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Do the employees and employers not pay into a separate fund that cannot be touched? I fail to see how it's the fault of the pensioners. It's absolutely archaic

Do the employees and employers not pay into a separate fund that cannot be touched? I fail to see how it's the fault of the pensioners. It's absolutely archaic if the future taxpayers have to pay for a retirees pension. In Canada we have pension funds that are separately funded entities that are payed into over an employee's career.

lotsofpulp 7y ago
How do you ensure the funds are invested properly, and not in a nephew's real estate development project? How do you ensure the correct assumptions are used in calculating how much to contribute into the fund in the first place? You can adjust mortality tables and investment return assumptions to make the benefits seem cheaper than they are. The government can even choose to forego making their understated contribution if they vote themselves to forego it! (which many governments frequently have) People's eyes glaze over when talking about their own 401k, what chance is there for voters to get into the nitty gritty about multiple government agencies' pension liabilities and investments at the city/county/state/federal level?
- rrrrreeeee 7y ago
  The employer isn't liable for the pension at all. Neither is the employee. All they do is pay into the fund. Instead, there is an entirely separate legal entity (the pension fund) that controls and distributes the assets. The fund releases reports regularly on the health of the fund. The contribution calculations are usually included in those reports. The investments by pension funds are usually in long term infrastructure assets like highway 407 in Ontario, or various property management companies such as Cadillac-Fairview. https://en.m.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Plan https://en.m.wikipedia.org/wiki/Ontario_Teachers%27_Pension_... the Ontario Teachers Pension Plan is probably one of the best examples of a well run pension fund. All public employees in Ontario, as well as federal employees are all part of a union, whether it be OMERS, PSAC, CUPE, caisse or otherwise. These unions protect the employees from the 4 year swings of governments and instead look after the long term health of employees. I suggest you research the laws surrounding pensions in Canada. Answering the questions properly here is too lengthy, but they could probably be answered by 30 minutes of research. Pensions are incredibly powerful for looking after retirees. In fact, Canada has a federal pension plan called CPP which pays out to all Canadians based upon their contributions over their lifetime. Pensions are not the enemy my friend, it's elected representatives who look out for their short term interests instead of the health of their electorate.
  - lotsofpulp 7y ago
    That is not how taxpayer funded pensions in US work. What you describe is the equivalent of the employee purchasing an annuity from an insurance company. What the US has is a politician today offering benefits 30 years from now, which may or may not be funded with contributions and investment returns from a pension fund, but at the end of the day the employee always has a lien on the tax revenue if pension funds are short.
  - refurb 7y ago
    The same problem exists in Canada as well. https://www.cfib-fcei.ca/en/research-economic-analysis/canadas-hidden-unfunded-public-sector-pension-liabilities https://www.cfib-fcei.ca/en/research-economic-analysis/canad...
- dusbajd 7y ago
  “How do you ensure the funds are invested properly” Look up the Ontario public teachers pension plan, OTPP. It has its own quite extensive wiki page. Spoiler: it has more assets than the entire state of PA public pension fund (by a factor of 6, if I recall)
- deleted 7y ago
  [deleted]
- jijji 7y ago
  i've noticed a lot of banks/hedge funds will invest in property tax certificates with a typical return of 18%, and then pay out a lower interest rate back to the customer... its alot safer to do it that way than to invest in randomly performing stocks or mutual funds.
- intended 7y ago
  Pension funds are a force on the stock market and have been for aeons. Getting a fund to work is not hard, and given the massive economic growth that america has seen in the past 30 years alone, even the most conservative fund would be doing impressively well. All of these things are easy. The only thing which I have heard and seen which is a problem is people/politicians coming in and breaking the compact made with emoloyees 10, 15 years down the line. At that point the fund gets drawn down and you can easily get a scenario like today. The spenders are no longer in office and the obligations are coming Due.
stochastastic 7y ago
In the US a “pension” typically means a fixed benefit regardless of investment performance. Many pension sponsors reduced contributions to their plans when markets were up and have had large shortfalls when markets have gone down, which has contributed to the “pension funding crisis”.
- rrrrreeeee 7y ago
  In Canada, pensions contributions are never ever adjusted depending on market performance. Instead, payouts are typically indexed to inflation. When markets are down, funds usually have a shortfall, so they cut the inflation indexing. When markets are up and the pension fund is overfunded, they restore the inflation adjustment. This slightly harms the pensioners, but not by much to have a critical effect on their well-being.
