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Edit: rant ahead, not aimed directly at bluedino I will never understand this. I agree life-time pensions are unsustainable. I argue constantly for a) all new

Edit: rant ahead, not aimed directly at bluedino I will never understand this. I agree life-time pensions are unsustainable. I argue constantly for a) all new public employees being enrolled in a 401k and pensions being phased out and b) offering younger workers buy-outs, allowing them to invest their contributions themselves in reward for opting out of the pension system. But that said - every pensioner out there worked for that pension. It was in their contract as an employee, a perk that often kept them in public service jobs, teaching your kids, putting out your fires, and so on. Every single person that argues for pulling the tablecloth out from under pensioners would be ferociously mad at the idea of any company canceling or reneging on a contract. To me, canceling or changing the pension of a retired (or soon to be retired) worker is the same as a bank deciding that you can't keep your house after all, even though you're not delinquent - it's just that the bank could use the value of your house, and breaking a contract is no big deal. Get off of the backs of pensioners - they put in their time, worked often for decades, contracted the promise of some security in retirement, but hey, we have a financial crisis, and suddenly they're freeloaders. Pretty much everything about pensions is broken and unsustainable, but that's not on the worker, that's on those that made the promise, and not keeping it is just the lowest form of horrible. Apologies for the rant. I accept the down voting I expect.

