Forums - Politics Discussion - $5 Trillion Price Tag for Public Pensions~ When is enough enough?

 

 

As strapped state and local governments scramble for ways to balance their budgets, it's become very clear that it will be impossible for many to honor their pension promises to new employees and even current retirees. According to a recent economic study, the cost to fully fund these promises would cost taxpayers $5 trillion over a 30-year period, or nearly $1,400 a year in higher state and local taxes and fees for every household in the country.

Put another way, contributions to pay for public employees' retirement benefits now total 5.7 percent a year of all state and local taxes, fees, and other government charges. "Government contributions to state and local pension systems must rise to 14.1 percent" to produce fully funded pension systems, the study said, and it will take 30 years to get there.

The magnitude of this challenge can be debated and, indeed, hinges on the future investment performance of retirement funds that can't be known today. Economists Robert Novy-Marx (University of Rochester) and Joshua D. Rauh (Stanford) based their price tag on a snapshot of the condition of state and local pensions in 2010. They then assumed economic growth in the states would average what it has been like over the past 10 years, assuming the continuation of present retirement rules. Finally, they factored in reasonable future investment gains in government retirement funds. Their $5 trillion answer is what it would take for governments to honor their retirement commitments and develop a system that was fully funded over the next 30 years.

They also studied other possible outcomes, including different combinations of the kinds of pension cutbacks that are already being tried in some states. The results were not encouraging for taxpayers. For example, in what they say has come to be known as a "soft freeze," some states are moving new employees out of guaranteed, defined-benefit pensions and into defined-contribution plans similar to private-sector 401 accounts. If all new state and local government employees were forced to use such defined-contribution plans, the study found, average household taxes would still rise by more than $1,200 a year.

Adopting a much harsher "hard freeze" policy would stop all future benefit increases. No benefits would be revoked, but they would not grow over time to reflect an employee's rising salary or added years of service. Having frozen future pension liabilities, their study assumes states and localities would add a new defined-contribution plan and would need to make employer contributions into that plan. This approach would reduce annual taxpayer increases to $800--a figure still above what many taxpayers would tolerate.

The alternative strategy, of course, is to reduce the retirement promises made to public employees. And that is what most people expect will happen to state and local government pensions.

"Substantial revenue increases or spending cuts are required to pay for pension promises to public employees even if pension promises are frozen at today's levels," Novy-Marx and Rauh conclude.

Another reality is that not all state and local governments will deal with their respective pension challenges the same way. This will lead to different benefit levels and approaches, and will have correspondingly different impacts on taxpayers. The economists looked at scenarios where raising government revenues or current public services reduced a state's economic growth rate, including causing residents to relocate to states that were able to provide more attractive public services at lower costs. Average taxpayer burdens throughout the country would not change. But states facing the biggest pension-funding shortfalls would likely lose population and be forced to raise taxes even more on their remaining residents.

Here's a look at the authors' estimates of what it would take to close the pension funding gap in each state. Remember that these totals apply to payments required every year for the next 30 years.

Annual Increases to Fund Current State and Local Pensions
State Pension Funding
Increases ($billions)
Pension Increases per
Taxpayer Household ($)
New York $16.9 $2,250
Oregon $3.1 $2,140
Wyoming $0.4 $2,080
Ohio $9.1 $2,051
New Jersey $6.7 $2,000
California $28.3 $1,994
Minnesota $3.9 $1,928
Illinois $9.5 $1,907
New Mexico $1.4 $1,756
Colorado $3.4 $1,739
     
Pennsylvania $7.5 $1,550
Wisconsin $3.3 $1,522
Connecticut $2.0 $1,459
Michigan $5.3 $1,386
Washington $3.5 $1,371
Alaska $0.4 $1,356
Hawaii $0.6 $1,288
Texas $12.1 $1,271
Missouri $2.9 $1,264
Kentucky $2.1 $1,260
     
Delaware $0.4 $1,210
Kansas $1.3 $1,197
Massachusetts $3.0 $1,190
South Carolina $2.1 $1,186
Vermont $0.3 $1,163
Mississippi $1.3 $1,127
Louisiana $1.9 $1,118
Virginia $3.2 $1,066
North Dakota $0.3 $1,042
New Hampshire $0.5 $1,010
     
Nevada $0.9 $884
Nebraska $0.6 $881
Montana $0.3 $872
Alabama $1.6 $868
Iowa $1.0 $861
Oklahoma $1.2 $850
Tennessee $2.0 $837
Maryland $1.8 $818
Florida $5.8 $813
Rhode Island $0.3 $819
     
Georgia $3.0 $803
North Carolina $2.8 $784
South Dakota $0.2 $776
Maine $0.4 $761
Idaho $0.4 $737
Arizona $1.5 $608
West Virginia $0.4 $600
Utah $0.6 $535
Arkansas $0.6 $534
Indiana $0.8 $329
     
U.S. Total $163.2 $1,385
Source: Robert Novy-Marx and Joshua D. Rauh

Pension, and compensation, and all this crap has to slow down. This is way too much money!