  - chrismeller 7y ago
    This is a reasonable approach, but means you don’t really ever have any idea how much you’ll have when you retire. Honestly that’s probably the only approach that will ever work longer term, but it’s not an easy thing to sell or plan for. The US Postal System has essentially this exact problem every year - they aren’t making enough to cover their pension obligations so they keep raising stamp prices (and let’s not get started on the absurdly short-term solution of “forever” stamps). Since they’re a government agency but independent and unable to accept funding from any other method it’s a great example of the problem.
    - rrrrreeeee 7y ago
      You have an idea of the minimum you will get. Your pension will never go down, just that you don't know whether your pension will go up.
      - asah 7y ago
        inflation means that your pension goes down by default.
ThrustVectoring 7y ago
Pay-as-you-go versus fully funded makes little difference. If you fix retiree membership and consumption, it's the difference between workers paying an extra $X/month in student loan repayments etc versus an extra $X/month in taxes.
kristianc 7y ago
> In Canada we have pension funds that are separately funded entities that are payed into over an employee's career. Speaking for the UK, ‘national insurance’ is a direct transfer from young to old.
cljs-js-eval 7y ago
It's archaic and should be changed, but the way the system works in the U.S. is pretty well known to its citizens, which makes it at least partially the fault of the pensioners. I live in Chicago and every retired schoolteacher and police officer I meet knows full well that they're making an exceptional amount of money in retirement. It's usually part of why they took the job.
- sokoloff 7y ago
  IMO, it's no more the pensioners' fault than any other voter. If they're a resident eligible to vote, it's partly their fault. It's not their fault for accepting a job offer with certain terms broadly available.
  - x0x0 7y ago
    I tend to agree, but there's a limit. Accepting a job where the payout promised requires an almost 50% property tax raise? You can't possibly claim surprise when those promises are reneged on.
    - sokoloff 7y ago
      The current pensioners didn’t recently accept their job. They accepted it decades ago and it’s on the municipality to manage the funding.
      - x0x0 7y ago
        this so-called pension crisis has been clear for well over a decade, bare minimum. It was heavily discussed circa 2000.
      - conanbatt 7y ago
        And apparently on the tax payer to eat it up.
      - 9935c101ab17a66 7y ago
        A lot of the people paying these taxes never agreed to the other end of the bargain either? I mean, you can argue that this is an integral part of the social contract, but if everyone leaves Chicago because property taxes increase astronomically there won't be any tax payers to lecture about how they have to hold up their end of the one-sided bargain. And then the whole thing collapses anyway?
sct202 7y ago
In Illinois and Chicago, the government has been playing games like declaring pension holidays where the contributions shift to the future. The unions control a large base of voters and haven't objected, even though this basically endangers their retirements. There's going to be a point where the funds will literally run out of money, and I doubt that there will be enough things to tax in a year to make up the difference that should have been paid in over decades.
- toomuchtodo 7y ago
  What boggles my mind is that bond rating agencies rate Illinois debt at any rating that allows continued borrowing when it is so obvious how bad and deep the financial hole is. Disclaimer: actively seeking ways to short Illinois/Chicago.
  - lotsofpulp 7y ago
    They are rating the chances of default. The bond purchasers will be paid, one way or another. Privatize the parking meters (like Chicago already did), the roads, the water utilities, etc. It's the people who live there that will pay for the deficit via increased taxes and fewer services.
    - toomuchtodo 7y ago
      So why are property values not reflecting this? Irrational market?
      - cdfky 7y ago
        All markets are irrational. It will take time
      - lotsofpulp 7y ago
        They are. From all the data I can see, property values for almost all areas in the Northeast and Rust Belt in general are declining (in real terms), except for certain few rich areas in and around the big cities that the richer populace is “escaping to”. I’m writing from mobile, but compare the Fed’s analysis for home prices by state. Even Buffett says he’s looking at state finances when deciding investment options, and if he’s saying it, surely other organizations are too. It will be a gradual accelerating decline though (barring effects of natural disasters), since people don’t just up and move.
hvs 7y ago
https://reason.com/2019/02/21/illinois-cops-pension-gimmick-scheme-cou/ https://reason.com/2019/02/21/illinois-cops-pension-gimmick-... https://www.illinoispolicy.org/illinois-senate-passes-bill-barring-pension-double-dipping-for-local-politicians/ https://www.illinoispolicy.org/illinois-senate-passes-bill-b... I don't think the pensioners are free of fault here.
- ComputerGuru 7y ago
  I don't understand how they ruled officers don't have to pay back that money. It was clearly stolen from taxpayers.

