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Pensions are going to cause enormous issues in the coming decades. Almost certainly taxpayers won't stomach paying for them, as happened in Detroit and smaller

Pensions are going to cause enormous issues in the coming decades. Almost certainly taxpayers won't stomach paying for them, as happened in Detroit and smaller jurisdictions. Get ready for the implosion!

toomuchtodo 7y ago
Taxpayers will. The PBGC will be backstopping these pensions as well (as mentioned in the article). The country can always general fund transfer and QE its way out of it anyway. https://www.pbgc.gov/ https://www.pbgc.gov/
- coryrc 7y ago
  When the PBGC gets it, usually benefits are cut to more sustainable levels and can actually be paid based on the pool of available funds.
  - toomuchtodo 7y ago
    There's no reason as-is benefits couldn't have been sustainable if properly managed by the plan sponsor. It is not the pension participant's fault public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law, nor required adequately funding the plan. There is no limit to available funds in an economy not on the gold standard. These aren't trillions of dollars in obligations (in the case of these smaller pension plans, not speaking about public pensions such as those in Illinois), and we've burned up a greater sum on air conditioning and lost cash payments in the middle east alone during conflicts. As long as you can get past the "moral hazard" folks and not impact the macro too much (ie inflation), you can get away with a lot when working with funny fiat money. This is part of what government exists to do, providing security to its citizens. A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors).
    - lotsofpulp 7y ago
      >public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law. Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions. >A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors). They are ahead, but there's usually nothing left, and definitely nothing that could satisfy the requirements of a pension. Compounding is a hell of a force, and PPA 2006 didn't come into effect until too late. And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries.
      - toomuchtodo 7y ago
        > Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions. Then public policy did not account for it. > And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries. Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so.
        lotsofpulp 7y ago
        >Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so. This is already happening. Defined benefit pension funds and defined contribution pension funds (401k/IRAs) are all invested in the same place: the public stock market and real estate. That's why I think bailouts of public stock market values are basically guaranteed, as long as the US dollar remains relatively desirable. Individuals may or may not be bailed out, depending on their political power. As I mentioned in another comment, these pension recipients got bailed out because their members are important in elections: https://www.nytimes.com/2019/12/24/business/coal-miner-pensions-bailout.html https://www.nytimes.com/2019/12/24/business/coal-miner-pensi...
jagged-chisel 7y ago
How common are pensions these days? None of my employers have offered pensions, just a 401k. Current employer is over a century old; seems they got savvy to the pension liability long ago.
- chrisseaton 7y ago
  > None of my employers have offered pensions, just a 401k. A 401k is a pension isn't it? Just a defined-contribution pension instead of a defined-benefit pension. I get a pension at my large young tech company.
  - Cymen 7y ago
    No, a 401k is not a pension. A pension guarantees a certain amount at specified dates while a 401k is a way of purchasing securities for you to manage your own retirement and is subject to the returns of your investment choices. In other words, a pension is a guarantee of future income in which the pension offerer is on the hook to ensure they have the funds to deliver the pension while the 401k pushes all that responsibility on to you. My wording is probably off on some of that so an article like this one is probably helpful to flesh out the details: https://www.fool.com/retirement/2018/06/13/whats-the-difference-between-a-pension-and-a-401k.aspx https://www.fool.com/retirement/2018/06/13/whats-the-differe...
    - deleted 7y ago
      [deleted]
    - chrisseaton 7y ago
      > A pension guarantees a certain amount at specified dates That's specifically a defined benefit pension - just one type of pension. There are many other types of pension. My pension is basically just a big saving account my employer and I both pay into - it's a defined contribution pension.
    - samatman 7y ago
      According to le Wik, IRAs and 401k plans are indeed defined-contribution pensions. https://en.wikipedia.org/wiki/Defined_contribution_plan#United_States https://en.wikipedia.org/wiki/Defined_contribution_plan#Unit...
Alex3917 7y ago
> Almost certainly taxpayers won't stomach paying for them, as happened in Detroit and smaller jurisdictions. I mean we've been dealing with this for thousands of years already. A pension is basically just a loan from an employee to an employer. Back when jews had a monopoly on money lending in Europe, every year the townspeople had to decide whether they were going to pay back their loans or just kill all the jews in their town, or at least take their land and send them elsewhere. Most years they just paid back their loans as agreed, but then every few decades when the debt service got too high things tended to go sideways. The basic issue is that even after thousands of years, we still haven't really figured out what's equitable in terms of how debt should work. C.f.: https://youtu.be/AX7vyycyRCs?t=2908 https://youtu.be/AX7vyycyRCs?t=2908
- adamsea 7y ago
  I feel to urge to add a little color to this statement. Let’s recall that, beyond whatever assertions the poster is making here, the countries in question didn’t allow Jewish people to practice other trades. “ The result of those occupational restrictions was to push Jews into marginal roles, considered socially inferior, such as tax and rent collecting and moneylending, which were tolerated as a "necessary evil".” https://en.m.wikipedia.org/wiki/Economic_antisemitism https://en.m.wikipedia.org/wiki/Economic_antisemitism But yeah our current system of debt - especially student debt - is messed up.
lotsofpulp 7y ago
Taxpayers don't have a choice, it all depends on how influential the defined benefit pension recipients are. Most don't have sway for a federal government bailout, but some do. Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections: https://www.nytimes.com/2019/12/24/business/coal-miner-pensions-bailout.html https://www.nytimes.com/2019/12/24/business/coal-miner-pensi...
- ls612 7y ago
  >Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections ??? WV was R+40 in 2016, there's no way it's a swing state .
  - lotsofpulp 7y ago
    Oops, my bad. They do have a Democrat senator, and they do have some pull with the current presidential administration, so they must have some way to leverage their political power. Perhaps it was a reward and incentive to continue for voting Republican. But the point is that whether or not you get bailed out depends on how much influence you have.
stefan_ 7y ago
As the number of actual taxpayers declines (which is why "pensions are going to cause enormous issues in the coming decades") politicians will happily take up more debt to pay for it all. You know, Medicare.
sambull 7y ago
This is why France is rioting right now.

