My next door neighbor was a cop, still under 60, been retired for more than 5 yrs

[no_such_reality]

The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.

[an]

[quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]
You mean most of us don’t have $3M in our 401k by the time we’re 50-60?

[no_such_reality]

[quote=AN][quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]
You mean most of us don’t have $3M in our 401k by the time we’re 50-60?[/quote]

I don’t know why, it’s easy. You just have to put away $25,000 a year indexed to inflation, get a 7.5% compounded return for 30 years.

[an]

[quote=no_such_reality][quote=AN][quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]
You mean most of us don’t have $3M in our 401k by the time we’re 50-60?[/quote]

I don’t know why, it’s easy. You just have to put away $25,000 a year indexed to inflation, get a 7.5% compounded return for 30 years.[/quote]
7.5% is a piece of cake. Now, if you’re talking about 15%, then it might be a little unrealistic. But 7.5% is super easy peasy. As for $25k, that’s easy peasy too. If you’re making $75k/year, that’s only 1/3 of your gross income or probably ~40% of your net income. Who doesn’t put away ~40% of your net income to retirement? Those % are probably in the 70-75% range when you’re starting out.

[eyePod]

Public sector pensions have to be negotiated away, not protected. They are unsustainable in the long run which is why pensions are almost unheard of in the private sector. Why should I, as a taxpayer, pay for something I do not receive. That is absurd. It’s just as absurd to see people try to defend public pensions. In case nobody noticed, Calif. voters are going to have the chance to raise their own taxes in order to pay for, among other things, state pensions. Go ahead and vote yes if you want your taxes increased to provide pensions.

[EconProf]

A couple of observations:
1. Pensions are nothing but deferred compensation. The employee is simply getting the promise of X dollars during retirement as well as regular pay during their working years. A worker’s total compensation is their pay, fringe benefits, pension (if any). (Some jobs also have nonmonetary rewards such as prestige, variety, working with interesting or glamorous people, etc., and some jobs have just the opposite of these benefits. Pay and benefits can be higher or lower to offset these nonmonetary factors.)
Our posts are throwing out anecdotal examples from our own experience that don’t really prove anything. However some clarity is achieved when posters bring up death rates by occupation and the full lifetime cost of public pensions.
I’d like to add a market test to the debate. The total compensation of private sector employees is roughly determined by supply and demand. Job seekers are the suppliers of labor and employers are the demanders. Of course there is no exact price point for each occupation, but a range that can broadly move up or down with changes in supply and demand. Employers are not stupid enough (usually) to overpay for their next hire if it is way over market. Job seekers are also not going to take lower than market total compensation if they know, or believe, that they can do better.
This healthy private sector competition establishes average wage levels. What about in the public sector? When public sector unions negotiate against politicians, there is less pushback from the taxpayer’s representatives because it is not their money. Further, they have less incentive to curb excessive pension benefits because that cost will be borne years or decades in the future. The unions and their workers can thus greatly enhance the total compensation of their jobs by taking it later in life. They are more patient, and maybe smarter, than the politicians across the table.
2. Another market observation to throw light on whether government employees are overpaid or underpaid. First, what is the quit rate of, for example, firefighters and police? Second, how many people line up to apply for these jobs on the rare occassions when openings occur? Answer those two questions and you will get a better idea of whether total compensation is too low or too high as compared to the private sector.

[SK in CV]

[quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]

You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.

[Anonymous]

[quote=SK in CV]I note nobody has actually answered my question of whether everyone should be forced to […][/quote]

Because it’s a question with an implied assumption that is completely bogus. Nobody in any profession is being forced to work. Since when is there a law preventing cops, or any profession from quitting at any age?

[quote]What you’re arguing is that no employees should ever have defined benefit plans.[/quote]

No he’s not. He’s arguing that nobody should receive taxpayer-guaranteed investment returns.

Nevertheless, your misrepresentation of his words is not a bad idea.

The problem with defined benefit plans is that they entangle two completely different concerns: employee compensation and long-term investment returns.

Everybody, including public sector employees, should be compensated fairly. If their work involves unusual danger or hardship, those factors should be considered in their compensation. This is not the issue.

People are free to invest their earnings – for retirement or any other purpose – any way they want to. Take risks, be conservatives, buy fixed-income or annuity products if you need want the characteristics they offer, etc. But the risk and returns of an individual’s investments should belong to the individual, and should have nothing to do with public funds, and should not be backstopped by future, open-ended guarantees. THIS is the issue.

Defined benefit plans are basically doomed to fail because there is no way to guarantee anything sixty years into the future, and a benefit plan has to exist that long or more. We’ve learned this lesson, and for many it was a very hard lesson. It’s a myth that they eliminate risk – they’ve worked well for some people in prior generations but have been complete disasters for others.

With public-sector plans, the public bears the full cost of the disasters, and their is no incentive to avoid future disasters. Textbook moral hazard.

If a private employer wants to offer a defined benefit plan, that’s between them and their employees. And if the plan becomes insolvent for whatever reason, that’s also between the employer and the employees – not the taxpayer – to work out.

