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The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

125 points by kimsk112 8y ago

kyrra 8y ago
Paywall bypass. http://archive.is/ITINt http://archive.is/ITINt
epx 8y ago
Same in Brazil, with the additional complication that public servants/pensioners are the top of pyramid.
justaman 8y ago
Its funny that the government is as bad with money as the people. Truly a good representation.
- nkrisc 8y ago
  Considering the people elect the government, it's hardly surprising. Representative indeed.
- maxerickson 8y ago
  The problem isn't really "bad with money", it's more "benefit from making promises that someone else has to try to fulfill".
  - oconnor663 8y ago
    Or from the perspective of someone who has to run for election: Candidate A says, "We need to cut benefits now to make sure the pension has enough money in the future." Candidate B says, "No we don't." Everyone votes for Candidate B. It's not like we accidentally elected people who don't value the long term. It's that voters don't value the long term when there's real short term money at stake.
    - raincom 8y ago
      Pensioners, union members, and their families always vote for B. The people who care about the long term hardly form a solid block to elect the candidate A.
      - freeflight 8y ago
        Just cutting benefits misses the point, how is austerity a long-term solution? The US has a massive problem with the perception of "government usefulness", heck you've got whole political wings solely trying to appeal to "the only good government is no government" mentalities. As a result, barely anybody wants to pay taxes for anything, in their extremely egotistical and narrow-sighted definition of "freedom".
        fbonetti 8y ago
        Cutting existing benefits is the only way to avoid bankruptcy in many states and cities. The long term solution is to switch to a defined contribution plan instead of defined benefits. The reason why many on the right are wary of government programs is because they’ve watched the government horribly mismanage their tax money over and over and over again. It’s not necessarily because politicians and bureaucrats are necessarily stupid or evil, it’s because the government is generally not incentivized to do a good job, since they don’t face competitive pressure like businesses in the private market.
        freeflight 8y ago
        > the government is generally not incentivized to do a good job, since they don’t face competitive pressure like businesses in the private market. Isn't that exactly the kind of mindset that facilitated this whole situation in the very first place? "Government can't handle money, that's why we gotta privatize everything". And if that would be true, how come it wasn't a private business that took us the moon, with all the resulting auxiliary inventions, but the combined effort of a whole nation in education and research [0]? "A better job" isn't always the one that "makes more money", some ventures don't need to be directly financially profitable, in some fields introducing a profit-incentive can have rather negative consequences (Education, Healthcare) and in others, it's just perverse (for-profit prisons). Would any private company have taken the risk, of flying to the moon, back then? Hell no, because there was literally no money in it back then, it was all just a big venture of "wasting money". That's why I don't think literally everything needs to be "profitable", we can't eat money and money doesn't make anybody a better person. It's also friggin weird how on issues like this there's never "enough money", but when it's about tax-cuts for massive corporations, which is, in essence, nothing but handing out free money to private businesses, then there seems to be always plenty of enough money to justify it. [0] https://en.wikipedia.org/wiki/Sputnik_crisis https://en.wikipedia.org/wiki/Sputnik_crisis
- sushid 8y ago
  It's nice for the previous generations that got something out of nothing. Too bad that "nothing" is my generation and we'll be putting our "contributions" into a pit that will give us actually nothing in return when it's time for us to retire. As I get older I realize why people say if you're not a liberal at 20, you have no heart but if you are not a conservative by 30, you have no brain (or something to that effect).
  - lovich 8y ago
    The previous generations are far more conservative than our generation and they are still all for these sort of entitlements. This is not a liberal vs conservative argument, this is a "fuck you, I got mine" argument from the beneficiaries of these pensions currently
  - castlecrasher2 8y ago
    > It's nice for the previous generations that got something out of nothing. The same generation that mindlessly claims that millennials are spoiled while we field $10K+ medical bills for things like childbirth when they cost <$1K for them. I haven't seen any data to back this up but I suspect they're also far higher in diabetes diagnoses which is another reason our care costs so much more.
  - rgcapozz 8y ago
    As I get older I become more anarchist or socialist or syndicalist.
    - justaman 8y ago
      Socialism is like punching all your friends in the nuts until you run out of friends.
      - dang 8y ago
        Please don't post unsubstantive comments here. Or ideological battle comments. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- Someone1234 8y ago
  Both US Democracy and CEOs at large companies both have an adverse interest in short-term success, even at the cost of the long term. This is why in both cases out-sourcing/privatization is popular. It shows a short term benefit, the long term is someone else's problem. How can we expect politicians to care about the pension fund if the problem isn't going to materialize for tens of years pass the end of their term limit? And if they were a "hero" and increased taxes to try and tackle it, they'd only get voted out next election, so someone else can come in, undo it, then spend all the savings. In a theoretical Parliamentary Democracy, the "upper house," with lifetime terms would exist primarily for this function, consider the long term interests over the short term point-scoring. But no country that I know of can be described as having an effective upper house.
  - pmwhite 8y ago
    "And if they were a "hero" and increased taxes to try and tackle it, they'd only get voted out next election, so someone else can come in, undo it, then spend all the savings." George H. Bush is one of the few important fiscal conservatives elected in my lifetime, and he is despised for it, especially by people who like to claim they are fiscal conservatives.
- betterunix2 8y ago
  I do not think it is quite as simple as that. Pension funds often invest in bonds because they provide reliable cash flow, but for the past 30 years bond yields have been falling, to the point where 3% on a 10-year treasury is considered big news today (it was much lower just a year ago). For the past 10 years interest rates have been kept artificially low as part of the response to the great recession, but pension funds have still had to make their payments. Retirees are also living longer thanks to advances in healthcare. It would not have been easy to predict those longer lifespans decades ago when they were first promised their pensions, but the pension still has to keep paying as long as they live. None of this is to say that governments have no share in the blame for this. Failing to take action to stabilize these funds, or worse, cutting taxes when the money could have been used to help keep the funds solvent, was a bad decision too many states made.