toomuchtodo 7y ago

Taxpayers will. The PBGC will be backstopping these pensions as well (as mentioned in the article). The country can always general fund transfer and QE its way out of it anyway. https://www.pbgc.gov/ https://www.pbgc.gov/

coryrc 7y ago
When the PBGC gets it, usually benefits are cut to more sustainable levels and can actually be paid based on the pool of available funds.
- toomuchtodo 7y ago
  There's no reason as-is benefits couldn't have been sustainable if properly managed by the plan sponsor. It is not the pension participant's fault public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law, nor required adequately funding the plan. There is no limit to available funds in an economy not on the gold standard. These aren't trillions of dollars in obligations (in the case of these smaller pension plans, not speaking about public pensions such as those in Illinois), and we've burned up a greater sum on air conditioning and lost cash payments in the middle east alone during conflicts. As long as you can get past the "moral hazard" folks and not impact the macro too much (ie inflation), you can get away with a lot when working with funny fiat money. This is part of what government exists to do, providing security to its citizens. A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors).
  - lotsofpulp 7y ago
    >public policy failed them and did not properly account for the ability of the corp to default on its contract using BK law. Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions. >A contract was made, and it should be kept (with pensioners coming first ahead of all other creditors). They are ahead, but there's usually nothing left, and definitely nothing that could satisfy the requirements of a pension. Compounding is a hell of a force, and PPA 2006 didn't come into effect until too late. And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries.
    - toomuchtodo 7y ago
      > Public policy did account for it (ERISA and PPA), and provided for the PBGC to provide a limited backstop, although it's not possible to backstop so many failing pension plans due to erroneous investment return and population growth rate and mortality assumptions. Then public policy did not account for it. > And anytime you enter into a transaction with someone, you are subject to counterparty risk, even the government. The US is lucky it has more capacity to print its way out than most countries. Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so.
      - lotsofpulp 7y ago
        >Print dollars, transfer from the general fund, or have the Fed start buying up equities and using the cashflow to fund any necessary benefits payments (a somewhat more adventurous twist on the Bank of Japan's role in that country's economy). It's the government's job to be the guarantor of last resort, and they have the tools available to do so. This is already happening. Defined benefit pension funds and defined contribution pension funds (401k/IRAs) are all invested in the same place: the public stock market and real estate. That's why I think bailouts of public stock market values are basically guaranteed, as long as the US dollar remains relatively desirable. Individuals may or may not be bailed out, depending on their political power. As I mentioned in another comment, these pension recipients got bailed out because their members are important in elections: https://www.nytimes.com/2019/12/24/business/coal-miner-pensions-bailout.html https://www.nytimes.com/2019/12/24/business/coal-miner-pensi...