lotsofpulp 7y ago

How do you ensure the funds are invested properly, and not in a nephew's real estate development project? How do you ensure the correct assumptions are used in calculating how much to contribute into the fund in the first place? You can adjust mortality tables and investment return assumptions to make the benefits seem cheaper than they are. The government can even choose to forego making their understated contribution if they vote themselves to forego it! (which many governments frequently have) People's eyes glaze over when talking about their own 401k, what chance is there for voters to get into the nitty gritty about multiple government agencies' pension liabilities and investments at the city/county/state/federal level?

rrrrreeeee 7y ago
The employer isn't liable for the pension at all. Neither is the employee. All they do is pay into the fund. Instead, there is an entirely separate legal entity (the pension fund) that controls and distributes the assets. The fund releases reports regularly on the health of the fund. The contribution calculations are usually included in those reports. The investments by pension funds are usually in long term infrastructure assets like highway 407 in Ontario, or various property management companies such as Cadillac-Fairview. https://en.m.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Plan https://en.m.wikipedia.org/wiki/Ontario_Teachers%27_Pension_... the Ontario Teachers Pension Plan is probably one of the best examples of a well run pension fund. All public employees in Ontario, as well as federal employees are all part of a union, whether it be OMERS, PSAC, CUPE, caisse or otherwise. These unions protect the employees from the 4 year swings of governments and instead look after the long term health of employees. I suggest you research the laws surrounding pensions in Canada. Answering the questions properly here is too lengthy, but they could probably be answered by 30 minutes of research. Pensions are incredibly powerful for looking after retirees. In fact, Canada has a federal pension plan called CPP which pays out to all Canadians based upon their contributions over their lifetime. Pensions are not the enemy my friend, it's elected representatives who look out for their short term interests instead of the health of their electorate.
- lotsofpulp 7y ago
  That is not how taxpayer funded pensions in US work. What you describe is the equivalent of the employee purchasing an annuity from an insurance company. What the US has is a politician today offering benefits 30 years from now, which may or may not be funded with contributions and investment returns from a pension fund, but at the end of the day the employee always has a lien on the tax revenue if pension funds are short.
- refurb 7y ago
  The same problem exists in Canada as well. https://www.cfib-fcei.ca/en/research-economic-analysis/canadas-hidden-unfunded-public-sector-pension-liabilities https://www.cfib-fcei.ca/en/research-economic-analysis/canad...
dusbajd 7y ago
“How do you ensure the funds are invested properly” Look up the Ontario public teachers pension plan, OTPP. It has its own quite extensive wiki page. Spoiler: it has more assets than the entire state of PA public pension fund (by a factor of 6, if I recall)
deleted 7y ago
[deleted]
jijji 7y ago
i've noticed a lot of banks/hedge funds will invest in property tax certificates with a typical return of 18%, and then pay out a lower interest rate back to the customer... its alot safer to do it that way than to invest in randomly performing stocks or mutual funds.
intended 7y ago
Pension funds are a force on the stock market and have been for aeons. Getting a fund to work is not hard, and given the massive economic growth that america has seen in the past 30 years alone, even the most conservative fund would be doing impressively well. All of these things are easy. The only thing which I have heard and seen which is a problem is people/politicians coming in and breaking the compact made with emoloyees 10, 15 years down the line. At that point the fund gets drawn down and you can easily get a scenario like today. The spenders are no longer in office and the obligations are coming Due.

stochastastic 7y ago

In the US a “pension” typically means a fixed benefit regardless of investment performance. Many pension sponsors reduced contributions to their plans when markets were up and have had large shortfalls when markets have gone down, which has contributed to the “pension funding crisis”.

rrrrreeeee 7y ago
In Canada, pensions contributions are never ever adjusted depending on market performance. Instead, payouts are typically indexed to inflation. When markets are down, funds usually have a shortfall, so they cut the inflation indexing. When markets are up and the pension fund is overfunded, they restore the inflation adjustment. This slightly harms the pensioners, but not by much to have a critical effect on their well-being.
- chrismeller 7y ago
  This is a reasonable approach, but means you don’t really ever have any idea how much you’ll have when you retire. Honestly that’s probably the only approach that will ever work longer term, but it’s not an easy thing to sell or plan for. The US Postal System has essentially this exact problem every year - they aren’t making enough to cover their pension obligations so they keep raising stamp prices (and let’s not get started on the absurdly short-term solution of “forever” stamps). Since they’re a government agency but independent and unable to accept funding from any other method it’s a great example of the problem.
  - rrrrreeeee 7y ago
    You have an idea of the minimum you will get. Your pension will never go down, just that you don't know whether your pension will go up.
    - asah 7y ago
      inflation means that your pension goes down by default.

