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Maybe all cities and states should have to do this? We have a massive pension crisis in the US. Many cities and states are not even 50% funded. It’s a looming d

by cwhiz 6y ago

Maybe all cities and states should have to do this? We have a massive pension crisis in the US. Many cities and states are not even 50% funded. It’s a looming disaster.

x86_64Ubuntu 6y ago
Do you not see what it's going to do with the USPS? Why would you want it done with cities and states, unless your goal is to privatize entire cities and states.
- Tyrek 6y ago
  The argument here is that it's all shell games otherwise if the money isn't set aside - e.g. look at the broader trend with social security's solvency. With the way public funding has trended, it would not surprise me if any unfunded programs simply ran out of cash at some point. There isn't an easy answer to balance the needs of existing liabilities (pension commitments) with financial operations - the problem with the USPS was (I believe) the catch-up funding required to meet funding requirements, and not the actual funding itself.
  - jschwartzi 6y ago
    Social Security is insolvent because congress keeps borrowing from the trust fund that we pay into to cover obligations in the general budget. It has nothing to do with shell games. Fundamentally the problem is that the congressional budgets are stealing money from my generation and then blaming the Social Security Administration for mismanaging the trust fund.
- RHSeeger 6y ago
  If you're going to offer a pension, a guaranteed amount of money in the future, then you should be making sure you can pay it; guaranteed. If making sure you can keep that promise is too burdensome, then you should not be making that promise.
  - criley2 6y ago
    It's absurd to say this and honestly I don't know how anyone who understands the scale of the numbers here and the impact these programs have on society could think this. Pensions are funded by the next generation, just like Social Security and Welfare. You pay for the previous generation in exchange for the next generation paying for you. Without this kind of offset, you end up with as much as 10-15% of your population as indigent elderly, homeless and starving, who become MAJOR financial burdens on their children (and I mean MAJOR -- ask someone from China or a similar country about it) or who become homeless or die. It's unfeasible to set aside the money all at once, and in fact hoovering that much money out of the economy and into investments would have a noticable effect on the economy. You're basically suggesting something outrageous like 5% of GDP stop being transfer payments to poor people who spend it immediately and start being investments into government treasuries and corporate bonds.
    - jasonpbecker 6y ago
      Actually, pensions are paid for by returns to investing funds, not the next generation-- at least that was the idea. The problem is that: 1. Governments don't put even the actuarially required amounts into pension funds that assume 7-9% rates of return on fund investments. 2. Governments have been slow to adjust their expectations on returns, since 7-9% is far less achievable than it was in the 80s and 90s when interest rates were much higher. Permanent low interest rates, economic downturns, and underfunding pension funds together have created an untenable environment. The cash isn't there in many municipal and state pension funds, and earning that much in returns is laughably difficult or requires an inordinate amount of payments now. Now, it's absolutely true that the USPS is being held to a ridiculous and overcorrected standard in this case. But it's not the case that our current pension obligations, in many of these local and state retirement funds, can be paid for through current employee cash receipts.
    - cwhiz 6y ago
      It's ironic that you cite social security, which is a giant unfunded liability. Pensions don't actually have to be funded by the next generation. That's just the asinine way we have it set up here in the US. It relies on a never ending baby boom and economic expansion. Surprise surprise, it doesn't really work all that well. Hence social security funded at 70% and many city and state pensions funded at less than 50%. What we should actually be doing is pay as you go. You pay into the pension and you get out what you paid, plus growth. We could have switched to this model at any point over the last 70 years if American society wasn't so addicted to endlessly kicking shit down the road and punting on problems.
- cwhiz 6y ago
