon in the coming run. Most funds currently assume 7% to 8% future rates of return but the ability to generate returns like that have been impossible for a long, long time now. To compensate for low returns, pension funds have dumped money into stocks, private equity funds and illiquid and very risky investments, like subprime auto loan securities and commercial real estate. Some pension funds have as much as 20% of their assets in private equity. When the stock market inevitably crashes a little, it will wipe pensions out. Then politicians will be forced to admit there's a problem, and everybody is going to immediately do a run on their pensions to try and cash them out. For anybody who doesn't know if your job offers a pension scheme and you quit before retirement, you are paid out a lump (taxable) sum. There's no way these states like CT or NY with massive unfunded liabilities can afford 20%+ of their employees trying to cash the pensions. The International Forum of the America's holds an annual pension conference where the data on the coming run on public sector pensions can be found, such as all the risky investments to make up for poor returns. Interestingly, private sector pension schemes are fine.
- lainga 9y ago
  I'm not surprised -- they're not at the whim of municipal politics.
pasbesoin 9y ago
Pensions would work a lot better if they were independently managed and firewalled from the employer. A family member has a state pension in one of the states known for having some of the worst of these problems. However, their corner of state employment was smart and set up an independent pension management situation. It remains fully funded and not at risk. Well, except that the state keeps trying to break down the firewall and raid it. However, people who instantiated it did a good job of guarding against this. Pensions aren't "evil". And who wouldn't mind worrying less about making retirement decisions as an amateur investor on one's own, and focusing more on doing a good job and raising a family and having a happy life? What is "evil", is structuring them without defense against expropriation of funding for other purposes. As far as I'm concern, that is "theft", plain and simple. And failing to fund them per established schedule is breach of contract. You are essentially not paying employees for work done. Maybe given that, well defined in law and practice, organizations also wouldn't make unrealistic pension commitments in lieu of providing better immediate compensation and benefits. In addition to all the rest, there is the aspect of the turn to 401K's and similar vehicles, that money managers saw and pushed an opportunity to grow the fees they collect. I held off from writing it a couple of paragraphs ago, but I'll say it now. Pensions aren't a fundamental problem. Banksters and their political enablers are.
- lotsofpulp 9y ago
  Fees to manage pension fund investments are higher than 401k fees for index funds offered by Vanguard/Schwab/Fidelity.
  - pasbesoin 9y ago
    Those have only really caught on more recently. And as more and more investment moves into them, they become mono-cultures vulnerable to large-scale exploitation. I'm using some right now, but I don't count on their indefinite viability and performance. Remember how LIBOR exposed fundamental problems and manipulation with respect to indexing and pricing? Different aspect of finance. Nonetheless, you're pinning everything to indexes someone manages -- and to systems performance versus competition. They do reflect a similar aspect; taking the average investor's attention away from individual purchases and sales, where most get fleeced to varying degrees. Wherever your investments, you have to keep paying attention. P.S. Have an upvote. I'm not disagreeing.

85 points by Four_Star 9y ago

Original report, http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/04/the-state-pension-funding-gap-2016 http://www.pewtrusts.org/en/research-and-analysis/issue-brie...

PeterStuer 9y ago

Why not just 'quantitative ease' the differences? We seem to have no qualms about it when it comes to burning cash on private corporate initiatives.

lotsofpulp 9y ago
That is what will happen. Each US dollar will become less valuable, and the nominal debts will be satisfied. Hope you're invested in inflation resistant assets. Some of the pension recipients who don't have enough clout to force the federal government's hand will lose though.
- stephen_g 9y ago
  That's an intuitive theory, but inflation doesn't really have that much to do with the quantity of money, because the value of money is almost entirely based on what you can buy with it. Price inflation happens when the aggregate demand (the sum of all the spending over a certain period) outstrips the amount of goods and services produced (or held in inventory) in the economy. Yes, adding more money can increase aggregate demand, but it is also saved or invested in productive ventures that mean more goods or services are produced. If it was simply a fact of more money == inflation, we'd be screwed since the money supply is almost constantly growing through bank lending. At the end of the day, all spending carries inflation risk (since all spending adds to aggregate demand). This equally applies to money saved earlier, new money created in the banking system, or new money created by the Government (say, QE). It's at the time of spending that's the risk, not the time of creation. The limits of Government money creation therefore have more to do with the productive capacity of the economy.
  - lotsofpulp 9y ago
    In an environment where income and wealth disparity is growing, and birthrates are just at replacement level or lower for those with wealth, wouldn't aggregate demand outstrip goods and services produced?