ThrustVectoring 7y ago

Pay-as-you-go versus fully funded makes little difference. If you fix retiree membership and consumption, it's the difference between workers paying an extra $X/month in student loan repayments etc versus an extra $X/month in taxes.

kristianc 7y ago

> In Canada we have pension funds that are separately funded entities that are payed into over an employee's career. Speaking for the UK, ‘national insurance’ is a direct transfer from young to old.

cljs-js-eval 7y ago

It's archaic and should be changed, but the way the system works in the U.S. is pretty well known to its citizens, which makes it at least partially the fault of the pensioners. I live in Chicago and every retired schoolteacher and police officer I meet knows full well that they're making an exceptional amount of money in retirement. It's usually part of why they took the job.

sokoloff 7y ago
IMO, it's no more the pensioners' fault than any other voter. If they're a resident eligible to vote, it's partly their fault. It's not their fault for accepting a job offer with certain terms broadly available.
- x0x0 7y ago
  I tend to agree, but there's a limit. Accepting a job where the payout promised requires an almost 50% property tax raise? You can't possibly claim surprise when those promises are reneged on.
  - sokoloff 7y ago
    The current pensioners didn’t recently accept their job. They accepted it decades ago and it’s on the municipality to manage the funding.
    - x0x0 7y ago
      this so-called pension crisis has been clear for well over a decade, bare minimum. It was heavily discussed circa 2000.
    - conanbatt 7y ago
      And apparently on the tax payer to eat it up.
    - 9935c101ab17a66 7y ago
      A lot of the people paying these taxes never agreed to the other end of the bargain either? I mean, you can argue that this is an integral part of the social contract, but if everyone leaves Chicago because property taxes increase astronomically there won't be any tax payers to lecture about how they have to hold up their end of the one-sided bargain. And then the whole thing collapses anyway?

sct202 7y ago

In Illinois and Chicago, the government has been playing games like declaring pension holidays where the contributions shift to the future. The unions control a large base of voters and haven't objected, even though this basically endangers their retirements. There's going to be a point where the funds will literally run out of money, and I doubt that there will be enough things to tax in a year to make up the difference that should have been paid in over decades.

toomuchtodo 7y ago
What boggles my mind is that bond rating agencies rate Illinois debt at any rating that allows continued borrowing when it is so obvious how bad and deep the financial hole is. Disclaimer: actively seeking ways to short Illinois/Chicago.
- lotsofpulp 7y ago
  They are rating the chances of default. The bond purchasers will be paid, one way or another. Privatize the parking meters (like Chicago already did), the roads, the water utilities, etc. It's the people who live there that will pay for the deficit via increased taxes and fewer services.
  - toomuchtodo 7y ago
    So why are property values not reflecting this? Irrational market?
    - cdfky 7y ago
      All markets are irrational. It will take time
    - lotsofpulp 7y ago
      They are. From all the data I can see, property values for almost all areas in the Northeast and Rust Belt in general are declining (in real terms), except for certain few rich areas in and around the big cities that the richer populace is “escaping to”. I’m writing from mobile, but compare the Fed’s analysis for home prices by state. Even Buffett says he’s looking at state finances when deciding investment options, and if he’s saying it, surely other organizations are too. It will be a gradual accelerating decline though (barring effects of natural disasters), since people don’t just up and move.

hvs 7y ago

https://reason.com/2019/02/21/illinois-cops-pension-gimmick-scheme-cou/ https://reason.com/2019/02/21/illinois-cops-pension-gimmick-... https://www.illinoispolicy.org/illinois-senate-passes-bill-barring-pension-double-dipping-for-local-politicians/ https://www.illinoispolicy.org/illinois-senate-passes-bill-b... I don't think the pensioners are free of fault here.

ComputerGuru 7y ago
I don't understand how they ruled officers don't have to pay back that money. It was clearly stolen from taxpayers.