pzone 8y ago
Comparing stock variables (Pension liability shortfall) vs. flow variables (GDP, a rate of annual output) is a mistake that peeves me to no end. That said, the pension shortfall is a disaster playing out in slow motion. We're just waiting for the hard cash constraints to bite - when they do it's not going to be pretty.
- slededit 8y ago
  GDP comparisons are worthless, but cash flow to debt is an important metric. If it was compared to cash inflows of the actual government entity it would be interesting (and depressing).
  - ghein 8y ago
    In 2005 (pre bankruptcy) each GM car had $1525 worth of health care costs and $675 worth of pension cost built into the price. So $2200 was being spent on benefits for a population that had 1 worker for every 2.5 retirees. In California, School Districts are increasing pension contributions from 8 percent of their payroll in 2013 to 19 percent in 2020. This is already creating havoc as teachers unions are threatening to strike unless they get pay increases because districts were saving money to prepare themselves for the 2020 budget math! https://calmatters.org/articles/california-teacher-pension-debt/ https://calmatters.org/articles/california-teacher-pension-d...
- torstenvl 8y ago
  But it's not a real comparison. It's just contextualizing. If I say that a brachiosaurus was the size of a house, I'm not saying that your current dwelling is comparable to a 65-million-year-old pile of death and dust. Huge numbers are essentially meaningless to the human mind. But "all economic output of Japan in a year" is something that most people can wrap their heads around a little more easily. We know it's a fairly rich, industrialized nation, and so therefore that's a crapton of money.
  - lr4444lr 8y ago
    His argument isn't about conception of scale, it's about a fallacy of units. The analogy would be comparing the annualized diameter increase of a tree to the width of CO2 molecules in a conversation about inputs to environmental policies. The CO2 molecue simply doesn't grow. You have to compare the rate of CO2 release.
0x00000000 8y ago
>For the past century, a public pension was an ironclad promise Let's not pretend like this was ever seriously going to be sustainable. It's just a big middle finger to future generations while an opportunistic generation got to suck the system dry in prosperous times then peace out.
- toomuchtodo 8y ago
  > Let's not pretend like this was ever seriously going to be sustainable. There’s a bit of nuance to it. Predictions were made based on historical market returns we’re only now discovering are unrealistic going forward (7-8% historically, 4-5% predicted going forward). The only issue is that no “relief valve” was constructed in the event predicted returns turned out to be inadequate to fully fund the system, triggering benefits cuts. This is the part that is generationally regressive. Of course, there is no benefit to anyone whose wants to solve this prior to insolvency, only pain. So the sinking ship continues and the band plays on. Taxes, local, state, and federal, are going up eventually to pay for all of this. Plan accordingly.
  - jstewartmobile 8y ago
    > based on historical market returns we’re ---only now--- discovering are unrealistic This is a crisis that has been unfolding in sloooooow motion. They had been warned, and warned, and warned some more--for decades! Boomers decided to add it to the credit card anyway. edit: Also, I don't know a single sane person who ever believed that 7-8% was long-term maintainable.
  - AnimalMuppet 8y ago
    Were predictions made based on historical market returns? Or were the predictions optimistic even when they were made? My understanding (which is from a distance, and could easily be wrong) was that even when made, the estimated returns were optimistic - not necessarily wildly optimistic, but toward the top end of the historic range of returns. This reduced the burden of funding the pensions at the time they were defined, making funding them less painful for the people running things at the time they were granted.
betterunix2 8y ago
The choice is raising taxes, reducing spending elsewhere, or demanding workers give up the pensions they were promised. Somehow I doubt anyone is going to agree to pay more in taxes to cover pensions in their state or city. After all, why should the government keep its promises (especially if it means we have to pay for it)?
- zajd 8y ago
  > Somehow I doubt anyone is going to agree to pay more in taxes to cover pensions in their state or city. After all, why should the government keep its promises (especially if it means we have to pay for it)? I agree with it but then again I'm not opposed to paying taxes. Why shouldn't we provide for the retirement of our workforce?
  - jstewartmobile 8y ago
    Boomers and their parents took out wayyy more than they put in. Whenever it has been time to pass the cup around for other groups, they haven't been what I would call generous. Look at the funding difference between Medicare and Medicaid if you want a feel for it. Given all of that, I'm not too excited about propping-up their pension shortfalls.
    - Haydos585x2 8y ago
      I agree with you. I think it's a bit dangerous to start splitting boomers out though. All it's going to do is create division between young and old resulting in defunding for both groups.
      - jstewartmobile 8y ago
        Between this, Iraq/Afghanistan, China's ascent, and global warming, defunding (by circumstance rather than choice) is probably inevitable at this point.
- NTDF9 8y ago
  The government doesn't keep its promises because it is not required by law that they are held accountable for dubious lawmaking. Put simply, representatives need to be on a personal financial hook (or penalty) for laws, rules and policies, even after they've exited office.
safgasCVS 8y ago
If I paid for WSJ and this is the low quality journalism I got I'd be peeved. This article barely touches on how it got to be so bad. Excuse me but no - a single paragraph stating the obvious 'benefits promised were too rich' doesn't cover it. How is it possible that a solvency ratio can drop from 100% to 75% in 18 years? This doesn't just happen because eh seemingly every pension administrator just decided. How much does WSJ cost again?
- ilikehurdles 8y ago
  >How much does WSJ cost again? It cost Rupert Murdoch some part of $5billion when he bought Dow Jones for that price.
- spullara 8y ago
  Cash accounting.
- ngould 8y ago
  Care to enlighten us pension finance non-experts on what the article misses?
  - aurailious 8y ago
    Laws were changed to intentionally weaken pension funds and then articles like this are funded to further destabilize trust in them. Another way of saying it: rich people were unhappy they have to pay taxes.
    - DuskStar 8y ago
      Wow, I didn't know that the anti-pensioners had so much influence in California! Another way of saying it: I don't think your summary is particularly fair or accurate.
