Home › Forums › Financial Markets/Economics › Another excellent Economist Mag article on the terrible state pension issues
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Leorocky.
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June 16, 2013 at 6:57 PM #20679June 16, 2013 at 9:16 PM #762844
Allan from Fallbrook
ParticipantI don’t remember where I saw the article, but it had to do with changes in accounting regs that were going to make various states’ pension woes even worse, due to a more realistic approach to investing assumptions and rates of return.
California was accorded significant mention, as our unfunded liabilities were going to skyrocket even further.
Very sobering read.
June 17, 2013 at 3:07 AM #762856CA renter
Participant[quote=ctr70]http://www.economist.com/news/leaders/21579463-states-cannot-pretend-be-good-financial-health-unless-they-tackle-pensions-ruinous-promises
Some excerpts:
-slight of hand accounting hides the gravity of the current pension problems from the public
-taxpayers will have to make up the short fall if pensions don’t achieve their fairy tale expected return
-if costs are not cut, the eventual result will be a huge rise in taxes when pension funds run out of money
-the burden of paying for these pensions though higher taxes will fall on private sector employees who don’t qualify for such a gilded retirement package
-“spiking” of pensions in final year had to end & renegotiations have to happen[/quote]
1. Costs have already been cut. Employees will be making up the shortfall as well, and they’ve already been paying more into their retirement systems over the past few years. Gov. Brown’s reforms significantly increased the amount some employees will pay, while others have already increased the amounts via contract negotiations over the past few years.
2. The way these costs work, the taxpayers may or may not be spending any additional amounts. If pension contribution costs increase, it’s going to fall on the employees, too. If the employer’s side goes up, they might offset those costs with pay or other benefit reductions.
Again, “taxpayers” (and every public employee is a taxpayer who is paying at least as much as everyone else, especially since they are W-2), DO NOT pay the pension benefits to these retirees. The benefits are paid entirely from the retirement funds, and those funds are funded primarily by investment returns, employee contributions, and employer contributions. The “taxpayer” costs come from the employer contribution side for current employees, but those costs can be offset by other reductions.
3. The “fairy tale” expected return is the same return rate quoted by almost every single financial advisor out there when they tell you how much you can earn on your money. Historically speaking (and I do understand the danger in that), the current return assumptions are low.
4. Those “private sector” employees who no longer have DB pensions are SOLELY responsible for their problems. These idiots are the ones who bought into the lies that “unions are bad,” and that importing junk from China and other low-wage countries, and “trickle-down economics” would make them better off. They’ve refused to stand up for their rights, so don’t expect those who have done so to feel sorry for them. If they want to log complaints, take it to their capitalist/corporatist masters whose compensation and profit margins have been skyrocketing as the workers’ have been losing purchasing power and political power over the past few decades. You get what you ask for. If you don’t like how you’ve been treated by these capitalist parasites, fight back.
5. Yes, pension spiking needs to end, and Gov. Brown’s reforms have effectively put an end to this abuse. I still think there is more work to do (like tying the pension formula to average annual base earnings over one’s working career vs. highest/last 3 years), but at least they have put a lot more effort into eliminating the worst problems.
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And the #1 way to fix the pension problems in California? Repeal Prop 13 for every property except for a single primary residence. Taxpayers are subsidizing the profits of all landlords (from SFHs to large apartment complexes), land owners (think Pardee), and commercial/industrial building owners who are paying below-market taxes. This is far worse than any “pension crisis,” especially when you consider the fact that ~50% of the housing units in California are rentals.
June 17, 2013 at 6:18 AM #762857The-Shoveler
ParticipantDon’t know about other cities and state pensions but the city of Los Angeles pensions are completely impossible to pay IMO.
With the most rosiest projections they are about 3 times the cities total annual revenue in defect.
If you use a more realistic investment return rate, the figure is probably nearer 8 times the total annual revenue.http://www.reuters.com/article/2013/05/17/us-usa-election-losangeles-idUSBRE94G0A420130517
They better hope there is not another housing crash, that would about end it.
June 17, 2013 at 9:27 AM #762862livinincali
ParticipantThere’s a significant number of pensions that will not be paid in full because the math just doesn’t work out. Current promises will be broken one way or another, the biggest question is how. I suppose if I’m in line to receive one of these pensions I defend it as best as I can, but if you see the writing on the wall maybe it’s time to figure out what acceptable losses you’re willing to take now.
The way it’s headed right now is there’s a day coming where the pensioner’s checks are going to bounce. At that point it will be too late to do anything. We’ll run through the various court systems but massive tax increases on the majority will fail. Even if the pensioners successfully argue most of the cities budget should go to pensioners rather than current employees providing services the citizens paying those taxes aren’t going to stay in a city where they get no services for those taxes.
