
The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy - kimsk112
https://www.wsj.com/articles/the-pension-hole-for-u-s-cities-and-states-is-the-size-of-japans-economy-1532972501
======
gok
> It is increasingly likely that retirees, as well as new workers, will be
> forced to take deeper benefit cuts.

Boohoo. Public service union members should have thought about that before
pursuing a pyramid scheme retirement plan instead of a defined contribution
pension like the rest of us.

~~~
chris_mc
Why in the ever loving fuck are you blaming the _workers_ for this
shortsightedness instead of the government organizations who are about to fuck
those people over when they're 70?

Maybe the administrators of the pension accounts and financial planners for
these organizations should have done better by the people who are busting
their (collective) asses to provide services for you, the taxpayer?

~~~
landryraccoon
> Why in the ever loving fuck are you blaming the _workers_ for this
> shortsightedness instead of the government organizations who are about to
> fuck those people over when they're 70?

Well, _we_ are the ones paying those people's pensions, in the form of taxes,
so we're the ones fucking ourselves over if they got too sweet of a deal
right?

I am personally not going to get 50-100% of my maximum salary as guaranteed
compensation for the rest of my life until I retire - are you? I'm not super
enthusiastic about paying taxes for someone else to get a better retirement
deal than me, either.

I'm fine with paying government employees what they're worth while they're
working - hell, I think most of them deserve a raise. But they also should
have defined contribution retirement plans, not defined benefit, like everyone
else working in private industry.

~~~
candiodari
> Well, we are the ones paying those people's pensions, in the form of taxes,
> so we're the ones fucking ourselves over if they got too sweet of a deal
> right?

And how does this square with this being a democracy ? Or to put it another
way: you're also (indirectly, but ...) the ones promising sweet pensions to
these people if they would just work. And they worked. Now you want to revoke
your part of the bargain ?

Furthermore, if you refuse to pay for their pensions ... do future kids get to
refuse to pay for yours ? (either directly, or through devaluing the currency,
just in case your answer is that private sector pensions are safe)

But we all know that there's no answer here, so it'll be devaluation. At least
that means private and public pensions are equally screwed (I'm leaning
socialist, so I like fairness in the sense that people get treated the same).

~~~
landryraccoon
> And how does this square with this being a democracy ? Or to put it another
> way: you're also (indirectly, but ...) the ones promising sweet pensions to
> these people if they would just work. And they worked. Now you want to
> revoke your part of the bargain ?

So I think this argument actually works against you.

First, nothing can bind future generations. They can always change whatever
they want to. In the United States, a future congress can revoke, alter or
amend any law passed by a previous congress. So if you want your pensions to
be secured, the benefits cannot be guaranteed by faith in future governments!

In this sense, a defined contribution plan is more secure than a defined
benefit plan. This is because a defined contribution plan belongs to the
recipient as soon as the funds are allocated - even if a future government
changes the rules, the money that's already in your 401K is yours!

Consider the alternative - are you saying that future generations are always
bound to the decisions of past generations, even though they may not even have
been alive or of voting age? If a law is fair and benefits society, that
future generation will respect it because it benefits society. If that law is
unfair to them they _can_ and absolutely _should_ change that law! How could
it be otherwise? As a socialist this should utterly appall you. Do you believe
that laws put into place by capitalists and large corporations constitute
binding pacts between governments and their citizens, and that any future
government that seeks to amend them towards a more equitable balance is now
acting unfairly?

If the median income in a nation is $40K, but the median pension given by the
state exceeds that income, then who is suffering unfairly if the pension is
reduced to be more in line with what the average worker earns? How as a
socialist could you justify a pensioner earning more than a productive active
worker?

~~~
aisengard
So think of it this way, how would you feel if a socialist government took
over and decided that your 401k is fair game for extra taxation? But it's
_your_ money, capitalism promised you! "Boohoo", you should have thought of
that before entering into a clearly unsustainable pyramid scheme.

Not so useful or interesting in terms of commentary, is it?

~~~
landryraccoon
The standard shouldn't be that government decisions are set in stone forever,
period. The standard should be good policy, in both directions. If a previous
government sets a bad policy, a future government should not be bound to it.
If it sets a good policy, a future government should uphold it. If a future
government decides to be "bad" and tear up everything, no piece of paper will
stop them.

------
pzone
Comparing stock variables (Pension liability shortfall) vs. flow variables
(GDP, a rate of annual output) is a mistake that peeves me to no end.

