(04-25-2018 08:21 AM)Frank the Tank Wrote: (04-25-2018 07:01 AM)quo vadis Wrote: (04-23-2018 02:00 PM)JRsec Wrote: If you choose to cut out the earned benefits of a lifetime on those too old to replenish them by other means, then may the same fate befall your household when you are at that age. It's called karma.
JR, two things:
1) In most states, your worry about "Badger" cutting those pension payments is unwarranted, because the public employee pension benefits are guaranteed by the state constitution. The politicians cannot cut existing benefits, period. They can only implement plans that reduce benefits for future employees. But once someone is hired under an existing plan, that is frozen for that person, cannot be changed (except to increase benefits). E.g., Illinois has tried to, but their courts have emphatically slapped those efforts down. It just can't be done.
2) You have to be clear about what "earned benefits" are. Because if the benefit you receive is much greater than what you payed in, then you are really getting something more than what you earned.
E.g., consider Medicare. Every time someone suggests cutting Medicare, there is a hue and cry from people about how "they earned that Medicare benefit by paying taxes their whole lives". But a typical worker who earned an average wage and retired in 2013 paid about $122,000 in Medicare taxes, but will receive about $380,000 in Medicare benefits (and those figures are adjusted for constant dollars).
So really, significant cuts could be made to Medicare and still pay out to the worker what they actually did earn, but nobody wants to hear that. Of course, in the long run, there is no free lunch, and that extra $260,000 the current retiree gets above what they paid in will have to be paid for by somebody. Inevitably, that will be higher medicare taxes and lower benefits for today's workers when they retire. In effect, future generations are being taxed to fund the generous promises made to current retirees.
These kinds of costs, at the state level, are punishing state budgets in a lot of places, putting squeezes on schools.
It seems that you're advocating that a pension be treated more like a 401(k) and Medicare is treated more like a health savings account, e.g. you get back an amount commensurate to what you paid in (accounting for investment rate of return, inflation, etc.).
The overall point is that was never the bargain with the applicable workers, though. As JRsec mentioned, people in the public sector are generally paid lower salaries and part of the bargain is that they're compensated on the back end via a pension plan. The government chose to subsidize those pension plans in order to attract workers and make them competitive with the private sector that can afford to pay higher immediate wages. If those workers are only going to "get back" what they "paid in", then that's basically just turning it into a 401(k) without the ability for those workers to control those investments at all (which isn't really much of a benefit).
Medicare is even broader in terms of applying to all Americans over the age of 65. Once again, the point was never to make it into a health savings account. Health care costs rise exponentially as you get older, so the government believed that it was proper social policy to subsidize it (not merely give back what someone has paid in).
Now, to your point, that system may not be sustainable going forward (at least in the way that it had been previously). However, government entities can't change course in midstream. Proper retirement planning literally takes an entire career - as a private sector employee, I knew that I would have to max out my 401(k) in order to have enough for retirement from day 1 when I started working full time after I graduated law school. If you give a 30 or 40 year timeframe to workers to plan for retirement, then that's arguably fair to have a system where you "get back what you paid in" because you have the advantage of compounding interest and investment returns and the time value of money.
On the flip side, though, government entities cannot in good faith change the pension plans of workers when they're already in their 30s (much less their 40, 50s and 60s). The bargain when they started working was that the pension was part of their retirement calculations and once you're out of your 20s, you're already significantly behind the eight ball for retirement planning. The biggest factor to accumulating enough assets for retirement is time (quite literally, time is money), so government units really are screwing people when they promise one scenario and then don't leave them enough time to adjust, particularly when the cause for the shortfalls is the government raiding those funds and/or relying upon unreasonable rates of return (as was the case for the State of Illinois).
FWIW, I'm not advocating any changes with regards to today's retirees. I agree that if government made a promise, it has to keep that promise, even if it was an extremely unwise and fiscally irresponsible promise (which in way too many cases, it was).
As for going forward, yes, I am advocating that things be changed, just because mathematically, they must. Many of the current systems are unsustainable.
Medicare has an unfunded liability of about $30 Trillion. That's "T". That money will have to come from somewhere, so no way can the amazing 'return on medicare taxes investment' received by current retirees continue. The argument that they earned it via their tax payments is not true.
But back to state pensions and their impact on budgets: My point was: The promises made were bad promises. Some of the most expensive have been made to "first responders", who are basically politically sacrosanct.
E.g., consider a typical California Highway Patrol officer, a CHIPS from the TV show of the 1970s. If an officer works for 30 years, from age 24 to 54, he can retire with 90% of his salary. What is that salary likely to be? About $108,000 a year.
What will his annual pension be? About $96,000. And remember, he's just 54, so he is likely to go on living for a 1/4 century or more.
Basically, in order to buy an annuity that would pay a 54 year old $96,000 a year for life, you would need to pay about $2.6 million.
So in effect, the deal that California has made with a patrol officer is, work for 30 years, at an annual salary that is far above the national median (rising to $108,000), meaning a very comfortable living for your family, and then after that, when you are still a relatively young 54, get the equivalent of a $2.6 million payout.
I mean, i understand that police and fire risk their lives for our safety, but is it good public policy to basically create multi-millionaires of rank-and-file officers?
I have a friend who was a DC fireman in the same kind of situation: Worked for 30 years, retired at 57 when his salary was $115,000, and he now collects a $103,000 pension, for life. Plus, on top of that, he gets free supplemental health insurance, so basically has no health insurance out of pocket costs, a killer for a lot of people.
God bless him, love the guy, but that type of thing is just not sustainable, going forward.
So a lot of these public pension promises bear no relation to market prices, IOW's, were not needed to attract people away from the private sector. These pensions are far more than what most in the private sector can ever expect to collect. E.g., on average, combining pay and benefits, and equalizing for education, federal government compensation is way ahead of private sector, especially for employees with less education:
"Combining pay and benefits into a measure of “total compensation,” the CBO said that federal employees on the lowest end of its educational scale are ahead by 53 percent (compared to private sector) while those at the highest end are behind by 18 percent — for an overall average advantage to federal employees of 17 percent."
IOW's, unless you have a PhD or MD or JD, you make a lot more in the government sector than the private sector. And PhDs aren't who we are talking about here, as they really do have viable, attractive private sector options for their skillsets.
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Pension costs squeezing state university budgets?