LanceH 9y ago

Maybe stop guaranteeing returns on investment? "It worked in the past" isn't financially sound decision making. It might be lucky from time to time.

mjfern 9y ago
Or stop raiding pensions and other tax receipts to pay for other underfunded government obligations (resulting from inane tax cuts that only benefit the very wealthy)?
- maxerickson 9y ago
  What do you mean by raiding? Do you have a particular state in mind that diverted funds in a controversial way? (the report places much blame on aggressive assumptions about investment performance)
  - westpfelia 9y ago
    Several times now various bills and projects have relied on withdrawing funds from social security/pension pools. On the promise that the money will be returned of coarse.
    - maxerickson 9y ago
      The Social Security Trust Fund owns an awful lot of US treasuries (almost $3 trillion), but I don't think that really meets the bar for "controversial" as treasuries are the only investment it is allowed to buy (by law). For states, I am interested in specific cases.
      - dashundchen 9y ago
        There are additional cases I can find, but a quick search turned this up about Kentucky doing this to the state employee health insurance fund for nearly a decade. I believe they have done this to the general pension fund as have other states. If a state is going to have pensions they need to be independently managed and firewalled from the hands of politicians. https://kypolicy.org/shifting-health-costs-employees-become-way-state-plugs-budget/ https://kypolicy.org/shifting-health-costs-employees-become-... >Kentucky has shifted more of the responsibility to pay for health benefits to public sector workers in recent years and then used the savings to help fill holes in the budget. Even after these transfers from the employees’ health plan, its fund balance is continuing to grow, making it a target in the new budget. Governor Bevin’s budget plan includes transferring $500 million out of the plan in 2018 into a new “permanent fund.” >Over a period of years, balances built up in the state’s plan as more was collected in employer and employee contributions than was paid out in claims. In recent years, the state began to transfer those monies to plug other holes in the budget. Kentucky transferred $50 million in 2009 and $93 million in 2015. For budget year 2016, the state will shift another $63.5 million from the plan to the state’s rainy day fund.

replicatorblog 9y ago

Reading about municipal finance makes the freewheeling world of VC look positively conservative. E.g. there's this concept of a "13th check," at the end of the year in many poorly run cities. Basically, and surplus growth in the city's retirement funds were distributed to pensioners as a sort of annual bonus, rather than left in the general account to help make up for eventual shortfalls. http://www.mlive.com/news/detroit/index.ssf/2013/10/10_things_to_know_about_detroi.html http://www.mlive.com/news/detroit/index.ssf/2013/10/10_thing... There's a serious moral hazard for politicians. It's easy to give constituents services today at the expense of benefits in the future, when they'll be out of office. I wonder if a law that clawed back these government official's pensions if they were found to break from good accounting practices, would be a deterrent?