jagged-chisel 7y ago

How common are pensions these days? None of my employers have offered pensions, just a 401k. Current employer is over a century old; seems they got savvy to the pension liability long ago.

chrisseaton 7y ago
> None of my employers have offered pensions, just a 401k. A 401k is a pension isn't it? Just a defined-contribution pension instead of a defined-benefit pension. I get a pension at my large young tech company.
- Cymen 7y ago
  No, a 401k is not a pension. A pension guarantees a certain amount at specified dates while a 401k is a way of purchasing securities for you to manage your own retirement and is subject to the returns of your investment choices. In other words, a pension is a guarantee of future income in which the pension offerer is on the hook to ensure they have the funds to deliver the pension while the 401k pushes all that responsibility on to you. My wording is probably off on some of that so an article like this one is probably helpful to flesh out the details: https://www.fool.com/retirement/2018/06/13/whats-the-difference-between-a-pension-and-a-401k.aspx https://www.fool.com/retirement/2018/06/13/whats-the-differe...
  - deleted 7y ago
    [deleted]
  - chrisseaton 7y ago
    > A pension guarantees a certain amount at specified dates That's specifically a defined benefit pension - just one type of pension. There are many other types of pension. My pension is basically just a big saving account my employer and I both pay into - it's a defined contribution pension.
  - samatman 7y ago
    According to le Wik, IRAs and 401k plans are indeed defined-contribution pensions. https://en.wikipedia.org/wiki/Defined_contribution_plan#United_States https://en.wikipedia.org/wiki/Defined_contribution_plan#Unit...

Alex3917 7y ago

> Almost certainly taxpayers won't stomach paying for them, as happened in Detroit and smaller jurisdictions. I mean we've been dealing with this for thousands of years already. A pension is basically just a loan from an employee to an employer. Back when jews had a monopoly on money lending in Europe, every year the townspeople had to decide whether they were going to pay back their loans or just kill all the jews in their town, or at least take their land and send them elsewhere. Most years they just paid back their loans as agreed, but then every few decades when the debt service got too high things tended to go sideways. The basic issue is that even after thousands of years, we still haven't really figured out what's equitable in terms of how debt should work. C.f.: https://youtu.be/AX7vyycyRCs?t=2908 https://youtu.be/AX7vyycyRCs?t=2908

adamsea 7y ago
I feel to urge to add a little color to this statement. Let’s recall that, beyond whatever assertions the poster is making here, the countries in question didn’t allow Jewish people to practice other trades. “ The result of those occupational restrictions was to push Jews into marginal roles, considered socially inferior, such as tax and rent collecting and moneylending, which were tolerated as a "necessary evil".” https://en.m.wikipedia.org/wiki/Economic_antisemitism https://en.m.wikipedia.org/wiki/Economic_antisemitism But yeah our current system of debt - especially student debt - is messed up.

lotsofpulp 7y ago

Taxpayers don't have a choice, it all depends on how influential the defined benefit pension recipients are. Most don't have sway for a federal government bailout, but some do. Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections: https://www.nytimes.com/2019/12/24/business/coal-miner-pensions-bailout.html https://www.nytimes.com/2019/12/24/business/coal-miner-pensi...

ls612 7y ago
>Recent example is the coal miners in West Virginia, which coincidentally happens to be a swing state for the presidential elections ??? WV was R+40 in 2016, there's no way it's a swing state .
- lotsofpulp 7y ago
  Oops, my bad. They do have a Democrat senator, and they do have some pull with the current presidential administration, so they must have some way to leverage their political power. Perhaps it was a reward and incentive to continue for voting Republican. But the point is that whether or not you get bailed out depends on how much influence you have.

stefan_ 7y ago

As the number of actual taxpayers declines (which is why "pensions are going to cause enormous issues in the coming decades") politicians will happily take up more debt to pay for it all. You know, Medicare.

sambull 7y ago

This is why France is rioting right now.