fidotron 12y ago
I would share this position. Montreal has a particularly bad case going on, where for a large part of the 90s it showed on the city employees payslips that they were making pension contributions, but in reality the city just kept the money and said they'd pay it later (a "pension holiday"), but never did. The pensions in question do happen to be unreasonably large, but that was the problem that should have been dealt with at the time and not just kicked down the road. The city now want to get out of paying, which is a ludicrous position, in the same way that expecting new employees to get such generous pensions is insane.
jordanb 12y ago
Why is a pension "unsustainable" and what's the difference between a pension and a 401k that makes the latter "sustainable"?
- tedunangst 12y ago
  Pensions were underfunded. If you underfund your own 401k, that's on you. The pensioned people were told they didn't need to save for retirement because they had a pension, and so many of them didn't.
- krakensden 12y ago
  401ks put the burden of investing wisely- and tightening your belt during recessions- on the pensioner and not the employer. This is bad in many ways, but, they are at least immune from the problem of crooked and moronic administrators investing in rare coins (http://en.wikipedia.org/wiki/Coingate_scandal http://en.wikipedia.org/wiki/Coingate_scandal) and sticking taxpayers with the fallout forever. It would be funnier if it wasn't so regular an occurrence.
- gred 12y ago
  People often criticize "defined benefit plans" like pensions, where the employee is guaranteed a certain pension payment by the employer. This guarantee means that the employer, rather than the the employee, takes on most of the market risk. Employees (via e.g. unions) often push for pension guarantees that are likely to exceed realistic market returns, further increasing risk to the employer (as has happened in many municipalities in the US). Politicians who are here today, gone in 20 years, are sometimes incentivized to provide expanded pension guarantees (to make employees happy today) without adjusting funding (to keep taxpayers happy today). Defined contribution plans like 401(k)s, which have become much more popular in the past 20 or 30 years, move the risk to the employee -- nobody is guaranteeing anything, and your fortunes move with the market. Obviously there are downsides, but one of the big upsides is that it keeps everyone honest by forcing employers to fund plans today as needed (e.g. 401(k) matching is not a hypothetical cost to be faced in 20 years, it's something that must be paid out today). http://en.wikipedia.org/wiki/Defined_benefit_pension_plan http://en.wikipedia.org/wiki/Defined_benefit_pension_plan http://en.wikipedia.org/wiki/Defined_contribution_plan http://en.wikipedia.org/wiki/Defined_contribution_plan
  - jordanb 12y ago
    This is a good definition of "pension" and "401k" but it doesn't explain why the former is unsustainable and the latter is sustainable. Why is it sustainable to shift all the risk of bad investment, mismanagement and unexpected longevity away from institutions and onto individual workers? Are workers in a better position to shoulder those risks than institutions are? Or are they in a better position to minimize the risks? Do they have better access to the investment market or greater ability to choose good and trustworthy managers? Are they in a better position to pool longevity risks?
pfisch 12y ago
I agree with you but I would like to point out that the US was basically founded on the idea of getting out of a bad contract instead of paying the money we owed. It has been spun in a lot of other ways because yay america, but really we didn't want to pay England back for financing the French and Indian War and for ongoing stationing of troops because of that conflict. So we didn't and that was that.
- fidotron 12y ago
  Not really. Had the colonists had better representation in parliament then the case for separation would have been non-existent, but as it stood even Burke, who famously opposed the French Revolution, thought they had a point.
  - pfisch 12y ago
    Most of the English population didn't even have representation in parliament. Its very convenient how this wasn't an issue until America owed England a huge amount of money. What about all previous import/export taxes up until the revolution?
- tedunangst 12y ago
  I think the U.S. was also founded on the idea that revolutions are exceptional events.
thrownaway2424 12y ago
The question is whether the pensioner provided enough benefit during their career to justify their pension. In a lot of cities the retirement benefits are completely out of proportion to the benefit provided by the government employee. The social contract works both ways. We're supposed to provide for the security of old people in retirement, but they were also supposed to leave a better future for young people. If the former people failed to uphold their end of the social contract -- and the retired government employees of Detroit have obviously failed completely in this regard -- then why should the current working-age people of Detroit be expected to hold their pensions as inviolable?
- sitharus 12y ago
  The problem with that is these people planned for what was promised to them. As a younger person in a skilled occupation, like most HNers I expect, I have no expectation on the state to provide for me and consequently have my own provisions for retirement savings. I've been placing a percentage of my income aside for a while now to fund me later in life. My grandparent's generation (in the UK) however were promised state pensions. They paid higher taxes than I currently do for this, secure in the knowledge that when they retired the state would cover them. They don't have any retirement savings. You can't just pull out the cover for these people, because they have no backup. They were told they'd be covered and they planned for that.
  - thrownaway2424 12y ago
    Right, like I said the promise goes both ways. The city or other authority offering the pension expects a certain amount of productivity out of the employee and in many cases the employees "pulled out the cover" on their city. In general I support the idea of defined-benefit retirement plans, and even to some extent the right of public employees to organize into unions, but when I think about the secretary at the local bureau who types one letter at a time on her computer, with a pencil eraser, because her fingernails are six inches long, or when I think about the bus drivers who can't be fired from the San Francisco MTA, even though they are convicted criminals who can't hold a commercial drivers' license, then my faith in public systems begins to erode. Goldbricking and loafing can only proliferate a certain amount before the ability of the city to pay for the promised pension is impaired. Your argument favors the idea of state or national pension systems, because they are large enough to average out the stupidity. With municipal systems you're virtually guaranteed to have a few cities unable to meet their promises.
rayiner 12y ago
Contracts aren't inviolate. When you contract with an entity to receive money in the future, you always take on the risk that the entity will discharge the obligation in bankruptcy. And people who have unsecured obligations, like pensioners, would normally be low on the totem pole in bankruptcy. Ultimately, there's an inter-generational conflict. Voter participation at the state and municipal level is low, and its not inaccurate to say that the pensioners voted themselves these unsustainable benefits, and also voted not to put money away to fund them. Why should our generation come along and pick up the difference?
- spdustin 12y ago
  Your comment excludes a large group of pensioners: those that retired from state-funded employment, such as teachers or other public service personnel. Their contract stipulates an ongoing obligation that the state has to them once they retire, and many states (all?) don't have the legal right (or the realistic ability) to discharge their debt to their pensioners in bankruptcy. No potential employee would consider their future pension a discharge-able debt, and thus, they would not realistically consider the loss of their pension to be a risk to be accepted. In other words, their in-kind exchange is: they work as instructed in return for immediate pay and a future obligation based on the time they worked. Disclosure: from Illinois, where many public service employees are getting the shaft. EDIT: additionally, teachers in Illinois expect to receive a benefit from the Teacher's Retirement System, and as such, they weren't contributing to federal social security programs. There has been an ongoing concern that the TRS funds will vanish and all those teachers would be without the usual post-retirement income that this country's social and taxation policies have all but guaranteed. Yeah, they are basically made to forego debt owed to them by the federal government in return for debt owed to them by a state government. The same state that brought you Rod Blagojevich, George Ryan and Dan Walker, prompting at least one person to suggest that they need to build a governor's wing at the prison.
  - rayiner 12y ago
    Most teachers are employed by municipalities, which are subdivisions of the state which can go bankrupt.
fargolime 12y ago
I gave you an upvote, but the problem with your logic is that today's young workers didn't agree to forgo their retirement to pay for the teachers' retirements. The teachers of yesteryear got sweetheart deals that should be strictly honored only by those who agreed to them as voters when the deals were made, and by younger workers only if they explicitly agree to them now.
- themartorana 12y ago
  It's an interesting argument, but the deal is with the state. That's like saying I never agreed to the laws that passed before I could vote, so they shouldn't apply to me. It's tough, though, I agree - who bears the brunt of the pain? At the same time, new workers can reject a contract's terms by not accepting a job. Old workers have no options.
  - fargolime 12y ago
    When the law takes away your retirement to provide a cushy retirement to the older generation, it shouldn't apply. Laws that are blatantly unfair to you, that you didn't agree to, shouldn't apply to you. Most pensioners would do fine on half their pension. After all, the ones their age who don't have a pension are surviving on one-fourth or less the amount. The pensioners could keep the condo but forgo the cruises.
deleted 12y ago
[deleted]