The reason you don’t see these plans much anymore at private companies is because of the simple reality that they don’t work well. They are an idea that failed.

Public sector compensation should be exactly the same as private sector: Fair pay based on labor market forces and payment of full compensation at the time services are provided, not through open-ended, taxpayer-backed, overly-complicated promises to pay decades later.

[SK in CV]

[quote=harvey][quote=SK in CV]I note nobody has actually answered my question of whether everyone should be forced to […][/quote]

Because it’s a question with an implied assumption that is completely bogus. Nobody in any profession is being forced to work. Since when is there a law preventing cops, or any profession from quitting at any age?

[quote]What you’re arguing is that no employees should ever have defined benefit plans.[/quote]

No he’s not. He’s arguing that nobody should receive taxpayer-guaranteed investment returns.

Nevertheless, your misrepresentation of his words is not a bad idea.

[/quote]

Item 1. See the last sentence of the original post.

Item 2. There is no guaranteed investment return for most government pensions. There is a guaranteed benefit.

And they have worked fine. When reasonable earnings assumptions are made. They worked fine across the country for the 20 years before the recent crash, when states and municipalities often got away with zero funding. And continued to use unrealistic investment return assumptions. They worked fine in priviate industry, until they got raided by sponsors.

[Anonymous]

[quote=SK in CV][quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]

You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.[/quote]

It’s closer to $1 – $1.5 million.

Not quite the 1%, but easily in the 5%

When you compare it to most other blue collar workers after a 30 year career, it likely does put them solidly in the 1%.

And they get to enjoy that 1% lifestyle for a decade or so longer. It’s like a 10 year paid vacation.

[Anonymous]

[quote=SK in CV] There is no guaranteed investment return for most government pensions. There is a guaranteed benefit.[/quote]

And there is difference? (Don’t bother to go into semantics, we all know there isn’t.)

[quote]And they have worked fine.[/quote]

And Ponzi schemes work fine for a little while. Defined benefit plans are not sustainable, history has proven that. Even if fraud is the cause of failure, it doesn’t matter. Failure is failure, and you can never have a system that guarantees there will be no fraud, or investment downturns, or any other unfortunate event in a 60 year time span.

There is no evidence that any pension plan has ever worked for more than a generation, maybe two, at most. Just because something almost worked for a little while doesn’t prove it to be a solid, sustainable plan.

[an]

[quote=SK in CV][quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]

You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.[/quote]
The following math is using 2.5% yearly growth.
[img_assist|nid=16263|title=|desc=|link=node|align=left|width=400|height=392]

[SK in CV]

[quote=harvey][quote=SK in CV] There is no guaranteed investment return for most government pensions. There is a guaranteed benefit.[/quote]

And there is difference? (Don’t bother to go into semantics, we all know there isn’t.) [/quote]

Tremendous difference, whether you understand that difference or not.

[quote=harvey][quote=SK in CV]And they have worked fine.[/quote]

And Ponzi schemes work fine for a little while. Defined benefit plans are not sustainable, history has proven that. Even if fraud is the cause of failure, it doesn’t matter. Failure is failure, and you can never have a system that guarantees there will be no fraud, or investment downturns, or any other unfortunate event in a 60 year time span.

There is no evidence that any pension plan has ever worked for more than a generation, maybe two, at most. Just because something almost worked for a little while doesn’t prove it to be a solid, sustainable plan.[/quote]

No, they’re nothing like ponzi schemes. Again, just because you don’t understand them, doesn’t mean they dont work. The GM pension plan would have worked fine if GM hadn’t raided it. (It was their medical benefits plan that killed them)

[SK in CV]

[quote=AN][quote=SK in CV][quote=no_such_reality]The facts will set us free.

Government retirees are the 1%.

People need the numbers shoved in their face. Those retirement benefits are like a private person having $3,000,000 in their 401K.[/quote]

You can repeat that as often as you like. But no, they’re not like having $3 million in their 401K’s.[/quote]
The following math is using 2.5% yearly growth.
[img_assist|nid=16263|title=|desc=|link=node|align=left|width=400|height=392][/quote]

I presume you think this somehow shows that a $100K pension is like a $3 Million 401K? It doesn’t.

[Anonymous]

[quote=SK in CV]No, they’re nothing like ponzi schemes. Again, just because you don’t understand them, doesn’t mean they dont work. The GM pension plan would have worked fine if GM hadn’t raided it. (It was their medical benefits plan that killed them)[/quote]

So the plan worked great except for the part where they had to pay out the benefits?

And how about United States Steel, or most of the Airlines, …. ?

I understand enough. I understand that in order to declare that the plan works, it has to work from beginning to end – a period of about 60 years for each employee – and be sustainable perpetually thereafter.

Financial models are useful, but they are not infallible. AIG had a really solid model. Even Social Security (which I support), with it’s massive risk pool, had a model that is wasn’t completely accurate. And every other model that attempts to predict the future sixty years out will be wrong also.

Long-term uncertainty is fact of life. A system where a few are protected from long-term risk at the expense of everyone else is unethical. Public-sector pensions and “too big to fail” banks are both in this category, and both should be eliminated.

[Author]

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