Clubber 9y ago
>I wonder if a law that clawed back these government official's pensions if they were found to break from good accounting practices, would be a deterrent? Yes, but the people who pass the laws are the people who would be affected. You'd have to find a simple majority of people moral enough to do it. I think today, that's a hard sell.
- koolba 9y ago
  The only way that'd happen would be via a direct ballot measure[1]. Even then it'd be a tough sell. More and more I'm thinking the only outcome for a lot of these States and municipalities is going to be bankruptcy. The long term austerity measures that are needed are too onerous and the entrenched powers are too corrupt to do anything about it until it's too late. [1]: https://en.wikipedia.org/wiki/Ballot_measure https://en.wikipedia.org/wiki/Ballot_measure
  - crdoconnor 9y ago
    The states could raise property/land taxes and eliminate corporate tax cuts and tax loopholes. That wouldn't be a 1% friendly solution though - too much of their wealth is tied up in land and equities. It might mean that landlords in the Bay Area couldn't collect rents of $6,000 a month for doing nothing. Most of that unearned cash would flow in to state coffers instead. It's ironic, because the Howard Jarvis Taxpayer foundation (the group behind prop 13) tried to justify prop 13 by saying that raising property taxes would hurt the elderly. Californian voters believed them. Now that their actions created a massive hole in California budgets, they advocate for stripping California pensioners of their money as the "fiscally responsible" solution. People believe them now too. Edit: For those erroneously believing propaganda that hiking taxes leads to an automatic exodus: https://www.cbpp.org/research/state-budget-and-tax/state-taxes-have-a-negligible-impact-on-americans-interstate-moves https://www.cbpp.org/research/state-budget-and-tax/state-tax...

cs702 9y ago

...and that's after one of the longest bull markets in recorded history.[a] [a] http://www.finra.org/investors/5-longest-bull-markets-infographic http://www.finra.org/investors/5-longest-bull-markets-infogr...

youpassbutter 9y ago
This is what is so weird. The stock market is at historic highs. https://upload.wikimedia.org/wikipedia/commons/7/7e/S_and_P_500_chart_1950_to_2016_with_averages.png https://upload.wikimedia.org/wikipedia/commons/7/7e/S_and_P_... Our housing bubble just surpassed the housing bubble of 2007. Interest rates are at all time lows and unemployment is at all time lows. If they are having trouble now when it's the best of times, what are they going to do when we have a recession?

jknz 9y ago

Elected Politician: what so you want? Union: pay raises! Elected Municipal CFO: we can't. No more money. Elected Politician: what about retiring 5 years earlier? Unions: we will take that! Elected Politician: retiring earlier costs nothing right now correct? Municipal CFO: yes but... Elected Politician: Fine let's give everyone 5 years earlier retirement. My successor will deal with that when I will be gone.

lotsofpulp 9y ago
More like politician or candidate hires the actuarial consultant which will use the most liberal assumptions they can to make the costs appear as cheap as possible. And then not even fund to those calculations, because who is going to force them to?
- dashundchen 9y ago
  Or in many states, use the surplus from pension funds to operate the government, writing an IOU they know future governments won't be able to pay. Unsurprisingly when the shortfall comes the same politicians who borrowed will be shouting how pensions are unsustainable. In New York, the pension fund is firewalled from the state budget and run fairly independently. After the last recession, the pension fund made several changes in conjunction with the unions: * Ensured the forecasted return estimates were in-line with reality (7%, which it has exceeded in the past decade) * Introduced a new tier so new employees contribute for their whole career, with contribution rates progressively increasing as you earn more * Introduced a limit on the final average salary that determines pension payout * Lengthened the window of final salary calculation and introduced rules preventing large overtime variances counting towards this calculation. Still a decent pension system if you can vest, but with reasonable expectations set. As a result, NYS is one of the best funded pensions in the country and in the upper 90s% of future funding levels.
deleted 9y ago
[deleted]

nontechdude1 9y ago

The cumulative result of years of overpromising to employees. Only seems to happen with one party...

intrasight 9y ago
Do you have data to backup that assertion?
- nontechdude1 9y ago
  see wikipedia page for state credit rating. all aaa states are gop led
  - NeonVice 9y ago
    I just checked the facts. You're not necessarily wrong. An exception is DNC-led Delaware. DNC strongholds tend to have the worst credit ratings.
  - intrasight 9y ago
    And the worse state - Kentucky - is Republican

rufusroflpunch 9y ago

In Kentucky, we're going through a pension reform as we speak. Of course, the Republicans are claiming to have fixed it and the Democrats are protesting it, saying they're hanging future retirees out to dry. What no one is saying is that the hole is so deep there's no way to get out of it. If I were a state employee, I would start planning now for my pension not to be there when I retire.