      - SamReidHughes 8y ago
        They passed Prop 13.
eecc 8y ago
OTOH administrations have to deal with significant shortfalls due to corporate tax elusion, compounded by the interests paid to compensate for them (possibly and ironically the bond holders might be the same corporations whose tax money is missing.) I wonder how significant that amount is. I’m a Scala jockey and I bookmark a totally different part of the internet, I'd love the input of someone who has a better idea of these numbers...
tasty_freeze 8y ago
The paywall prevents me from reading it, but the title makes me wonder. Does it claim that the per year pension deficit matches the entire economy of Japan, or are they saying the cumulative debt (which would accrue over decades) matches one year of Japan's economy?
abledon 8y ago
How much money does one need to live in retirement? If they are doing daily exercise(1-2hr), cut out most processed foods and sugar , no alcohol , cook all their food from scratch using cheap staple ingredients , entertain themselves with books , community , local events and cut out expensive vacation plane trips (only an invention of the past century). An ‘uncomfortable’ lifestyle shift but doable for a human. [edit] Yes for people who are permanently injured, its great we have these systems in place. But for otherwise healthy retired individuals, I think the 21st century western 'retired' lifestyle is a bit rich in comparison to what the rest of the world is living.
- miles 8y ago
  That reminded me of this quote from Arnold Bennet[0]: "Nothing that really helps towards perfection costs more than is within the means of every person who reads these pages. The expenses connected with daily meditation, with the building-up of mental habits, with the practice of self-control and of cheerfulness, with the enthronement of reason over the rabble of primeval instincts--these expenses are really, you know, trifling." [0] https://books.google.com/books?id=XKcyIXBVALsC&pg=PA99 https://books.google.com/books?id=XKcyIXBVALsC&pg=PA99
- jimjimjim 8y ago
  unless you get injured.
- lovich 8y ago
  Just because something's technically doable for a person doesn't mean that the government is going to be able to enforce that on a population eho was expecting a different and, more importantly, a better life than that. That's how you get rebellions or voted out of office if you're the politician trying to enact such legislation. We have a problem in the US where no one wants to be told what to do my the government but they also expect government handouts regardless of their behavior, and this is a bipartisan issue so it's not some minority of the population that needs to be convinced
- sp332 8y ago
  The point is that these people worked under a contract that promised them a certain pension for a certain amount of work. Even if the amount was unrealistically high, reneging after the person has put in all the work is basically fraud, or theft of wages.
sykhic 8y ago
Overal taxation in the U.S. is low compared to other OECD countries [1]. We, as a nation, decided that low taxes was the goal. As a result infrastructure is poor, toll roads are increasing, privatization of prisons, intelligence gathering, war, etc. are rising too. Yet Americans falsely believe they are overtaxed. The situation is easy to fix in economic terms but not in political terms. The road to an Ayn Randian paradise in which everyone fends for themselves will lead us to ruin. Corporations have largely shunted the responsibility for retirement savings onto individual workers. Now said workers have no pensions and have uncertain retirements. Instead of asking why they have no pensions they seek to equalize status by falsely believing we can't afford any sort of pension. As a nation we need to seriously rethink the role and purpose of government and how taxation is a part of the proper functioning of government. [1] https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe...
- agumonkey 8y ago
  is ayn rand a real influence ? i've seen one interview of her and I can't read her name without being filled with negative emotions. such a free-market fanatic.
  - sp332 8y ago
    https://en.wikipedia.org/wiki/Ayn_Rand#Political_influence https://en.wikipedia.org/wiki/Ayn_Rand#Political_influence https://en.wikipedia.org/wiki/Atlas_Shrugged#Influence_and_legacy https://en.wikipedia.org/wiki/Atlas_Shrugged#Influence_and_l... Edit: She did flee a terrible situation in Russia, which I think probably explains (but does not excuse) her positions on socialism vs. capitalism.
    - agumonkey 8y ago
      coming from russia I understand her 'love' for free market
- dunpeal 8y ago
  > As a result infrastructure is poor, toll roads are increasing, privatization of prisons, intelligence gathering, war, etc. are rising too. I wouldn't bundle military expenditure with the rest of public spending. Our military budget currently stands at a staggering $639bn (that's billion) for FY2019. In fact, there's a good argument that if we diverted some of these enormous funds to invest in other areas, those problems you mentioned (infrastructure, etc) would be fixed. > The situation is easy to fix in economic terms but not in political terms. The article is about defined-benefit pensions. Nobody has those anymore, not in the US. This is a large group of privileged individuals, who years ago got themselves a sweetheart deal as employees of the state. It's basically another case of the previous generation mandating extremely comfortable benefits for themselves, and passing the bill to the next generation. These are people who worked for the government their entire lives. They may not be rich, but they were generally comfortable, and certainly not the neediest part of the population. They can stand a modest cut to their pensions. Otherwise, your argument is that all of us should pay substantially higher taxes to bankroll these lucky few individuals who got themselves a sweetheart deal thanks to their affiliation with state and local government. In most places, you'd call that "corruption".
jimjimjim 8y ago
you know that research test they do where the subject can have $5 now or $50 at the end if they don't take the $5 and a disappointing amount of times they go for the $5. The problem is everyone cheers on the politician that says you can have the $5 AND the $50.
- sp332 8y ago
  Doesn't this show that the people who took $5 up front were right? The ones who waited for $50 at the end are getting screwed.
  - jimjimjim 8y ago
    the ones in the test the took the $5 look like untrusting fools because we make assumptions about fair and reasonable outcomes with repercussions on those parties in an agreement that don't fulfill their obligations. politicians should be held accountable like CEOs. They should be able to be sued. Screw over the company? your ass is going to get kicked. Say you didn't know? you shoulda listened to the people giving you the numbers. didn't have the numbers? shoulda hired people to give you the numbers. there needs to be a lot more repercussions on those people making bad decisions.
- AnimalMuppet 8y ago
  > The problem is everyone cheers on the politician that says you can have the $5 AND the $50. And once that politician is gone, if one of the new candidates says "no you can't", that candidate will not be elected.