 

http://finance.yahoo.com/news/5-trillion-price-tag-public-154601079.html



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It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.



Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 



green_sky said:
Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 

This makes absolutely no sense. Having a greater % of people alive being employed is always a better thing. There is not a finite number of jobs.



Soleron said:
green_sky said:
Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 

This makes absolutely no sense. Having a greater % of people alive employed is always a better thing. There is not a finite number of jobs.

I might not be anywhere close to right but i am speaking from my experience of studying changing demographics of employment. We already have delayed adulthood for most of today's youth for various number of reasons. There is only so many people companies in the services and other sector can employ before they reach economies of scale. The delayed retirement is having an effect on this. How much it is to blame. I am not sure. 

Youth unemployment is quite a bit higher than overall unemployment. There is no one offering decent starting salaries to graduates even compared to 5-6 years ago. Most end up slightly better if not same compared to people who skipped formal education after high school. Maybe things are better in the UK but from what i read that is not true. 



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green_sky said:
Soleron said:
green_sky said:
Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 

This makes absolutely no sense. Having a greater % of people alive employed is always a better thing. There is not a finite number of jobs.

I might not be anywhere close to right but i am speaking from my experience of studying changing demographics of employment.

I attend my university's economics lectures when I want to see a pantomime.

There is only so many people companies in the services and other sector can employ before they reach economies of scale.

wat. If more old people are employed instead of being dependent, the overall wealth of the country is greater -> can support more jobs -> more jobs created for younger poeple. The limiting factor right now is mostly the availability of capital.

The delayed retirement is having an effect on this. How much it is to blame. I am not sure. 

Youth unemployment is quite a bit higher than overall unemployment. There is no one offering decent starting salaries to graduates even compared to 5-6 years ago. Most end up slightly better if not same compared to people who skipped formal education after high school.

Then you're at the wrong university or doing the wrong degree. It's supply and demand, "youth" need to choose a degree that will get them employment. I'm aiming for a field desperate for qualified graduates, and some of my friends are being paid £30k right out of school.

Maybe things are better in the UK but from what i read that is not true. 

Correct. If anything the US economy is stronger because you still manufacture stuff and are generally self-sufficient.



Soleron said:
green_sky said:
Soleron said:
green_sky said:
Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 

This makes absolutely no sense. Having a greater % of people alive employed is always a better thing. There is not a finite number of jobs.

I might not be anywhere close to right but i am speaking from my experience of studying changing demographics of employment.

I attend my university's economics lectures when I want to see a pantomime.

There is only so many people companies in the services and other sector can employ before they reach economies of scale.

wat. If more old people are employed instead of being dependent, the overall wealth of the country is greater -> can support more jobs -> more jobs created for younger poeple. The limiting factor right now is mostly the availability of capital.

The delayed retirement is having an effect on this. How much it is to blame. I am not sure. 

Youth unemployment is quite a bit higher than overall unemployment. There is no one offering decent starting salaries to graduates even compared to 5-6 years ago. Most end up slightly better if not same compared to people who skipped formal education after high school.

Then you're at the wrong university or doing the wrong degree. It's supply and demand, "youth" need to choose a degree that will get them employment. I'm aiming for a field desperate for qualified graduates, and some of my friends are being paid £30k right out of school.

Maybe things are better in the UK but from what i read that is not true. 

Correct. If anything the US economy is stronger because you still manufacture stuff and are generally self-sufficient.

Good for you man. I am genuinely happy for those who are doing well (not being sarcastic). I guess i majored in the wrong major (Economics/pantomime). I'll try to recify that by studying some more. We are going to the be first generation worse off than the one before and by quite a big margin. Some of us will persist and get through this despite our differing opinions on the changing demographics of employment. Peace.

By the way i am in Canada. We are about 4-5 years behind US. About to enter price inflation of products and while at the same time Asset deflation. Not a good time to be in. 