  Would you rather have bankrupt cities and states? Because that is where we are headed and we are stomping on the accelerator just as fast as we can.
- NovemberWhiskey 6y ago
  I'd like to see constructive alternative proposals. Today, many cities and states have underfunded pensions following a continually worsening trajectory. The scale is enormous. Please take a read about the state of public pensions in Illinois, for example.
- SilasX 6y ago
  If you're not profitable while funding pensions at their present discounted value, you're not profitable to begin with, and this requirement only revealed it.
  - jschwartzi 6y ago
    Regardless of what their pension obligations are, shouldn't the financial stance be determined by actual financial planners instead of the US congress? That's what everyone else in the world does if they need to plan for a future payout. They pay someone to do the math. In this case Congress made the decision, and I suspect for politically motivated reasons.
    - SilasX 6y ago
      In the same real world, every other corporation is required to set aside the present discounted value of promised pensions. We learned our lesson from the GMs and Bethlehem Steels of the world.
- jcranmer 6y ago
  It turns out there's a difference in the way the private sector and the public sector account for pensions. In the private sector, if your actuarial numbers tell you that the pension is going to ultimately cost $1 million, then you have to have $1 million in the bank right now to fully fund it. But for public sector accounting, you can figure that the magic market money tree is going to top you up by 7% each year and so you'd only need, say, $800k right now to "fully fund" that same $1 million pension. The "onerous" USPS pension obligations is really forcing the USPS to fully fund the pension according to private sector accounting. [1] This explains a lot about pensions. First, having to have the entire pension cash value up front makes pensions extraordinarily expensive: giving someone a $1k pay raise puts you over $20k out-of-pocket for that pension. Consequently, the private sector abandoned pensions because they were unaffordable. The other observation is that, because almost all public pension funds have assumed unrealistically high growth rates, so consequently their funding rates have consistently slipped. The truth of the matter is that virtually all public-sector pensions are in exactly the same boat as USPS's pension is. It's just that the governments are more effective at sweeping their pension issues under the rug, while they have forced the USPS to have its pension issue sit in broad daylight. We should be pushing to force the same reckoning on cities and states sooner rather than letting things deteriorate while thinking we'll magically make up lost ground in the next decade. [1] Edit: As an addendum, the USPS is specific required to 100% fund its pension benefit. This 100% funding requirement is actually legally unique, although a decent portion of the private sector does seek to do so.
  - triceratops 6y ago
    > Consequently, the private sector abandoned pensions because they were unaffordable. So a pay cut by another name? Because even if pensions aren't available, individuals still need money to retire on
    - jcranmer 6y ago
      I'm not sure. In a traditional pension scheme, the company kicks money into the pension fund, and this kick of money plus the internal investment income of the fund provides the assets to cover the liability. In modern 401k schemes, the company kicks some money (in addition to the employee kicking money) into the 401k to generate the internal investment income to cover the liability. It would be a pay cut if the modern salary plus employer match were less than the prior salary plus employer contribution to the pension fund. I do not know if this is the case (especially when you maximize the match). I also do not know to what degree companies were underfunding the pensions in the past. My suspicion is that the upper-middle-class who maximize employer match are no worse off, perhaps better off, but that the median employee is worse off.
thephyber 6y ago
City and state pension managers only need to change their stupid formulas to account for actual risk and variance in annual returns -- not some mythical 8% annual no matter how good or bad the economy does. Yes, some cities have been underfunding even the contribution amount and they should be held to account. But the claims of unfunded liabilities are far overstated. The worst of them assumes that you have to have the pension fully funded for a new employee on the day they start working which is ridiculous in any business.