- pmwhite 8y ago
  Preferring a promise of $50 later depends on trust. Economists are much too emotional to understand that kind of thing.
underwater 8y ago
Apparently it’s common for police to stack their final few years of work with excessive overtime to inflate their pensions for the rest of their lives. I wonder how much that contributes to budget problems. It certainly seems to be something that could throw off projections. http://www.courant.com/opinion/editorials/hc-ed-police-overtime-1215-20161214-story.html http://www.courant.com/opinion/editorials/hc-ed-police-overt...
gok 8y ago
> It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts. Boohoo. Public service union members should have thought about that before pursuing a pyramid scheme retirement plan instead of a defined contribution pension like the rest of us.
- chris_mc 8y ago
  Why in the ever loving fuck are you blaming the _workers_ for this shortsightedness instead of the government organizations who are about to fuck those people over when they're 70? Maybe the administrators of the pension accounts and financial planners for these organizations should have done better by the people who are busting their (collective) asses to provide services for you, the taxpayer?
  - deleted 8y ago
    [deleted]
  - dunpeal 8y ago
    Read sykhic's comments below. These unsustainable sweetheart deals were negotiated by the government employees and their unions.
    - dv_dt 8y ago
      Isn't there equal responsibility for politicians & gov'ts who agreed to the negotiated contracts? Were they not agreeing in good faith?
      - hn_throwaway_99 8y ago
        Corporate management and worker unions have what I'd call a "healthy" adversarial relationship. Corporations want to pay workers as little as possible, unions want workers to make as much as possible, so hopefully you get a decent compromise. With public sector unions, especially in smaller cities and states, the relationship is more incestuous and oftentimes the settlements aren't really made in good faith. The politicians desire the political support of the unions they are negotiating with, and figure by the time the pension bomb explodes it will be some other poor sucker's problem. Taxpayers are the ones that get screwed.
vuldin 8y ago
This is a good example of the type of debate that well-meaning, thoughtful people decide just steer clear of due to the (lack of) perspectives of the majority of those currently taking part in the conversation. The United States spends the better part of a trillion dollars per year on its military. A relatively small fraction of that would solve any issues their social welfare programs currently have. It's a matter of prioritization and the perspective of those leading the discussion. Instead of turning focus towards changing priorities (the priorities are already seemingly in their favor), they turn to how expensive and unmaintainable the programs are that they wish to further de-prioritize. In the process, they draw attention away from the stark contrast of funding between various government programs. Namely social welfare vs military, or improving their society vs destroying others.
- ars 8y ago
  > A relatively small fraction of that And what would you do with the large number of unemployed people that would result? You can't just change one thing and ignore any consequences. And don't forget that the broken window fallacy only applies to economies where everyone is working full time. If they are not then it does not apply, and your analysis needs to be more thorough.
  - dunpeal 8y ago
    > And what would you do with the large number of unemployed people that would result? US demand for labor is at an all time high. They can find employment in the private sector and produce goods and services that benefit others.
    - ars 8y ago
      But most of the money is spent on research and high tech manufacturing. Those are not easy fields to find private employment for.
      - dunpeal 8y ago
        Are you kidding me? You are saying in the current market, there's no demand for highly skilled and educated R&D employees?
Nelkins 8y ago
Why no comparisons to the pension systems in other countries? I'm always hearing about how Europe has a much more generous pension system. Do they work the same way? Are they all similarly underwater? If not, what are they doing differently?
captain_perl 8y ago
Since the comments in this thread are missing historical context, here's a review wrt California: 1) the State Treasurer presented 3 options (low - 6%, middle - 7%, high - 8%), but said high was dangerous 2) the State picked high, since they were voting on their own pension payments 3) the municipal unions went to the mayoral candidates across the state and said, "if you want our support on election day, support 8%" 4) the courts have ruled that once a pension plan is approved, it can't be repealed for existing members 5) the San Jose mayor actually tried to repeal it to prevent city bankruptcy, and was ground into the dust by the public unions and courts 6) the last city employee in each city will be the Treasurer, to sign pension checks. There will be no city services (fire, police, libraries, etc.) - just pension payments. This is already happening in California 7) Public union members receive higher salaries now (thanks to COLA) than the private sector, plus multi-million dollar pensions. My dentist calls them "royalty" because their benefits are on a different level than the private sector. What's ironic is that Marx predicted that in a democracy, the voters would eventually vote themselves ruinous entitlements. He was correct, but all it took was the public unions.
adreamingsoul 8y ago
I can't help but think of my father, who has been a firefighter for the last 20+ years. He lives a comfortable middle class life, and still works even though he already qualifies for retirement.
IIPA_Master 8y ago
Your taxes do NOT fund most pensions. I’m a teacher in NY. My pension plan is self funded by our membership (teachers). Taxpayer dollars account for the annual school budget (you vote on!) which does include salary and employer healthcare contribution however it also pays for grounds and buildings, transportation, extracurriculars, etc... Additionally, the current tier 6 of NY state workers pays a “retirement fee” into their retirement which is how the TRS in NY is funded. This fee is not a % of salary, it is an annual fee spread over pay periods. So just to debunk one point, most public worker retirement funds are self funded by members.
- scaryspooky 8y ago
  Public employees are paid via taxes, so yes they do 'fund' public pensions.
rapjr9 8y ago
How are AI and automation going to affect pensions? If many jobs become automated who contributes to the pension funds and Social Security to support the previous generations? All the discussion I see here seems to assume the future is like today. Those lists of which jobs are most likely to be automated soonest may also be lists of which pensions will not be funded in the future.
spectrum1234 8y ago
This is a great reason to use a ROTH 401k over a Traditional and max your ROTH IRA every year. Why? It's nearly impossible that taxes won't start skyrocketing soon.

