5 ms·

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.

by LanceH 9y ago

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.
- charleslmunger 9y ago
  Typically pensions themselves are the largest underfunded government obligation - consider California, where Gray Davis passed a retroactive pension benefits increase with a reduction in pension funding. At the national level, the math is different because of the military, but state and municipal governments pay a ton of their budget to retirees. http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/ http://www.latimes.com/projects/la-me-pension-crisis-davis-d...
  - deleted 9y ago
    [deleted]
- gravis7777 9y ago
  I'm not "insanely wealthy" and I am getting a benefit from the tax cuts, as are most people. Or we can get rid of other obligations like welfare to fund it as well - give money from the non-working (and in some cases arguably useless) to the working.
- frockington 9y ago
  I'm all for this. If we were to cut welfare benefits to fund state pensions, it could be sold as transferring wealth from those who don't work, to those who do which is much easier than hiking tazes
maxxxxx 9y ago
Isn't "it worked in the past" pretty much the foundation of all investment advice? Based on what else can the average guy invest his 401k? Regarding public pensions they should just adapt to reality and fund them higher. This was willful negligence for a long time.
- toomuchtodo 9y ago
  I agree funding our way out of this mess is the right solution, with the caveat that there might not be enough local revenue to do so, in which case the pension should be transferred to the US Pension Guarantee Corp and funded by the federal government.
  - lotsofpulp 9y ago
    What about preventing this from happening going forward?
    - deleted 9y ago
      [deleted]
    - maxerickson 9y ago
      That's largely already happening with the shift from defined benefit plans to defined contribution plans. It is not necessarily a better outcome for the employees but it has better alignment of incentives and doesn't create obligations for future taxpayers.
      - lotsofpulp 9y ago
        Are there any state governments that have shifted to defined contribution, especially for the politically untouchable judges and police pensions?
- LanceH 9y ago
  Not when you're taking small data samples. If you look at past years of investment, you'll either have a sample size too small to be meaningful, or your start lumping years that don't reflect today's realities into the mix. These investments are basically saying, "the market will always get 10% return", so we're going to put future tax payers on the hook for 10% returns. The average guy investing his 401k doesn't get guaranteed results at the expense of other people's work. Even if there is a historical 10% return that holds, that's still going to produce underfunded (and overfunded) pensions based upon fluctuation in yearly returns and population dynamics (like if an unusually large number retire in a down year). Then there is the pension spiking, and maybe even no consideration that people are paying into the pension at low rates but tend to retire at high pay rates.
ghaff 9y ago
Someone's got to bear the risk. And, indeed, most private companies have switched from defined benefit (e.g. pension) plans to defined contribution (e.g. 401-K) plans. This isn't a bad thing and generally lines up better with the reality that people mostly aren't with employers for decades. But it means it's now in the hands of the individual to properly fund their retirement given great uncertainty about investment returns.
nradov 9y ago
We need to eliminate all public employee defined benefit pensions and replace them with defined contribution plans. Pensions are simply too risky for both taxpayers and retirees. Politicians can't be counted on to fund pensions properly. Many local governments will go bankrupt in the coming decades due to inability to meet pension obligations, which will result in cuts to critical government services and retirees forced by bankruptcy judges to take benefit cuts.
- PurpleBoxDragon 9y ago
  >retirees forced by bankruptcy judges to take benefit cuts These people have already sold their services for a promised benefit which is now not being given to them. If there is bankruptcy it should come at extreme costs to the extent that the voters in the location feel pain equal to those who are having their pensions cut. Clawbacks, criminal convictions, liquidations, ensuring that the pain is not felt just by those who are having their benefits stolen and given to someone else.
  - nradov 9y ago
    That's not how bankruptcy laws work. Voters will suffer some pain in the form of municipal service cuts and possibly higher taxes. But if current services are cut too far or taxes raised significantly then residents and businesses will simply leave, thereby further eroding the tax base and making it even harder to meet pension obligations. This is reality and no amount of whining about fairness or past promises will change it.
    - PurpleBoxDragon 9y ago
      >That's not how bankruptcy laws work. Bankruptcy laws should not allow a private entity to go through bankruptcy and continue to operate while discharging its debts. The same should apply to public entities as well. That they may currently allow this is something we need to fix. If we cannot ensure debts to be met under law, then we should forbid the debts from existing to begin with.
beached_whale 9y ago
Defined benefit can work as long as people aren’t being shady. It costs more up front. Pensions are in trouble because they have not made the contributions over the life of the employment. Also, and independent third party management with proper controls. What I read about whenever these stories hit the news is they assume they can take from the pool either directly or by under contributing thinking they can just pay it later