@Soleron, while your views might represent the private market decently, you are failing to realize the entire job market. Take my degree for instance (Wildlife and Fisheries Management). Sure I could find a private sector job that might stick up for the environment (while most private jobs involving this degree probably would be arguing for more lax rules) but there are very few. My main chance to use my degree would be working as a park ranger, controlled burn specialist, zoo keeper, etc. My degree mainly involves public jobs. Wildlife jobs are one of the first to be cut and if there are a bunch of old park rangers staying in their job then that means no job for me. Try getting a job in the Wildlife sector that adheres to your values then get back to me. Sure I probably chose a terrible degree but it is the old people staying in their jobs that is keeping me from being able to obtain a wildlife job.  Case in point there isn't enough wildlife jobs for all the wildlife majors.



Soleron said:
green_sky said:
Soleron said:
green_sky said:
Soleron said:

It seems to be politically taboo to suggest that promised pensions, even those being paid out now, should come down. And the retirement age also needs to go up to 70+, not in 2020 or 2025 but asap. Anyone in the public sector who's retired before 65 (and is still under 65) should be asked to return to work to recieve the full value of their pension.

Pension part is somewhat fine but if those boomers keep on working till they combust than the waiting line for young people to replace them gets even longer. We all can't in video game industry. One of the few places not dominated by those booming people. 

This makes absolutely no sense. Having a greater % of people alive employed is always a better thing. There is not a finite number of jobs.

I might not be anywhere close to right but i am speaking from my experience of studying changing demographics of employment.

I attend my university's economics lectures when I want to see a pantomime.

There is only so many people companies in the services and other sector can employ before they reach economies of scale.

wat. If more old people are employed instead of being dependent, the overall wealth of the country is greater -> can support more jobs -> more jobs created for younger poeple. The limiting factor right now is mostly the availability of capital.

The delayed retirement is having an effect on this. How much it is to blame. I am not sure. 

Youth unemployment is quite a bit higher than overall unemployment. There is no one offering decent starting salaries to graduates even compared to 5-6 years ago. Most end up slightly better if not same compared to people who skipped formal education after high school.

Then you're at the wrong university or doing the wrong degree. It's supply and demand, "youth" need to choose a degree that will get them employment. I'm aiming for a field desperate for qualified graduates, and some of my friends are being paid £30k right out of school.

Maybe things are better in the UK but from what i read that is not true. 

Correct. If anything the US economy is stronger because you still manufacture stuff and are generally self-sufficient.

Generally Green Sky is right on this. You can look at Japan for other examples; the need to stay employed longer does strangle new graduates. It's not at all about the young people choosing the wrong degree, but because instead that slow economic conditions mean old people feel compelled to stay on, which represses young people, which further stalls the economy because the old people are just spending that income on supplementing too-weak old-age plans instead of on the big consumer goods that young people usually buy. For instance, our generation does not buy homes, or cars. We live in apartments (which, surprise surprise, is causing *those* to become too expensive now too) and do rideshare.

Unless we can retire the old folks, the whole economy is going to collapse as the millennials instead become the "manchild generation," those who never grew up because they were never given a chance to grow up.



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sethnintendo said:

@Soleron, while your views might represent the private market decently, you are failing to realize the entire job market. Take my degree for instance (Wildlife and Fisheries Management). Sure I could find a private sector job that might stick up for the environment (while most private jobs involving this degree probably would be arguing for more lax rules) but there are very few. My main chance to use my degree would be working as a park ranger, controlled burning specialist, zoo keeper, etc. My degree mainly involves public jobs. Wildlife jobs are one of the first to be cut and if there are a bunch of old park rangers staying in their job then that means no job for me. Try getting a job in the Wildlife sector that adheres to your values then get back to me. Sure I probably chose a terrible degree but it is the old people staying in their jobs that is keeping me from being able to obtain a wildlife job.  Case in point there isn't enough wildlife jobs for all the wildlife majors.

But that is exactly the point I was making. You chose a degree in which you knew there was limited demand and you have to bear that. The old people being employed isn't the problem - it's that, you're right, the demand for wildlife jobs specifically won't grow with population. But in raw materials and manufaturing and services, those jobs WILL grow the more people out of the economy are working instead of retired.

@green_sky

I didn't mean to insult your choice of major. Economics is not one of those degrees with no application to jobs I was talking about, I just don't think it's taught well right now, too much like an arts subject where it's about debating opinions of dead people. I mean more like Theatre Studies or Social Care or Forensic Science degrees I see lots of low-ability people from my old school going into believing they would end up in the appropriate job (on the stage/for-life council job/CSI respectively).