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>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

>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.
  - gascan 8y ago
    It was probably both. Surely there is always a little optimism (our active fund manager can get us 8% instead of 7%!). But also- For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0% But, now economists are speculating that was an exceptional period (the post-war period) and "normal" return is probably more like 4-5%.
  - rayiner 8y ago
    Until the 2008 recession, the vast majority of Illinois public pension funds assumed returns in excess of 8%: https://www.civicfed.org/iifs/blog/comparing-investment-return-assumptions-illinois-pension-funds-national-trends https://www.civicfed.org/iifs/blog/comparing-investment-retu.... That was more than the market returned in 1960-1980, but less than the market returned from 1980-2005. But, those projections don't include unplanned pension benefit increases for existing retirees, which happens periodically.
    - Shivetya 8y ago
      Chicago pensions to bankrupt by 2021, the numbers in the article are amazing for payouts https://chicagocitywire.com/stories/511130434-projection-chicago-s-police-pension-fund-will-be-broke-in-2021 https://chicagocitywire.com/stories/511130434-projection-chi...
saosebastiao 8y ago
Yep, just like college tuition, social security, health care, war funding, and housing prices. Pension promises have always been a way for boomers to get the things they want while making future generations pay for it.
kartan 8y ago
> Let's not pretend like this was ever seriously going to be sustainable. Why not? Each year machines become more efficient, and productivity has gone up. The main problem has not been to create wealth, it has been on how to share it. Politicians also say that health care for everyone is impossible, but there is a lot of countries that do just that. This is about setting expectations. If you convince your citizens that paying pensions is wasteful and not sustainable, you can diverge that money to other places. Look at tax breaks and you will find where your pension is.
- hn_throwaway_99 8y ago
  > Each year machines become more efficient, and productivity has gone up. That actually highlights a lot of problems with defined-benefit plans: sometimes economic circumstances change so drastically based on social or technological change that the promises of the past are no longer viable. How could places like Detroit or Puerto Rico continue to pay their promised pensions when their economic base has evaporated?
  - deleted 8y ago
    [deleted]
  - kartan 8y ago
    > How could places like Detroit or Puerto Rico continue to pay their promised pensions when their economic base has evaporated? As a manager of a small team, I had this problem. My team was composed of very senior people and I had a big bag of money to share for salary increases. Another manager had a very junior but very brilliant team and his bag was quite small. We joined efforts, and we joined the bags. Now we had the flexibility to give the correct salary increase to everybody. The way to solve this problem is to share the burden. That is the base for insurances. Governments should offer an insurance against local changes. As the economy goes global, it should be a global effort. This is easier said than done. But it is the real solution.

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.
- gascan 8y ago
  It was probably both. Surely there is always a little optimism (our active fund manager can get us 8% instead of 7%!). But also- For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0% But, now economists are speculating that was an exceptional period (the post-war period) and "normal" return is probably more like 4-5%.
- rayiner 8y ago
  Until the 2008 recession, the vast majority of Illinois public pension funds assumed returns in excess of 8%: https://www.civicfed.org/iifs/blog/comparing-investment-return-assumptions-illinois-pension-funds-national-trends https://www.civicfed.org/iifs/blog/comparing-investment-retu.... That was more than the market returned in 1960-1980, but less than the market returned from 1980-2005. But, those projections don't include unplanned pension benefit increases for existing retirees, which happens periodically.
  - Shivetya 8y ago
    Chicago pensions to bankrupt by 2021, the numbers in the article are amazing for payouts https://chicagocitywire.com/stories/511130434-projection-chicago-s-police-pension-fund-will-be-broke-in-2021 https://chicagocitywire.com/stories/511130434-projection-chi...

saosebastiao 8y ago

Yep, just like college tuition, social security, health care, war funding, and housing prices. Pension promises have always been a way for boomers to get the things they want while making future generations pay for it.

kartan 8y ago

> Let's not pretend like this was ever seriously going to be sustainable. Why not? Each year machines become more efficient, and productivity has gone up. The main problem has not been to create wealth, it has been on how to share it. Politicians also say that health care for everyone is impossible, but there is a lot of countries that do just that. This is about setting expectations. If you convince your citizens that paying pensions is wasteful and not sustainable, you can diverge that money to other places. Look at tax breaks and you will find where your pension is.

hn_throwaway_99 8y ago
> Each year machines become more efficient, and productivity has gone up. That actually highlights a lot of problems with defined-benefit plans: sometimes economic circumstances change so drastically based on social or technological change that the promises of the past are no longer viable. How could places like Detroit or Puerto Rico continue to pay their promised pensions when their economic base has evaporated?
- deleted 8y ago
  [deleted]
- kartan 8y ago
  > How could places like Detroit or Puerto Rico continue to pay their promised pensions when their economic base has evaporated? As a manager of a small team, I had this problem. My team was composed of very senior people and I had a big bag of money to share for salary increases. Another manager had a very junior but very brilliant team and his bag was quite small. We joined efforts, and we joined the bags. Now we had the flexibility to give the correct salary increase to everybody. The way to solve this problem is to share the burden. That is the base for insurances. Governments should offer an insurance against local changes. As the economy goes global, it should be a global effort. This is easier said than done. But it is the real solution.