125 points by kimsk112 8y ago

kyrra 8y ago

Paywall bypass. http://archive.is/ITINt http://archive.is/ITINt

epx 8y ago

Same in Brazil, with the additional complication that public servants/pensioners are the top of pyramid.

justaman 8y ago

Its funny that the government is as bad with money as the people. Truly a good representation.

nkrisc 8y ago
Considering the people elect the government, it's hardly surprising. Representative indeed.
maxerickson 8y ago
The problem isn't really "bad with money", it's more "benefit from making promises that someone else has to try to fulfill".
- oconnor663 8y ago
  Or from the perspective of someone who has to run for election: Candidate A says, "We need to cut benefits now to make sure the pension has enough money in the future." Candidate B says, "No we don't." Everyone votes for Candidate B. It's not like we accidentally elected people who don't value the long term. It's that voters don't value the long term when there's real short term money at stake.
  - raincom 8y ago
    Pensioners, union members, and their families always vote for B. The people who care about the long term hardly form a solid block to elect the candidate A.
    - freeflight 8y ago
      Just cutting benefits misses the point, how is austerity a long-term solution? The US has a massive problem with the perception of "government usefulness", heck you've got whole political wings solely trying to appeal to "the only good government is no government" mentalities. As a result, barely anybody wants to pay taxes for anything, in their extremely egotistical and narrow-sighted definition of "freedom".
      - fbonetti 8y ago
        Cutting existing benefits is the only way to avoid bankruptcy in many states and cities. The long term solution is to switch to a defined contribution plan instead of defined benefits. The reason why many on the right are wary of government programs is because they’ve watched the government horribly mismanage their tax money over and over and over again. It’s not necessarily because politicians and bureaucrats are necessarily stupid or evil, it’s because the government is generally not incentivized to do a good job, since they don’t face competitive pressure like businesses in the private market.
        freeflight 8y ago
        > the government is generally not incentivized to do a good job, since they don’t face competitive pressure like businesses in the private market. Isn't that exactly the kind of mindset that facilitated this whole situation in the very first place? "Government can't handle money, that's why we gotta privatize everything". And if that would be true, how come it wasn't a private business that took us the moon, with all the resulting auxiliary inventions, but the combined effort of a whole nation in education and research [0]? "A better job" isn't always the one that "makes more money", some ventures don't need to be directly financially profitable, in some fields introducing a profit-incentive can have rather negative consequences (Education, Healthcare) and in others, it's just perverse (for-profit prisons). Would any private company have taken the risk, of flying to the moon, back then? Hell no, because there was literally no money in it back then, it was all just a big venture of "wasting money". That's why I don't think literally everything needs to be "profitable", we can't eat money and money doesn't make anybody a better person. It's also friggin weird how on issues like this there's never "enough money", but when it's about tax-cuts for massive corporations, which is, in essence, nothing but handing out free money to private businesses, then there seems to be always plenty of enough money to justify it. [0] https://en.wikipedia.org/wiki/Sputnik_crisis https://en.wikipedia.org/wiki/Sputnik_crisis
sushid 8y ago
It's nice for the previous generations that got something out of nothing. Too bad that "nothing" is my generation and we'll be putting our "contributions" into a pit that will give us actually nothing in return when it's time for us to retire. As I get older I realize why people say if you're not a liberal at 20, you have no heart but if you are not a conservative by 30, you have no brain (or something to that effect).
- lovich 8y ago
  The previous generations are far more conservative than our generation and they are still all for these sort of entitlements. This is not a liberal vs conservative argument, this is a "fuck you, I got mine" argument from the beneficiaries of these pensions currently
- castlecrasher2 8y ago
  > It's nice for the previous generations that got something out of nothing. The same generation that mindlessly claims that millennials are spoiled while we field $10K+ medical bills for things like childbirth when they cost <$1K for them. I haven't seen any data to back this up but I suspect they're also far higher in diabetes diagnoses which is another reason our care costs so much more.
- rgcapozz 8y ago
  As I get older I become more anarchist or socialist or syndicalist.
  - justaman 8y ago
    Socialism is like punching all your friends in the nuts until you run out of friends.
    - dang 8y ago
      Please don't post unsubstantive comments here. Or ideological battle comments. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
Someone1234 8y ago
Both US Democracy and CEOs at large companies both have an adverse interest in short-term success, even at the cost of the long term. This is why in both cases out-sourcing/privatization is popular. It shows a short term benefit, the long term is someone else's problem. How can we expect politicians to care about the pension fund if the problem isn't going to materialize for tens of years pass the end of their term limit? And if they were a "hero" and increased taxes to try and tackle it, they'd only get voted out next election, so someone else can come in, undo it, then spend all the savings. In a theoretical Parliamentary Democracy, the "upper house," with lifetime terms would exist primarily for this function, consider the long term interests over the short term point-scoring. But no country that I know of can be described as having an effective upper house.
- pmwhite 8y ago
  "And if they were a "hero" and increased taxes to try and tackle it, they'd only get voted out next election, so someone else can come in, undo it, then spend all the savings." George H. Bush is one of the few important fiscal conservatives elected in my lifetime, and he is despised for it, especially by people who like to claim they are fiscal conservatives.
betterunix2 8y ago
I do not think it is quite as simple as that. Pension funds often invest in bonds because they provide reliable cash flow, but for the past 30 years bond yields have been falling, to the point where 3% on a 10-year treasury is considered big news today (it was much lower just a year ago). For the past 10 years interest rates have been kept artificially low as part of the response to the great recession, but pension funds have still had to make their payments. Retirees are also living longer thanks to advances in healthcare. It would not have been easy to predict those longer lifespans decades ago when they were first promised their pensions, but the pension still has to keep paying as long as they live. None of this is to say that governments have no share in the blame for this. Failing to take action to stabilize these funds, or worse, cutting taxes when the money could have been used to help keep the funds solvent, was a bad decision too many states made.

