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I understand now. The issue basically comes down to pensions not being pre-funded, right? Although one could argue that by paying a substantially lower salary t

by notJim 6y ago

I understand now. The issue basically comes down to pensions not being pre-funded, right? Although one could argue that by paying a substantially lower salary than the private sector, they are sort of funding the plan by saving money now. It seems the real answer to this would be to have a more generous version of social security at the federal level. And the interim answer is to switch to defined contribution pension plans at the local level, I suppose. Though one thing I don't understand is how governments plan to attract workers when they pay substandard salaries and don't even offer very generous benefits anymore. I was looking at government jobs with the city here (which has a defined contribution pension pretty similar to a 401k), and across the board it was so much worse than any private sector job I've worked.

lotsofpulp 6y ago
Sort of. I would say the issue comes down to it being humans being limited in how much of their wealth they want to share with others, and so will jump on many opportunities to hoard for themselves, especially if the victim is faceless and nameless such as future taxpayers. All blessed with plausible deniability from actuarial calculations. I don't see how it could have played out any other way. Politician A offering low taxes and high services by skimping on saving for future benefits is 100% going to win versus politician B offering high taxes and a fiscally responsible government. And it still plays out that way, until the system reaches a nadir, and it is forced to change, such as Puerto Rico or some of the other aforementioned cities and states. Government should offer people competitive pay, and the idea of it being okay for government jobs to offer less pay in exchange for more stability and retirement benefits should go the way of the dodo, as we can see it just results in long term pain.
- _RPL5_ 6y ago
  > I don't see how it could have played out any other way. I suppose we are getting technical here, but at some point someone working for these governments (an actual person with a calculator) has had to sit down and do the math to figure out how much money needs to be set aside in order to achieve the advertised pension payout. Who is that "person" in most cases, and why was their math so off? The math must have been very optimistic on the ability of the pension funds to compound wealth. And so the facetious answer to your remark would be "things would have played out much better for these governments if the person doing the math was more realistic about expected returns." Not sure how realistic that goal is in itself.
  - lotsofpulp 6y ago
    The people that figure out how much money needs to be set aside this year to pay for the defined pension benefit accrued this year are called actuaries. However, the people that sit on the board of the taxpayer funded pension plans are politicians and senior government employee union officials. So the actuary that gives them the result they want is the actuary that gets hired. These are all guesses based on assumptions, of course, and no one knows the future 5, 10, 20, 30+ years from now. But as an idea of how corrupted taxpayer funded pensions are, the US government requires all non taxpayer funded pensions to calculate the liabilities using yields from highly rated corporate bonds, i.e. a conservative, safe investment class. However, the US government exempted taxpayer funded pensions from any oversight, and so they can use whatever discount rate they want. For example, private companies have to use ~4% for their discount rate, whereas governments use ~8%+ for their discount rate. But that's just small pickles. The big problem is there is no enforcement of even the liberal actuarial recommendations that the pension fund pays for. IL/NJ/CT/and other trouble governments simply skip contributions, i.e. don't set any money aside for the future, and that's the main reason they are in this situation. A decade or two ago, the senior union officials on the pension board didn't care about the skipped contribution payments to make a sufficiently big deal out of it, since they were going to get paid in the short term anyway. And they negotiated ridiculous pension benefits which are never seen in the private sector, such as final average pay formulas. A typical pension formula is years of service * 1% * salary over 30 years (with a cap). That's referred to as a 1% plan, some companies might do 2%, maybe even 3%. But in the government, you have formulas like years of service3%final average pay for the last year, or 3 years, or 5 years. That is why you see cops and firefighters working 100 hours a week when they're about to retire in their 40s and 50s, so they can secure $100k+ per year defined benefit pensions. You would NEVER see that in the private sector, as that's a laughably unaffordable benefit. On top of which, police and firefighters in some lavish plans get to retire in 20 years, so if they start at 18 to 22, they're retiring at 38 to 42, and getting paid $100k per year for 40+ years. That's an annuity worth millions of dollars.

by notJim 6y ago

lotsofpulp 6y ago

Sort of. I would say the issue comes down to it being humans being limited in how much of their wealth they want to share with others, and so will jump on many opportunities to hoard for themselves, especially if the victim is faceless and nameless such as future taxpayers. All blessed with plausible deniability from actuarial calculations. I don't see how it could have played out any other way. Politician A offering low taxes and high services by skimping on saving for future benefits is 100% going to win versus politician B offering high taxes and a fiscally responsible government. And it still plays out that way, until the system reaches a nadir, and it is forced to change, such as Puerto Rico or some of the other aforementioned cities and states. Government should offer people competitive pay, and the idea of it being okay for government jobs to offer less pay in exchange for more stability and retirement benefits should go the way of the dodo, as we can see it just results in long term pain.

_RPL5_ 6y ago
> I don't see how it could have played out any other way. I suppose we are getting technical here, but at some point someone working for these governments (an actual person with a calculator) has had to sit down and do the math to figure out how much money needs to be set aside in order to achieve the advertised pension payout. Who is that "person" in most cases, and why was their math so off? The math must have been very optimistic on the ability of the pension funds to compound wealth. And so the facetious answer to your remark would be "things would have played out much better for these governments if the person doing the math was more realistic about expected returns." Not sure how realistic that goal is in itself.
- lotsofpulp 6y ago
  The people that figure out how much money needs to be set aside this year to pay for the defined pension benefit accrued this year are called actuaries. However, the people that sit on the board of the taxpayer funded pension plans are politicians and senior government employee union officials. So the actuary that gives them the result they want is the actuary that gets hired. These are all guesses based on assumptions, of course, and no one knows the future 5, 10, 20, 30+ years from now. But as an idea of how corrupted taxpayer funded pensions are, the US government requires all non taxpayer funded pensions to calculate the liabilities using yields from highly rated corporate bonds, i.e. a conservative, safe investment class. However, the US government exempted taxpayer funded pensions from any oversight, and so they can use whatever discount rate they want. For example, private companies have to use ~4% for their discount rate, whereas governments use ~8%+ for their discount rate. But that's just small pickles. The big problem is there is no enforcement of even the liberal actuarial recommendations that the pension fund pays for. IL/NJ/CT/and other trouble governments simply skip contributions, i.e. don't set any money aside for the future, and that's the main reason they are in this situation. A decade or two ago, the senior union officials on the pension board didn't care about the skipped contribution payments to make a sufficiently big deal out of it, since they were going to get paid in the short term anyway. And they negotiated ridiculous pension benefits which are never seen in the private sector, such as final average pay formulas. A typical pension formula is years of service * 1% * salary over 30 years (with a cap). That's referred to as a 1% plan, some companies might do 2%, maybe even 3%. But in the government, you have formulas like years of service3%final average pay for the last year, or 3 years, or 5 years. That is why you see cops and firefighters working 100 hours a week when they're about to retire in their 40s and 50s, so they can secure $100k+ per year defined benefit pensions. You would NEVER see that in the private sector, as that's a laughably unaffordable benefit. On top of which, police and firefighters in some lavish plans get to retire in 20 years, so if they start at 18 to 22, they're retiring at 38 to 42, and getting paid $100k per year for 40+ years. That's an annuity worth millions of dollars.