by cwhiz 6y ago

Maybe all cities and states should have to do this? We have a massive pension crisis in the US. Many cities and states are not even 50% funded. It’s a looming disaster.

x86_64Ubuntu 6y ago

Do you not see what it's going to do with the USPS? Why would you want it done with cities and states, unless your goal is to privatize entire cities and states.

Tyrek 6y ago
The argument here is that it's all shell games otherwise if the money isn't set aside - e.g. look at the broader trend with social security's solvency. With the way public funding has trended, it would not surprise me if any unfunded programs simply ran out of cash at some point. There isn't an easy answer to balance the needs of existing liabilities (pension commitments) with financial operations - the problem with the USPS was (I believe) the catch-up funding required to meet funding requirements, and not the actual funding itself.
- jschwartzi 6y ago
  Social Security is insolvent because congress keeps borrowing from the trust fund that we pay into to cover obligations in the general budget. It has nothing to do with shell games. Fundamentally the problem is that the congressional budgets are stealing money from my generation and then blaming the Social Security Administration for mismanaging the trust fund.
RHSeeger 6y ago
If you're going to offer a pension, a guaranteed amount of money in the future, then you should be making sure you can pay it; guaranteed. If making sure you can keep that promise is too burdensome, then you should not be making that promise.
- criley2 6y ago
  It's absurd to say this and honestly I don't know how anyone who understands the scale of the numbers here and the impact these programs have on society could think this. Pensions are funded by the next generation, just like Social Security and Welfare. You pay for the previous generation in exchange for the next generation paying for you. Without this kind of offset, you end up with as much as 10-15% of your population as indigent elderly, homeless and starving, who become MAJOR financial burdens on their children (and I mean MAJOR -- ask someone from China or a similar country about it) or who become homeless or die. It's unfeasible to set aside the money all at once, and in fact hoovering that much money out of the economy and into investments would have a noticable effect on the economy. You're basically suggesting something outrageous like 5% of GDP stop being transfer payments to poor people who spend it immediately and start being investments into government treasuries and corporate bonds.
  - jasonpbecker 6y ago
    Actually, pensions are paid for by returns to investing funds, not the next generation-- at least that was the idea. The problem is that: 1. Governments don't put even the actuarially required amounts into pension funds that assume 7-9% rates of return on fund investments. 2. Governments have been slow to adjust their expectations on returns, since 7-9% is far less achievable than it was in the 80s and 90s when interest rates were much higher. Permanent low interest rates, economic downturns, and underfunding pension funds together have created an untenable environment. The cash isn't there in many municipal and state pension funds, and earning that much in returns is laughably difficult or requires an inordinate amount of payments now. Now, it's absolutely true that the USPS is being held to a ridiculous and overcorrected standard in this case. But it's not the case that our current pension obligations, in many of these local and state retirement funds, can be paid for through current employee cash receipts.
  - cwhiz 6y ago
    It's ironic that you cite social security, which is a giant unfunded liability. Pensions don't actually have to be funded by the next generation. That's just the asinine way we have it set up here in the US. It relies on a never ending baby boom and economic expansion. Surprise surprise, it doesn't really work all that well. Hence social security funded at 70% and many city and state pensions funded at less than 50%. What we should actually be doing is pay as you go. You pay into the pension and you get out what you paid, plus growth. We could have switched to this model at any point over the last 70 years if American society wasn't so addicted to endlessly kicking shit down the road and punting on problems.
cwhiz 6y ago
Would you rather have bankrupt cities and states? Because that is where we are headed and we are stomping on the accelerator just as fast as we can.
NovemberWhiskey 6y ago
I'd like to see constructive alternative proposals. Today, many cities and states have underfunded pensions following a continually worsening trajectory. The scale is enormous. Please take a read about the state of public pensions in Illinois, for example.
SilasX 6y ago
If you're not profitable while funding pensions at their present discounted value, you're not profitable to begin with, and this requirement only revealed it.
- jschwartzi 6y ago
  Regardless of what their pension obligations are, shouldn't the financial stance be determined by actual financial planners instead of the US congress? That's what everyone else in the world does if they need to plan for a future payout. They pay someone to do the math. In this case Congress made the decision, and I suspect for politically motivated reasons.
  - SilasX 6y ago
    In the same real world, every other corporation is required to set aside the present discounted value of promised pensions. We learned our lesson from the GMs and Bethlehem Steels of the world.
jcranmer 6y ago
It turns out there's a difference in the way the private sector and the public sector account for pensions. In the private sector, if your actuarial numbers tell you that the pension is going to ultimately cost $1 million, then you have to have $1 million in the bank right now to fully fund it. But for public sector accounting, you can figure that the magic market money tree is going to top you up by 7% each year and so you'd only need, say, $800k right now to "fully fund" that same $1 million pension. The "onerous" USPS pension obligations is really forcing the USPS to fully fund the pension according to private sector accounting. [1] This explains a lot about pensions. First, having to have the entire pension cash value up front makes pensions extraordinarily expensive: giving someone a $1k pay raise puts you over $20k out-of-pocket for that pension. Consequently, the private sector abandoned pensions because they were unaffordable. The other observation is that, because almost all public pension funds have assumed unrealistically high growth rates, so consequently their funding rates have consistently slipped. The truth of the matter is that virtually all public-sector pensions are in exactly the same boat as USPS's pension is. It's just that the governments are more effective at sweeping their pension issues under the rug, while they have forced the USPS to have its pension issue sit in broad daylight. We should be pushing to force the same reckoning on cities and states sooner rather than letting things deteriorate while thinking we'll magically make up lost ground in the next decade. [1] Edit: As an addendum, the USPS is specific required to 100% fund its pension benefit. This 100% funding requirement is actually legally unique, although a decent portion of the private sector does seek to do so.
- triceratops 6y ago
  > Consequently, the private sector abandoned pensions because they were unaffordable. So a pay cut by another name? Because even if pensions aren't available, individuals still need money to retire on
  - jcranmer 6y ago
    I'm not sure. In a traditional pension scheme, the company kicks money into the pension fund, and this kick of money plus the internal investment income of the fund provides the assets to cover the liability. In modern 401k schemes, the company kicks some money (in addition to the employee kicking money) into the 401k to generate the internal investment income to cover the liability. It would be a pay cut if the modern salary plus employer match were less than the prior salary plus employer contribution to the pension fund. I do not know if this is the case (especially when you maximize the match). I also do not know to what degree companies were underfunding the pensions in the past. My suspicion is that the upper-middle-class who maximize employer match are no worse off, perhaps better off, but that the median employee is worse off.

thephyber 6y ago

City and state pension managers only need to change their stupid formulas to account for actual risk and variance in annual returns -- not some mythical 8% annual no matter how good or bad the economy does. Yes, some cities have been underfunding even the contribution amount and they should be held to account. But the claims of unfunded liabilities are far overstated. The worst of them assumes that you have to have the pension fully funded for a new employee on the day they start working which is ridiculous in any business.