pzone 8y ago

Comparing stock variables (Pension liability shortfall) vs. flow variables (GDP, a rate of annual output) is a mistake that peeves me to no end. That said, the pension shortfall is a disaster playing out in slow motion. We're just waiting for the hard cash constraints to bite - when they do it's not going to be pretty.

slededit 8y ago
GDP comparisons are worthless, but cash flow to debt is an important metric. If it was compared to cash inflows of the actual government entity it would be interesting (and depressing).
- ghein 8y ago
  In 2005 (pre bankruptcy) each GM car had $1525 worth of health care costs and $675 worth of pension cost built into the price. So $2200 was being spent on benefits for a population that had 1 worker for every 2.5 retirees. In California, School Districts are increasing pension contributions from 8 percent of their payroll in 2013 to 19 percent in 2020. This is already creating havoc as teachers unions are threatening to strike unless they get pay increases because districts were saving money to prepare themselves for the 2020 budget math! https://calmatters.org/articles/california-teacher-pension-debt/ https://calmatters.org/articles/california-teacher-pension-d...
torstenvl 8y ago
But it's not a real comparison. It's just contextualizing. If I say that a brachiosaurus was the size of a house, I'm not saying that your current dwelling is comparable to a 65-million-year-old pile of death and dust. Huge numbers are essentially meaningless to the human mind. But "all economic output of Japan in a year" is something that most people can wrap their heads around a little more easily. We know it's a fairly rich, industrialized nation, and so therefore that's a crapton of money.
- lr4444lr 8y ago
  His argument isn't about conception of scale, it's about a fallacy of units. The analogy would be comparing the annualized diameter increase of a tree to the width of CO2 molecules in a conversation about inputs to environmental policies. The CO2 molecue simply doesn't grow. You have to compare the rate of CO2 release.

0x00000000 8y ago

>For the past century, a public pension was an ironclad promise Let's not pretend like this was ever seriously going to be sustainable. It's just a big middle finger to future generations while an opportunistic generation got to suck the system dry in prosperous times then peace out.

toomuchtodo 8y ago
> Let's not pretend like this was ever seriously going to be sustainable. There’s a bit of nuance to it. Predictions were made based on historical market returns we’re only now discovering are unrealistic going forward (7-8% historically, 4-5% predicted going forward). The only issue is that no “relief valve” was constructed in the event predicted returns turned out to be inadequate to fully fund the system, triggering benefits cuts. This is the part that is generationally regressive. Of course, there is no benefit to anyone whose wants to solve this prior to insolvency, only pain. So the sinking ship continues and the band plays on. Taxes, local, state, and federal, are going up eventually to pay for all of this. Plan accordingly.
- jstewartmobile 8y ago
  > based on historical market returns we’re ---only now--- discovering are unrealistic This is a crisis that has been unfolding in sloooooow motion. They had been warned, and warned, and warned some more--for decades! Boomers decided to add it to the credit card anyway. edit: Also, I don't know a single sane person who ever believed that 7-8% was long-term maintainable.
- AnimalMuppet 8y ago
  Were predictions made based on historical market returns? Or were the predictions optimistic even when they were made? My understanding (which is from a distance, and could easily be wrong) was that even when made, the estimated returns were optimistic - not necessarily wildly optimistic, but toward the top end of the historic range of returns. This reduced the burden of funding the pensions at the time they were defined, making funding them less painful for the people running things at the time they were granted.

betterunix2 8y ago

The choice is raising taxes, reducing spending elsewhere, or demanding workers give up the pensions they were promised. Somehow I doubt anyone is going to agree to pay more in taxes to cover pensions in their state or city. After all, why should the government keep its promises (especially if it means we have to pay for it)?

zajd 8y ago
> Somehow I doubt anyone is going to agree to pay more in taxes to cover pensions in their state or city. After all, why should the government keep its promises (especially if it means we have to pay for it)? I agree with it but then again I'm not opposed to paying taxes. Why shouldn't we provide for the retirement of our workforce?
- jstewartmobile 8y ago
  Boomers and their parents took out wayyy more than they put in. Whenever it has been time to pass the cup around for other groups, they haven't been what I would call generous. Look at the funding difference between Medicare and Medicaid if you want a feel for it. Given all of that, I'm not too excited about propping-up their pension shortfalls.
  - Haydos585x2 8y ago
    I agree with you. I think it's a bit dangerous to start splitting boomers out though. All it's going to do is create division between young and old resulting in defunding for both groups.
    - jstewartmobile 8y ago
      Between this, Iraq/Afghanistan, China's ascent, and global warming, defunding (by circumstance rather than choice) is probably inevitable at this point.
NTDF9 8y ago
The government doesn't keep its promises because it is not required by law that they are held accountable for dubious lawmaking. Put simply, representatives need to be on a personal financial hook (or penalty) for laws, rules and policies, even after they've exited office.

safgasCVS 8y ago

If I paid for WSJ and this is the low quality journalism I got I'd be peeved. This article barely touches on how it got to be so bad. Excuse me but no - a single paragraph stating the obvious 'benefits promised were too rich' doesn't cover it. How is it possible that a solvency ratio can drop from 100% to 75% in 18 years? This doesn't just happen because eh seemingly every pension administrator just decided. How much does WSJ cost again?

ilikehurdles 8y ago
>How much does WSJ cost again? It cost Rupert Murdoch some part of $5billion when he bought Dow Jones for that price.
spullara 8y ago
Cash accounting.
ngould 8y ago
Care to enlighten us pension finance non-experts on what the article misses?
- aurailious 8y ago
  Laws were changed to intentionally weaken pension funds and then articles like this are funded to further destabilize trust in them. Another way of saying it: rich people were unhappy they have to pay taxes.
  - DuskStar 8y ago
    Wow, I didn't know that the anti-pensioners had so much influence in California! Another way of saying it: I don't think your summary is particularly fair or accurate.
    - SamReidHughes 8y ago
      They passed Prop 13.