Someone1234 9y ago
As someone who works in a different state, this is why when given the option I went 401K only. 401Ks have a lot of issues, and definitely aren't superior to a pension scheme in general, but pension schemes are so poorly run and have so many corruption-like issues that at least with a 401K it is just a simple vested savings account I can move if need-be. I guess what I am saying is, trust in traditional pensions is so low to some, getting a worse but safer alternative looks nice by comparison.
intrasight 9y ago
That is why those pensioners, who are allowed to do so according to their contract, are taking their pension as a lump sum payment when they retire. And they are doing so in larger numbers which is further eroding the financial health of the municipalities.

justin66 9y ago

The underfunded part is sadly not unusual or unpredictable and neither are the unrealistic performance expectations. On the other hand, the poor returns some of the funds have seen in recent years is quite a surprise. How badly designed did the average portfolio have to be to only gain 1% in 2016?

roenxi 9y ago

My memory of the statistics is that the median voter does not save. The government's approach to creating reserves of wealth follows on from that naturally. An aspect in this that I find very interesting is the realities behind the numbers which will be revealed as the situation plays out. The money is a bit of an illusion, retirees need an available reserve of wealth (be it in the form of productive land, goods, labour, rock solid infrastructure and houses with little need of maintenance) to sustain them when they can no longer produce. Where will this wealth reserve come from? Who will have to go without? What compromises will be made? Undoubtedly one part of any proposed solution is 'tax the rich', because there are no other wealth reserves in America, but if this is a more fundamental problem of demographics and ratios the real resources might not be available to meet peoples expectations. Somebody is in for a very rough 20 years.

citilife 9y ago

I wonder how much Illinois impacts the average... At this stage, there is literally no way to even pay back the pension (it'd be $20k per person in the state, if we needed to pay it back today).

nfriedly 9y ago
Yea.. Illinois is in bad shape. My father-in-law retired from Western Illinois University a little earlier than he had initially planned so that it would be before his union contract expired. That was over a year ago - the folks left are still working without a contract. That doesn't necessarily mean they won't get any pension if they retired today, but it puts it at even more risk than it already was.

deleted 9y ago

[deleted]

wolfspider 9y ago

I imagine not too many devs have the option of a pension like I do so I'll relay what was told to me about my pension. ~4.5 years ago I was told along with all the new hires in the room we would be the last generation of new hires with an option for pension. I opted not to take it as that said to me this would be the hardest to fund pension ever. Really my matching 401K and superior insurance do the trick for me even if the returns aren't high. After the '08 crash I've hedged against private stubbornly and admittedly have been pretty jealous of other benefits devs in the private sector get.....until now.

frockington 9y ago
What has recently happened to curb your jealousy?
- wolfspider 9y ago
  serious illness

oflannabhra 9y ago

In Kentucky, the situation is dire. KY’s pension system is ranked as the worst in the nation across several metrics and agencies. The pension system was written into our constitution as an “inviolable contract” with state employees. [0] Our current governor is the first to attempt to do anything about it in decades, and is being blasted by unions, the press, and the public for it. He’s most likely destroyed any chance of re-election by pushing hard for reform. He also hasn’t done a great job of building consensus, to be fair. The NEA/KEA especially has vehemently disagreed with any proposed reform. Teachers have walked out today in protest of a bill that did not affect any current state employees. It boggles my mind that people respond to this topic so irrationally. It’s like a patient arguing with their doctor over a diagnosis of cancer. [0] - https://www.courier-journal.com/story/news/politics/2017/08/24/kentucky-pension-crisis-question-answers/549085001/ https://www.courier-journal.com/story/news/politics/2017/08/...