fidotron 12y ago

I would share this position. Montreal has a particularly bad case going on, where for a large part of the 90s it showed on the city employees payslips that they were making pension contributions, but in reality the city just kept the money and said they'd pay it later (a "pension holiday"), but never did. The pensions in question do happen to be unreasonably large, but that was the problem that should have been dealt with at the time and not just kicked down the road. The city now want to get out of paying, which is a ludicrous position, in the same way that expecting new employees to get such generous pensions is insane.

jordanb 12y ago

Why is a pension "unsustainable" and what's the difference between a pension and a 401k that makes the latter "sustainable"?

tedunangst 12y ago
Pensions were underfunded. If you underfund your own 401k, that's on you. The pensioned people were told they didn't need to save for retirement because they had a pension, and so many of them didn't.
krakensden 12y ago
401ks put the burden of investing wisely- and tightening your belt during recessions- on the pensioner and not the employer. This is bad in many ways, but, they are at least immune from the problem of crooked and moronic administrators investing in rare coins (http://en.wikipedia.org/wiki/Coingate_scandal http://en.wikipedia.org/wiki/Coingate_scandal) and sticking taxpayers with the fallout forever. It would be funnier if it wasn't so regular an occurrence.
gred 12y ago
People often criticize "defined benefit plans" like pensions, where the employee is guaranteed a certain pension payment by the employer. This guarantee means that the employer, rather than the the employee, takes on most of the market risk. Employees (via e.g. unions) often push for pension guarantees that are likely to exceed realistic market returns, further increasing risk to the employer (as has happened in many municipalities in the US). Politicians who are here today, gone in 20 years, are sometimes incentivized to provide expanded pension guarantees (to make employees happy today) without adjusting funding (to keep taxpayers happy today). Defined contribution plans like 401(k)s, which have become much more popular in the past 20 or 30 years, move the risk to the employee -- nobody is guaranteeing anything, and your fortunes move with the market. Obviously there are downsides, but one of the big upsides is that it keeps everyone honest by forcing employers to fund plans today as needed (e.g. 401(k) matching is not a hypothetical cost to be faced in 20 years, it's something that must be paid out today). http://en.wikipedia.org/wiki/Defined_benefit_pension_plan http://en.wikipedia.org/wiki/Defined_benefit_pension_plan http://en.wikipedia.org/wiki/Defined_contribution_plan http://en.wikipedia.org/wiki/Defined_contribution_plan
- jordanb 12y ago
  This is a good definition of "pension" and "401k" but it doesn't explain why the former is unsustainable and the latter is sustainable. Why is it sustainable to shift all the risk of bad investment, mismanagement and unexpected longevity away from institutions and onto individual workers? Are workers in a better position to shoulder those risks than institutions are? Or are they in a better position to minimize the risks? Do they have better access to the investment market or greater ability to choose good and trustworthy managers? Are they in a better position to pool longevity risks?

pfisch 12y ago

I agree with you but I would like to point out that the US was basically founded on the idea of getting out of a bad contract instead of paying the money we owed. It has been spun in a lot of other ways because yay america, but really we didn't want to pay England back for financing the French and Indian War and for ongoing stationing of troops because of that conflict. So we didn't and that was that.

fidotron 12y ago
Not really. Had the colonists had better representation in parliament then the case for separation would have been non-existent, but as it stood even Burke, who famously opposed the French Revolution, thought they had a point.
- pfisch 12y ago
  Most of the English population didn't even have representation in parliament. Its very convenient how this wasn't an issue until America owed England a huge amount of money. What about all previous import/export taxes up until the revolution?
tedunangst 12y ago
I think the U.S. was also founded on the idea that revolutions are exceptional events.