eecc 8y ago

OTOH administrations have to deal with significant shortfalls due to corporate tax elusion, compounded by the interests paid to compensate for them (possibly and ironically the bond holders might be the same corporations whose tax money is missing.) I wonder how significant that amount is. I’m a Scala jockey and I bookmark a totally different part of the internet, I'd love the input of someone who has a better idea of these numbers...

tasty_freeze 8y ago

The paywall prevents me from reading it, but the title makes me wonder. Does it claim that the per year pension deficit matches the entire economy of Japan, or are they saying the cumulative debt (which would accrue over decades) matches one year of Japan's economy?

abledon 8y ago

How much money does one need to live in retirement? If they are doing daily exercise(1-2hr), cut out most processed foods and sugar , no alcohol , cook all their food from scratch using cheap staple ingredients , entertain themselves with books , community , local events and cut out expensive vacation plane trips (only an invention of the past century). An ‘uncomfortable’ lifestyle shift but doable for a human. [edit] Yes for people who are permanently injured, its great we have these systems in place. But for otherwise healthy retired individuals, I think the 21st century western 'retired' lifestyle is a bit rich in comparison to what the rest of the world is living.

miles 8y ago
That reminded me of this quote from Arnold Bennet[0]: "Nothing that really helps towards perfection costs more than is within the means of every person who reads these pages. The expenses connected with daily meditation, with the building-up of mental habits, with the practice of self-control and of cheerfulness, with the enthronement of reason over the rabble of primeval instincts--these expenses are really, you know, trifling." [0] https://books.google.com/books?id=XKcyIXBVALsC&pg=PA99 https://books.google.com/books?id=XKcyIXBVALsC&pg=PA99
jimjimjim 8y ago
unless you get injured.
lovich 8y ago
Just because something's technically doable for a person doesn't mean that the government is going to be able to enforce that on a population eho was expecting a different and, more importantly, a better life than that. That's how you get rebellions or voted out of office if you're the politician trying to enact such legislation. We have a problem in the US where no one wants to be told what to do my the government but they also expect government handouts regardless of their behavior, and this is a bipartisan issue so it's not some minority of the population that needs to be convinced
sp332 8y ago
The point is that these people worked under a contract that promised them a certain pension for a certain amount of work. Even if the amount was unrealistically high, reneging after the person has put in all the work is basically fraud, or theft of wages.

sykhic 8y ago

Overal taxation in the U.S. is low compared to other OECD countries [1]. We, as a nation, decided that low taxes was the goal. As a result infrastructure is poor, toll roads are increasing, privatization of prisons, intelligence gathering, war, etc. are rising too. Yet Americans falsely believe they are overtaxed. The situation is easy to fix in economic terms but not in political terms. The road to an Ayn Randian paradise in which everyone fends for themselves will lead us to ruin. Corporations have largely shunted the responsibility for retirement savings onto individual workers. Now said workers have no pensions and have uncertain retirements. Instead of asking why they have no pensions they seek to equalize status by falsely believing we can't afford any sort of pension. As a nation we need to seriously rethink the role and purpose of government and how taxation is a part of the proper functioning of government. [1] https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe...

agumonkey 8y ago
is ayn rand a real influence ? i've seen one interview of her and I can't read her name without being filled with negative emotions. such a free-market fanatic.
- sp332 8y ago
  https://en.wikipedia.org/wiki/Ayn_Rand#Political_influence https://en.wikipedia.org/wiki/Ayn_Rand#Political_influence https://en.wikipedia.org/wiki/Atlas_Shrugged#Influence_and_legacy https://en.wikipedia.org/wiki/Atlas_Shrugged#Influence_and_l... Edit: She did flee a terrible situation in Russia, which I think probably explains (but does not excuse) her positions on socialism vs. capitalism.
  - agumonkey 8y ago
    coming from russia I understand her 'love' for free market
dunpeal 8y ago
> As a result infrastructure is poor, toll roads are increasing, privatization of prisons, intelligence gathering, war, etc. are rising too. I wouldn't bundle military expenditure with the rest of public spending. Our military budget currently stands at a staggering $639bn (that's billion) for FY2019. In fact, there's a good argument that if we diverted some of these enormous funds to invest in other areas, those problems you mentioned (infrastructure, etc) would be fixed. > The situation is easy to fix in economic terms but not in political terms. The article is about defined-benefit pensions. Nobody has those anymore, not in the US. This is a large group of privileged individuals, who years ago got themselves a sweetheart deal as employees of the state. It's basically another case of the previous generation mandating extremely comfortable benefits for themselves, and passing the bill to the next generation. These are people who worked for the government their entire lives. They may not be rich, but they were generally comfortable, and certainly not the neediest part of the population. They can stand a modest cut to their pensions. Otherwise, your argument is that all of us should pay substantially higher taxes to bankroll these lucky few individuals who got themselves a sweetheart deal thanks to their affiliation with state and local government. In most places, you'd call that "corruption".

jimjimjim 8y ago

you know that research test they do where the subject can have $5 now or $50 at the end if they don't take the $5 and a disappointing amount of times they go for the $5. The problem is everyone cheers on the politician that says you can have the $5 AND the $50.

sp332 8y ago
Doesn't this show that the people who took $5 up front were right? The ones who waited for $50 at the end are getting screwed.
- jimjimjim 8y ago
  the ones in the test the took the $5 look like untrusting fools because we make assumptions about fair and reasonable outcomes with repercussions on those parties in an agreement that don't fulfill their obligations. politicians should be held accountable like CEOs. They should be able to be sued. Screw over the company? your ass is going to get kicked. Say you didn't know? you shoulda listened to the people giving you the numbers. didn't have the numbers? shoulda hired people to give you the numbers. there needs to be a lot more repercussions on those people making bad decisions.
AnimalMuppet 8y ago
> The problem is everyone cheers on the politician that says you can have the $5 AND the $50. And once that politician is gone, if one of the new candidates says "no you can't", that candidate will not be elected.
pmwhite 8y ago
Preferring a promise of $50 later depends on trust. Economists are much too emotional to understand that kind of thing.

