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This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive i

This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too. Edit/Follow-up: I guess there are two more sane alternatives: 1) Let public-sector workers manage their retirements privately e.g. 401k-style . 2) Let state and municipal public-sector workers opt-in to the federal pension system for federal public sector workers.

bradleyjg 8y ago
The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road. Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like that because they’d rather have the extravagant promises they can extract, figuring that future governments will find a way to pay them. If both employees and taxpayers prefer to keep pretending that the Emperor is wearing clothes how many politicians are going to fall on the sword of good government?
- tareqak 8y ago
  From my reading of the article, the pension contributions were already being made in this case (it wasn't clear to me if it was directly made by the teachers or the state). Your concern is a valid one, but I didn't see the state repurposing the pension contributions for something else in this case.
  - bradleyjg 8y ago
    They make contributions but not nearly large enough contributions as would be required if they used accounting best practices, as for example those that the insurance industry is required to use when calculating reserves for annuities.
  - bluGill 8y ago
    Pension contributions have been made. In the best case they are large enough to cover everything. However in all the likely cases they won't have enough money to pay out their promises. If more money went in there would be enough returns with reasonable investments. Or you can chase risky investments and hope that better than average returns pay you back.
- snikeris 8y ago
  Seems like there is a conflict of interest. Governments are dependent on investment returns or the whole house of cards falls down. Yet they are given the responsibility of regulating the investment markets and controlling the money supply. Quantitative easing led to a massive bull market. What's the downside of a government dependent on increasing asset prices?
lotsofpulp 8y ago
There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It would also make government budgets a lot easier to understand and harder to fool taxpayers.
- mschuster91 8y ago
  > There’s no reason government employees should get taxpayer guaranteed annuities There is. In Germany, the Prussians back in the 18th century formed the "Berufsbeamtentum", basically civil servants. The idea is that the state guarantees that the Beamten be permanently employed by the state (basically, short of committing serious crimes > 12mo jail time, there is no way for the state to fire one), have their (first class) healthcare taken care of and that they will have decent pensions. For this, the Beamten bind their work life to the state. The downside, of course, is that there are several limits for Beamte: most notably they must be absolutely loyal to the state, restrict themselves/their speech in the public (e.g. memberships in "extremist" parties are a no-go), they are forbidden from strikes, and their pay schedules are fixed (so, no individual contract agreements, everyone on the same step of the career ladder gets the same salary). Also (mostly valid for police officers and judges) the state may decide to reassign you to a different post... which may even be at the other end of the country, for those who are with the federal government.
  - lotsofpulp 8y ago
    I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. If anything, it just allows an avenue for taxpayers (mostly in the future) to be stolen from.
    - mschuster91 8y ago
      > I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. The benefit is that Beamte are locked in to the state. It's rare that the private sector snatches Beamte away from the state. This means that, unlike in the private sector, the state does not have to worry that its most competent employees suddenly vanish.
MrMorden 8y ago
There are two equitable solutions: either allow everyone to opt-out of Social Security, or allow no one to. The second is closer to the system we have now; the first would require major changes (subsidizing retirement for low-income workers from income tax instead of SS tax). It's also possible that the 10th Amendment may prevent the federal government from mandating state/municipal employee participation. The US federal government previously had a system similar to state pensions (CSRS), but employees hired after 1983 are required to be enrolled in the new system (FERS) which includes Social Security. There's also another difference: the federal government has far better internal controls than most of its states.
ConcernedCoder 8y ago
what's wrong with 1) Let public-sector workers manage their retirements privately e.g. 401k-style .

bradleyjg 8y ago

The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road. Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like that because they’d rather have the extravagant promises they can extract, figuring that future governments will find a way to pay them. If both employees and taxpayers prefer to keep pretending that the Emperor is wearing clothes how many politicians are going to fall on the sword of good government?

tareqak 8y ago
From my reading of the article, the pension contributions were already being made in this case (it wasn't clear to me if it was directly made by the teachers or the state). Your concern is a valid one, but I didn't see the state repurposing the pension contributions for something else in this case.
- bradleyjg 8y ago
  They make contributions but not nearly large enough contributions as would be required if they used accounting best practices, as for example those that the insurance industry is required to use when calculating reserves for annuities.
- bluGill 8y ago
  Pension contributions have been made. In the best case they are large enough to cover everything. However in all the likely cases they won't have enough money to pay out their promises. If more money went in there would be enough returns with reasonable investments. Or you can chase risky investments and hope that better than average returns pay you back.
snikeris 8y ago
Seems like there is a conflict of interest. Governments are dependent on investment returns or the whole house of cards falls down. Yet they are given the responsibility of regulating the investment markets and controlling the money supply. Quantitative easing led to a massive bull market. What's the downside of a government dependent on increasing asset prices?

lotsofpulp 8y ago

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It would also make government budgets a lot easier to understand and harder to fool taxpayers.

mschuster91 8y ago
> There’s no reason government employees should get taxpayer guaranteed annuities There is. In Germany, the Prussians back in the 18th century formed the "Berufsbeamtentum", basically civil servants. The idea is that the state guarantees that the Beamten be permanently employed by the state (basically, short of committing serious crimes > 12mo jail time, there is no way for the state to fire one), have their (first class) healthcare taken care of and that they will have decent pensions. For this, the Beamten bind their work life to the state. The downside, of course, is that there are several limits for Beamte: most notably they must be absolutely loyal to the state, restrict themselves/their speech in the public (e.g. memberships in "extremist" parties are a no-go), they are forbidden from strikes, and their pay schedules are fixed (so, no individual contract agreements, everyone on the same step of the career ladder gets the same salary). Also (mostly valid for police officers and judges) the state may decide to reassign you to a different post... which may even be at the other end of the country, for those who are with the federal government.
- lotsofpulp 8y ago
  I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. If anything, it just allows an avenue for taxpayers (mostly in the future) to be stolen from.
  - mschuster91 8y ago
    > I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. The benefit is that Beamte are locked in to the state. It's rare that the private sector snatches Beamte away from the state. This means that, unlike in the private sector, the state does not have to worry that its most competent employees suddenly vanish.

MrMorden 8y ago

There are two equitable solutions: either allow everyone to opt-out of Social Security, or allow no one to. The second is closer to the system we have now; the first would require major changes (subsidizing retirement for low-income workers from income tax instead of SS tax). It's also possible that the 10th Amendment may prevent the federal government from mandating state/municipal employee participation. The US federal government previously had a system similar to state pensions (CSRS), but employees hired after 1983 are required to be enrolled in the new system (FERS) which includes Social Security. There's also another difference: the federal government has far better internal controls than most of its states.

ConcernedCoder 8y ago

what's wrong with 1) Let public-sector workers manage their retirements privately e.g. 401k-style .