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.

by 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.
charleslmunger 9y ago
Typically pensions themselves are the largest underfunded government obligation - consider California, where Gray Davis passed a retroactive pension benefits increase with a reduction in pension funding. At the national level, the math is different because of the military, but state and municipal governments pay a ton of their budget to retirees. http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/ http://www.latimes.com/projects/la-me-pension-crisis-davis-d...
- deleted 9y ago
  [deleted]
gravis7777 9y ago
I'm not "insanely wealthy" and I am getting a benefit from the tax cuts, as are most people. Or we can get rid of other obligations like welfare to fund it as well - give money from the non-working (and in some cases arguably useless) to the working.
frockington 9y ago
I'm all for this. If we were to cut welfare benefits to fund state pensions, it could be sold as transferring wealth from those who don't work, to those who do which is much easier than hiking tazes

maxxxxx 9y ago

Isn't "it worked in the past" pretty much the foundation of all investment advice? Based on what else can the average guy invest his 401k? Regarding public pensions they should just adapt to reality and fund them higher. This was willful negligence for a long time.

toomuchtodo 9y ago
I agree funding our way out of this mess is the right solution, with the caveat that there might not be enough local revenue to do so, in which case the pension should be transferred to the US Pension Guarantee Corp and funded by the federal government.
- lotsofpulp 9y ago
  What about preventing this from happening going forward?
  - deleted 9y ago
    [deleted]
  - maxerickson 9y ago
    That's largely already happening with the shift from defined benefit plans to defined contribution plans. It is not necessarily a better outcome for the employees but it has better alignment of incentives and doesn't create obligations for future taxpayers.
    - lotsofpulp 9y ago
      Are there any state governments that have shifted to defined contribution, especially for the politically untouchable judges and police pensions?
LanceH 9y ago
Not when you're taking small data samples. If you look at past years of investment, you'll either have a sample size too small to be meaningful, or your start lumping years that don't reflect today's realities into the mix. These investments are basically saying, "the market will always get 10% return", so we're going to put future tax payers on the hook for 10% returns. The average guy investing his 401k doesn't get guaranteed results at the expense of other people's work. Even if there is a historical 10% return that holds, that's still going to produce underfunded (and overfunded) pensions based upon fluctuation in yearly returns and population dynamics (like if an unusually large number retire in a down year). Then there is the pension spiking, and maybe even no consideration that people are paying into the pension at low rates but tend to retire at high pay rates.

ghaff 9y ago

Someone's got to bear the risk. And, indeed, most private companies have switched from defined benefit (e.g. pension) plans to defined contribution (e.g. 401-K) plans. This isn't a bad thing and generally lines up better with the reality that people mostly aren't with employers for decades. But it means it's now in the hands of the individual to properly fund their retirement given great uncertainty about investment returns.

nradov 9y ago

We need to eliminate all public employee defined benefit pensions and replace them with defined contribution plans. Pensions are simply too risky for both taxpayers and retirees. Politicians can't be counted on to fund pensions properly. Many local governments will go bankrupt in the coming decades due to inability to meet pension obligations, which will result in cuts to critical government services and retirees forced by bankruptcy judges to take benefit cuts.

PurpleBoxDragon 9y ago
>retirees forced by bankruptcy judges to take benefit cuts These people have already sold their services for a promised benefit which is now not being given to them. If there is bankruptcy it should come at extreme costs to the extent that the voters in the location feel pain equal to those who are having their pensions cut. Clawbacks, criminal convictions, liquidations, ensuring that the pain is not felt just by those who are having their benefits stolen and given to someone else.
- nradov 9y ago
  That's not how bankruptcy laws work. Voters will suffer some pain in the form of municipal service cuts and possibly higher taxes. But if current services are cut too far or taxes raised significantly then residents and businesses will simply leave, thereby further eroding the tax base and making it even harder to meet pension obligations. This is reality and no amount of whining about fairness or past promises will change it.
  - PurpleBoxDragon 9y ago
    >That's not how bankruptcy laws work. Bankruptcy laws should not allow a private entity to go through bankruptcy and continue to operate while discharging its debts. The same should apply to public entities as well. That they may currently allow this is something we need to fix. If we cannot ensure debts to be met under law, then we should forbid the debts from existing to begin with.

beached_whale 9y ago

Defined benefit can work as long as people aren’t being shady. It costs more up front. Pensions are in trouble because they have not made the contributions over the life of the employment. Also, and independent third party management with proper controls. What I read about whenever these stories hit the news is they assume they can take from the pool either directly or by under contributing thinking they can just pay it later