underwater 8y ago

Apparently it’s common for police to stack their final few years of work with excessive overtime to inflate their pensions for the rest of their lives. I wonder how much that contributes to budget problems. It certainly seems to be something that could throw off projections. http://www.courant.com/opinion/editorials/hc-ed-police-overtime-1215-20161214-story.html http://www.courant.com/opinion/editorials/hc-ed-police-overt...

gok 8y ago

> It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts. Boohoo. Public service union members should have thought about that before pursuing a pyramid scheme retirement plan instead of a defined contribution pension like the rest of us.

chris_mc 8y ago
Why in the ever loving fuck are you blaming the _workers_ for this shortsightedness instead of the government organizations who are about to fuck those people over when they're 70? Maybe the administrators of the pension accounts and financial planners for these organizations should have done better by the people who are busting their (collective) asses to provide services for you, the taxpayer?
- deleted 8y ago
  [deleted]
- dunpeal 8y ago
  Read sykhic's comments below. These unsustainable sweetheart deals were negotiated by the government employees and their unions.
  - dv_dt 8y ago
    Isn't there equal responsibility for politicians & gov'ts who agreed to the negotiated contracts? Were they not agreeing in good faith?
    - hn_throwaway_99 8y ago
      Corporate management and worker unions have what I'd call a "healthy" adversarial relationship. Corporations want to pay workers as little as possible, unions want workers to make as much as possible, so hopefully you get a decent compromise. With public sector unions, especially in smaller cities and states, the relationship is more incestuous and oftentimes the settlements aren't really made in good faith. The politicians desire the political support of the unions they are negotiating with, and figure by the time the pension bomb explodes it will be some other poor sucker's problem. Taxpayers are the ones that get screwed.

vuldin 8y ago

This is a good example of the type of debate that well-meaning, thoughtful people decide just steer clear of due to the (lack of) perspectives of the majority of those currently taking part in the conversation. The United States spends the better part of a trillion dollars per year on its military. A relatively small fraction of that would solve any issues their social welfare programs currently have. It's a matter of prioritization and the perspective of those leading the discussion. Instead of turning focus towards changing priorities (the priorities are already seemingly in their favor), they turn to how expensive and unmaintainable the programs are that they wish to further de-prioritize. In the process, they draw attention away from the stark contrast of funding between various government programs. Namely social welfare vs military, or improving their society vs destroying others.

ars 8y ago
> A relatively small fraction of that And what would you do with the large number of unemployed people that would result? You can't just change one thing and ignore any consequences. And don't forget that the broken window fallacy only applies to economies where everyone is working full time. If they are not then it does not apply, and your analysis needs to be more thorough.
- dunpeal 8y ago
  > And what would you do with the large number of unemployed people that would result? US demand for labor is at an all time high. They can find employment in the private sector and produce goods and services that benefit others.
  - ars 8y ago
    But most of the money is spent on research and high tech manufacturing. Those are not easy fields to find private employment for.
    - dunpeal 8y ago
      Are you kidding me? You are saying in the current market, there's no demand for highly skilled and educated R&D employees?

Nelkins 8y ago

Why no comparisons to the pension systems in other countries? I'm always hearing about how Europe has a much more generous pension system. Do they work the same way? Are they all similarly underwater? If not, what are they doing differently?

captain_perl 8y ago

Since the comments in this thread are missing historical context, here's a review wrt California: 1) the State Treasurer presented 3 options (low - 6%, middle - 7%, high - 8%), but said high was dangerous 2) the State picked high, since they were voting on their own pension payments 3) the municipal unions went to the mayoral candidates across the state and said, "if you want our support on election day, support 8%" 4) the courts have ruled that once a pension plan is approved, it can't be repealed for existing members 5) the San Jose mayor actually tried to repeal it to prevent city bankruptcy, and was ground into the dust by the public unions and courts 6) the last city employee in each city will be the Treasurer, to sign pension checks. There will be no city services (fire, police, libraries, etc.) - just pension payments. This is already happening in California 7) Public union members receive higher salaries now (thanks to COLA) than the private sector, plus multi-million dollar pensions. My dentist calls them "royalty" because their benefits are on a different level than the private sector. What's ironic is that Marx predicted that in a democracy, the voters would eventually vote themselves ruinous entitlements. He was correct, but all it took was the public unions.

adreamingsoul 8y ago

I can't help but think of my father, who has been a firefighter for the last 20+ years. He lives a comfortable middle class life, and still works even though he already qualifies for retirement.

IIPA_Master 8y ago

Your taxes do NOT fund most pensions. I’m a teacher in NY. My pension plan is self funded by our membership (teachers). Taxpayer dollars account for the annual school budget (you vote on!) which does include salary and employer healthcare contribution however it also pays for grounds and buildings, transportation, extracurriculars, etc... Additionally, the current tier 6 of NY state workers pays a “retirement fee” into their retirement which is how the TRS in NY is funded. This fee is not a % of salary, it is an annual fee spread over pay periods. So just to debunk one point, most public worker retirement funds are self funded by members.

scaryspooky 8y ago
Public employees are paid via taxes, so yes they do 'fund' public pensions.

rapjr9 8y ago

How are AI and automation going to affect pensions? If many jobs become automated who contributes to the pension funds and Social Security to support the previous generations? All the discussion I see here seems to assume the future is like today. Those lists of which jobs are most likely to be automated soonest may also be lists of which pensions will not be funded in the future.

spectrum1234 8y ago

This is a great reason to use a ROTH 401k over a Traditional and max your ROTH IRA every year. Why? It's nearly impossible that taxes won't start skyrocketing soon.