[quote=harvey]I made my points on the other thread (before it degraded into name-calling by those who didn’t seem to have any actual counter-arguments.)
Here’s a summary:
– Any long-term obligation made by managers/politicians is fraught with peril, and history has proven this. Pension contracts make commitments that must be met anywhere from 10-60 years in the future. Anything that is promised that far in the future by someone who isn’t accountable for honoring it is going to have a tendency to be overgenerous or generally prone to corruption.
– Think about how a pension works: You make promise to pay someone a yet-to-be-determined amount in retirement when they start working (say age 25) The exact amount of the obligation isn’t typically determined until the final years of their employment (30 years later), and the money isn’t completely paid out for decades after that. There’s a lot of hard math and guesswork involved, and plenty of incentives to cheat along the way for short-term gain. If anything goes wrong – a miscalculation, an overly-generous agreement, etc. in the decades-long process, the whole thing can collapse. It’s just too brittle a system.
– The reason private-sector pensions are going away is because shareholders have become wise to the issues described the prior points, and accounting changes have made it is harder to hide the obligations on the financial statements. Basically the market has spoken. Government has been able to get away with hiding pension costs longer because taxpayers don’t scrutinize the books as much as investors do.
– Military pensions are also a growing problem as life expectancies increase, but we don’t see the impact because it just gets piled on with the national debt that will be monetized away eventually. Plus “half-pay” doesn’t sound very generous – if you do the math you see that it can be though. But the public doesn’t do the math. Of course military pensions are also political land-mines, as no one dares question military pay.[/quote]
Great summary of the underlying factors explaining how pensions have become such a time-bomb for our financial future. Workers under 40 should be especially upset.