justin66 9y ago
> Teachers have walked out today in protest of a bill that did not affect any current state employees. That bill is essentially a reduction in compensation for future employees, isn't it? You might not agree with their priorities, but there's nothing irrational about teachers objecting to that. > The NEA/KEA especially has vehemently disagreed with any proposed reform. Did any of the proposals include just raising taxes to fix the pension fund? Mathematically, it's not like there is really a wide array of options if you're going to honor the constitutional "inviolability" of that contract (which I'm sure the teachers want KY to do) and actually keep the pension going.
- oflannabhra 9y ago
  KY annually generates $2,600 of revenue Per capita through taxes. There is an estimated $15,000 liability Per capita over the next 30 years. That is if nothing gets worse. Some oversimplified calculation: $15,000 over 30 years would be $500/year, equivalent to a 20% tax increase. Increased taxation cannot resolve the crisis alone. But, the larger point is that there has not yet been any reform of the current situation

arca_vorago 9y ago

You think states are bad, you should check some of the city level pension issues, which I think are much larger in aggregate per state than the state pension funds. A really good intro to the city level issues would be the Dallas police and firefighters pension (just duckduckgo it)

hackermailman 9y ago

All these pensions are going to be wiped out soon in the coming run. Most funds currently assume 7% to 8% future rates of return but the ability to generate returns like that have been impossible for a long, long time now. To compensate for low returns, pension funds have dumped money into stocks, private equity funds and illiquid and very risky investments, like subprime auto loan securities and commercial real estate. Some pension funds have as much as 20% of their assets in private equity. When the stock market inevitably crashes a little, it will wipe pensions out. Then politicians will be forced to admit there's a problem, and everybody is going to immediately do a run on their pensions to try and cash them out. For anybody who doesn't know if your job offers a pension scheme and you quit before retirement, you are paid out a lump (taxable) sum. There's no way these states like CT or NY with massive unfunded liabilities can afford 20%+ of their employees trying to cash the pensions. The International Forum of the America's holds an annual pension conference where the data on the coming run on public sector pensions can be found, such as all the risky investments to make up for poor returns. Interestingly, private sector pension schemes are fine.

lainga 9y ago
I'm not surprised -- they're not at the whim of municipal politics.

pasbesoin 9y ago

Pensions would work a lot better if they were independently managed and firewalled from the employer. A family member has a state pension in one of the states known for having some of the worst of these problems. However, their corner of state employment was smart and set up an independent pension management situation. It remains fully funded and not at risk. Well, except that the state keeps trying to break down the firewall and raid it. However, people who instantiated it did a good job of guarding against this. Pensions aren't "evil". And who wouldn't mind worrying less about making retirement decisions as an amateur investor on one's own, and focusing more on doing a good job and raising a family and having a happy life? What is "evil", is structuring them without defense against expropriation of funding for other purposes. As far as I'm concern, that is "theft", plain and simple. And failing to fund them per established schedule is breach of contract. You are essentially not paying employees for work done. Maybe given that, well defined in law and practice, organizations also wouldn't make unrealistic pension commitments in lieu of providing better immediate compensation and benefits. In addition to all the rest, there is the aspect of the turn to 401K's and similar vehicles, that money managers saw and pushed an opportunity to grow the fees they collect. I held off from writing it a couple of paragraphs ago, but I'll say it now. Pensions aren't a fundamental problem. Banksters and their political enablers are.

lotsofpulp 9y ago
Fees to manage pension fund investments are higher than 401k fees for index funds offered by Vanguard/Schwab/Fidelity.
- pasbesoin 9y ago
  Those have only really caught on more recently. And as more and more investment moves into them, they become mono-cultures vulnerable to large-scale exploitation. I'm using some right now, but I don't count on their indefinite viability and performance. Remember how LIBOR exposed fundamental problems and manipulation with respect to indexing and pricing? Different aspect of finance. Nonetheless, you're pinning everything to indexes someone manages -- and to systems performance versus competition. They do reflect a similar aspect; taking the average investor's attention away from individual purchases and sales, where most get fleeced to varying degrees. Wherever your investments, you have to keep paying attention. P.S. Have an upvote. I'm not disagreeing.