In this long-running debate about whether public pension plans will bankrupt us or not, there is one decisive data-point. The government-run pension plans assume a rate of return of near 8% for the indefinite future, while the private sector pension plans assume a rate of about 4%.
The pension plans constructed and run by politicians is keeping present taxpayer and employee contributions low because they want to avoid the pain that being honest would entail. The private sector, company-run plans are forced by their auditors and actuaries to be honest and assume a 4% rate of going into the future. The politicians know they will not be around in a few years, and want to look good only for the next election. The private sector companies have to consider their long-run survival prospects, and they act accordingly.
If the public sector were forced to be as honest as the private sector, many California cities and counties would instantly be bankrupt. As it is, public sector pensions are already squeezing budgets for schools, parks, libraries, etc. across the state, and it is soon to get much worse, all because of the pension promises politicians made.