If your a public sector employee would you rather know now that your pension isn’t going to get paid in full. Would you rather start planing for a retirement that isn’t going to include 60-70% of your highest salary for life or do you want to be surprised one day in the not too distant future. I honestly don’t see the scenario where you end up being the winners at the expense of everyone else. Our leaders committed fraud in that they made promises that were impossible to fulfill.
June 17, 2013 at 10:40 AM #762866dumbrenter
Participant[quote=CA renter]
And the #1 way to fix the pension problems in California? Repeal Prop 13 for every property except for a single primary residence. Taxpayers are subsidizing the profits of all landlords (from SFHs to large apartment complexes), land owners (think Pardee), and commercial/industrial building owners who are paying below-market taxes. This is far worse than any “pension crisis,” especially when you consider the fact that ~50% of the housing units in California are rentals.[/quote]Your fix will have a nasty side-effect of rents going up drastically.
If I am not mistaken, the Prop 13 can only be repealed by another ballot measure and I do not see that happening.June 17, 2013 at 12:23 PM #762875SK in CV
Participant[quote=dumbrenter]Your fix will have a nasty side-effect of rents going up drastically.
[/quote]Why? How?
June 17, 2013 at 12:50 PM #762876Participant[quote=SK in CV][quote=dumbrenter]Your fix will have a nasty side-effect of rents going up drastically.
[/quote]Why? How?[/quote]
The increase in property taxes will be passed on to the renters.
June 17, 2013 at 12:53 PM #762877Participant[quote=dumbrenter][quote=SK in CV][quote=dumbrenter]Your fix will have a nasty side-effect of rents going up drastically.
[/quote]Why? How?[/quote]
The increase in property taxes will be passed on to the renters.[/quote]
Really? You think there are a lot of landlords now that are leaving money on the table, keeping rents lower because their property taxes are lower?
Not. A. Chance.
June 17, 2013 at 1:05 PM #762882SD Realtor
ParticipantI don’t see the solution to the pension problem in raising more revenue to pay the pensions. If the pensions are not making the projected returns, then tough break. Then the returns are not made and the those getting pension checks simply get less. If they do make the returns, then good for them.
Pensions are fine, just don’t use public funds to backstop poor performance.
If you want to change tax laws on prop 13 why not let everyone benefit from increased revenue?
June 17, 2013 at 1:08 PM #762883Participant[quote=SD Realtor]I don’t see the solution to the pension problem in raising more revenue to pay the pensions. If the pensions are not making the projected returns, then tough break. Then the returns are not made and the those getting pension checks simply get less. If they do make the returns, then good for them.
Pensions are fine, just don’t use public funds to backstop poor performance.
If you want to change tax laws on prop 13 why not let everyone benefit from increased revenue?[/quote]
If it was that easy, why don’t we tell all the muni bond holders of old bonds with yields of >8% that the state just isn’t collecting enough money, so they don’t get the interest payments they were promised. Problem solved.
June 17, 2013 at 1:08 PM #762884Participant[quote=SK in CV][quote=dumbrenter][quote=SK in CV][quote=dumbrenter]Your fix will have a nasty side-effect of rents going up drastically.
[/quote]Why? How?[/quote]
The increase in property taxes will be passed on to the renters.[/quote]
Really? You think there are a lot of landlords now that are leaving money on the table, keeping rents lower because their property taxes are lower?
Not. A. Chance.[/quote]
huh?
It is ok for you to have a different opinion about future and it is also ok to say I am wrong. I wish you the best with whatever version of future you are thinking of.
But what is not ok with me is for you to make up things I never said. I never said a word about current rents and margins being made by landlords. Again, I said that the increase in property taxes will be passed off to renters.
While I like to have a conversation with people who hold different views, I do not like your twisting of things (intentional or otherwise), responding with questions and being lazy with words. Do not expect me to respond if you persist with such behavior.
June 17, 2013 at 1:16 PM #762887ParticipantUmmm aren’t bonds callable? I have seen plenty of muni’s that have early call provisions.
June 17, 2013 at 1:32 PM #762891FlyerInHi
GuestThe politicians said before that they could cover pensions with the existing funding sources.
Why should we add new revenue sources to save pensions.
An orderly bankruptcy or belt tightening process seems more appropriate to me.
June 17, 2013 at 1:37 PM #762892no_such_reality
ParticipantIMHO, the unions have repeatedly said how they DIDN’T ask for the 3% formulas. Seems like the easiest fix is to give up the unrealistic 3% formulas.
That’s really were the problem is, 3% at 50 or 55. People retiring with an 8-90% of max year payout with 37 years of life expectancy left.
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