thrownaway2424 12y ago

The question is whether the pensioner provided enough benefit during their career to justify their pension. In a lot of cities the retirement benefits are completely out of proportion to the benefit provided by the government employee. The social contract works both ways. We're supposed to provide for the security of old people in retirement, but they were also supposed to leave a better future for young people. If the former people failed to uphold their end of the social contract -- and the retired government employees of Detroit have obviously failed completely in this regard -- then why should the current working-age people of Detroit be expected to hold their pensions as inviolable?

sitharus 12y ago
The problem with that is these people planned for what was promised to them. As a younger person in a skilled occupation, like most HNers I expect, I have no expectation on the state to provide for me and consequently have my own provisions for retirement savings. I've been placing a percentage of my income aside for a while now to fund me later in life. My grandparent's generation (in the UK) however were promised state pensions. They paid higher taxes than I currently do for this, secure in the knowledge that when they retired the state would cover them. They don't have any retirement savings. You can't just pull out the cover for these people, because they have no backup. They were told they'd be covered and they planned for that.
- thrownaway2424 12y ago
  Right, like I said the promise goes both ways. The city or other authority offering the pension expects a certain amount of productivity out of the employee and in many cases the employees "pulled out the cover" on their city. In general I support the idea of defined-benefit retirement plans, and even to some extent the right of public employees to organize into unions, but when I think about the secretary at the local bureau who types one letter at a time on her computer, with a pencil eraser, because her fingernails are six inches long, or when I think about the bus drivers who can't be fired from the San Francisco MTA, even though they are convicted criminals who can't hold a commercial drivers' license, then my faith in public systems begins to erode. Goldbricking and loafing can only proliferate a certain amount before the ability of the city to pay for the promised pension is impaired. Your argument favors the idea of state or national pension systems, because they are large enough to average out the stupidity. With municipal systems you're virtually guaranteed to have a few cities unable to meet their promises.

rayiner 12y ago

Contracts aren't inviolate. When you contract with an entity to receive money in the future, you always take on the risk that the entity will discharge the obligation in bankruptcy. And people who have unsecured obligations, like pensioners, would normally be low on the totem pole in bankruptcy. Ultimately, there's an inter-generational conflict. Voter participation at the state and municipal level is low, and its not inaccurate to say that the pensioners voted themselves these unsustainable benefits, and also voted not to put money away to fund them. Why should our generation come along and pick up the difference?

spdustin 12y ago
Your comment excludes a large group of pensioners: those that retired from state-funded employment, such as teachers or other public service personnel. Their contract stipulates an ongoing obligation that the state has to them once they retire, and many states (all?) don't have the legal right (or the realistic ability) to discharge their debt to their pensioners in bankruptcy. No potential employee would consider their future pension a discharge-able debt, and thus, they would not realistically consider the loss of their pension to be a risk to be accepted. In other words, their in-kind exchange is: they work as instructed in return for immediate pay and a future obligation based on the time they worked. Disclosure: from Illinois, where many public service employees are getting the shaft. EDIT: additionally, teachers in Illinois expect to receive a benefit from the Teacher's Retirement System, and as such, they weren't contributing to federal social security programs. There has been an ongoing concern that the TRS funds will vanish and all those teachers would be without the usual post-retirement income that this country's social and taxation policies have all but guaranteed. Yeah, they are basically made to forego debt owed to them by the federal government in return for debt owed to them by a state government. The same state that brought you Rod Blagojevich, George Ryan and Dan Walker, prompting at least one person to suggest that they need to build a governor's wing at the prison.
- rayiner 12y ago
  Most teachers are employed by municipalities, which are subdivisions of the state which can go bankrupt.

fargolime 12y ago

I gave you an upvote, but the problem with your logic is that today's young workers didn't agree to forgo their retirement to pay for the teachers' retirements. The teachers of yesteryear got sweetheart deals that should be strictly honored only by those who agreed to them as voters when the deals were made, and by younger workers only if they explicitly agree to them now.

themartorana 12y ago
It's an interesting argument, but the deal is with the state. That's like saying I never agreed to the laws that passed before I could vote, so they shouldn't apply to me. It's tough, though, I agree - who bears the brunt of the pain? At the same time, new workers can reject a contract's terms by not accepting a job. Old workers have no options.
- fargolime 12y ago
  When the law takes away your retirement to provide a cushy retirement to the older generation, it shouldn't apply. Laws that are blatantly unfair to you, that you didn't agree to, shouldn't apply to you. Most pensioners would do fine on half their pension. After all, the ones their age who don't have a pension are surviving on one-fourth or less the amount. The pensioners could keep the condo but forgo the cruises.

deleted 12y ago

[deleted]