Forum Post: Public Pensions - good? Bad?
Posted 13 years ago on Oct. 24, 2011, 9:09 a.m. EST by armchairecon
(138)
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Heres an eye opening article by michael lewis (author of blind side, moneyball, liars poker) on public pensions..
http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111#gotopage1
I agree, public pensions have gotten absurd considering that public salaries have far out paced private wages and salaries. A failing private economy like the one in this increasingly sad country cannot afford the present public pension systems. I wish it was other wise. But, that said blaming those folks who have them is wrong. They merely played by the rules available to them. Going forward though it's simply not sustainable in many places anymore.
Public Pensions are generally good. You can always find the egregious examples and try to pretend that they represent the whole, but in general they are working.
Putting the egregious examples aside, it isnt the 5 people in 5000, but the summation of those 5000 people that are bankrupting municipalities.
It isn't to say that these people arent owe'd what is due to them, but how does a municipality fullfill its pension obligations while servicing the current residents?
One alternative is to recind contractual obligations (likely via bankruptcy), the other is to cut services or raise taxes, that is politically dangerous (not that that should matter).. but risks residents leaving and further reducing the existing tax base compounding problems.
Most public pensions are on sound financial footing and are not bankrupting municipalities. Ask an actuary.
the same ones who projected a 8% return on assets in perpituity to cover obligations?
Each pension plan uses it's own assumptions. Ask an actuary.
You mean the same actuaries who continually recommend that most of these large plans lower their return assumptions but they don't because that would require huge near-term contributions by the state and taxpayers? lol
As a quick example, the 2010 actuarial evaluation of the CalSTRS fund:
"Our findings indicate that, as of June 30, 2009, the future revenue from contributions and appropriations for the DB Program is not expected to be sufficient to finance its obligations. This is consistent with our projections in all of the Actuarial Valuations since 2003, although the deficit is significantly greater this year. The projected revenue shortfall is due primarily to investment return experience over the last decade that was significantly less than the long-term actuarial assumption of 8% per year. Based on the current DB Program assets, current revenues, and all future experience emerging as assumed, the Unfunded Actuarial Obligation will not be amortized over any future period."
http://www.calstrs.com/help/forms_publications/printed/FY08-09_DB_Valuation.pdf
Wait until the new GASB requirements hit in 2013 and state and local governments have to move all of this to their balance sheets instead of burying it.
CalSTRS is one of many pension plans. It is not accurate to try to use any one pension plan as an example for all pension plans. Ask an actuary.
I am hopeful that all pension plans succeed and that we should do what we can to help them succeed. It seems to me that there are some negaholics out there who are bent on destroying pensions. The destruction of pensions will hurt the 99%.
Yeah, it's one of the largest. Along with CalPers, UC, and many others where the same same applies and which generally are in better shape than many of the smaller plans which haven't been funded as well. YOU are the one who needs to look at the actuarial reports versus just making ridiculous generic statements like "Ask an actuary" over and over. They've been asked. They've said over and over that there are huge problems. Note above in the case of CalSTRS they've been saying so since 2003 and it's just gotten worse.
Being "hopeful" doesn't help. A 1/4 point difference in return for a single large plan like that = $100,000,000s of shortfalls that have to be made up by taxpayers. You, like most local politicians, sticking your head in the sand and avoiding the issue won't make that any better and that will be the real cause of the destruction of such plans.
Again, each plan is different. Talk to an actuary.
And, again, most are in just as bad if not worse shape. How many examples of plans in trouble would you like for me to post?
You should follow your own advice and "Talk to an actuary" lol
What is your evidence of that statement, most are in just as bad if not far worse shape?
If anything, this is further evidence of the influence that special interest groups have on our economy and our legislation. For instance, in the state of NY where I live public sector pensions are not subject to state or city income tax regardless of how large that pension may be while private sector pensions are taxed.
that is like taxing blacks but not whites or women but not men.
You forgot the more likely scenario - avoid the issue until it's a crisis and then bail out the plans using taxpayer money. It's already started and will only get worse. There are some huge plans out there that have massive unfunded liabilities and are not even close to making the returns that they need in order to pay their obligations. At this point they'll never make up the shortages on their own. CalSTRS alone, for example, is ~$56 billion short and will require ~$4 billion/year to cover.
I agree. I wonder what the people of OWS think about this?
At one time; a comfortable public pension at a relatively early age was the trade off for lower wages over the course of one’s career. That is no longer the case, as public salaries have far surpassed private sector salaries in many fields. In NYC, for instance, a garbageman with five years on the job makes approximately $100,000 a year on average ($67,141 base salary after 51/2 years plus OT) and can begin collecting a state and city tax fee pension of 50% of his three highest years earnings (including OT) after only twenty years on the job. A teacher can retire at 55 in NYC (ten years earlier than most private sector workers) and collect a similar deal (bear in mind that top salary for public school teachers in NYC is $104,000 and this salary is not based on merit but primarily on years in the system). It is easy to see how a huge unfunded liability is being created by elected officials in the pockets of special interests which may be thrown squarely on the backs of the citizenry who had no say in these matters as no contract or preferential legislation was ever put to a public vote.