That said, the pension shortfall is a disaster playing out in slow motion.
We're just waiting for the hard cash constraints to bite - when they do it's
not going to be pretty.

~~~
torstenvl
But it's not a real comparison. It's just contextualizing.

If I say that a brachiosaurus was the size of a house, I'm not saying that
your current dwelling is comparable to a 65-million-year-old pile of death and
dust.

Huge numbers are essentially meaningless to the human mind. But "all economic
output of Japan in a year" is something that most people can wrap their heads
around a _little_ more easily. We know it's a fairly rich, industrialized
nation, and so therefore that's a crapton of money.

~~~
repsilat
> _all economic output of Japan in a year_

We all know they meant "in a year", but the article isn't explicit about it --
it just says

>> _the output of the world’s third-largest economy_

Not "annual", not even "GDP". I bet a lot of readers came away thinking "a
shortfall as big as Japan".

And maybe not just lay readers -- a "smart but not knowledgeable" reader might
try to convert the stock into a flow or vice versa by assuming some interest
rate and doing a back-of-the-envelope net present calculation and be off from
the real numbers by an order of magnitude.

------
betterunix2
The choice is raising taxes, reducing spending elsewhere, or demanding workers
give up the pensions they were promised. Somehow I doubt anyone is going to
agree to pay more in taxes to cover pensions in their state or city. After
all, why should the government keep its promises (especially if it means we
have to pay for it)?

~~~
ngngngng
Does stability in retirement add enough value to society and the economy for
it to be a good investment? I've been an adult less than a decade, so without
a return why should I pay for the promises of my predecessors? So many
questions.

~~~
betterunix2
I actually think the answer is simpler and more immediate than that. The
government made a promise. If the government does not keep that promise, can
it be trusted with other obligations?

In fact, this problem of unfunded pensions has impacted municipal credit
ratings and wound up costing taxpayers more in higher interest rates than they
would have had to pay in higher taxes to stabilize the pension funds.

~~~
ngngngng
But why does the government get to make a promise with the money of someone
that wasn't even born at the time (me)?

~~~
betterunix2
It makes no difference, because the promise was already made and now you have
to choose between (a) destroying your government's credit rating or (b) making
good on the promise. Complain all you want, but that's just the situation we
find ourselves in.

~~~
randysavage
In the short term, sure. In the longer term, when increased taxes and
decreased services impact the average person, these promises will be
renegotiated.

------
underwater
Apparently it’s common for police to stack their final few years of work with
excessive overtime to inflate their pensions for the rest of their lives. I
wonder how much that contributes to budget problems. It certainly seems to be
something that could throw off projections.
[http://www.courant.com/opinion/editorials/hc-ed-police-
overt...](http://www.courant.com/opinion/editorials/hc-ed-police-
overtime-1215-20161214-story.html)

------
justaman
Its funny that the government is as bad with money as the people. Truly a good
representation.

~~~
sushid
It's nice for the previous generations that got something out of nothing.

Too bad that "nothing" is my generation and we'll be putting our
"contributions" into a pit that will give us actually nothing in return when
it's time for us to retire.

As I get older I realize why people say if you're not a liberal at 20, you
have no heart but if you are not a conservative by 30, you have no brain (or
something to that effect).

~~~
rgcapozz
As I get older I become more anarchist or socialist or syndicalist.

------
sykhic
Overal taxation in the U.S. is low compared to other OECD countries [1]. We,
as a nation, decided that low taxes was the goal. As a result infrastructure
is poor, toll roads are increasing, privatization of prisons, intelligence
gathering, war, etc. are rising too. Yet Americans falsely believe they are
overtaxed. The situation is easy to fix in economic terms but not in political
terms. The road to an Ayn Randian paradise in which everyone fends for
themselves will lead us to ruin.

Corporations have largely shunted the responsibility for retirement savings
onto individual workers. Now said workers have no pensions and have uncertain
retirements. Instead of asking why they have no pensions they seek to equalize
status by falsely believing we can't afford any sort of pension.

As a nation we need to seriously rethink the role and purpose of government
and how taxation is a part of the proper functioning of government.

[1] [https://www.taxpolicycenter.org/briefing-book/how-do-us-
taxe...](https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-
compare-internationally)

~~~
anilshanbhag
Taxes being lower or higher are not what determine size of pension hole.
Greece and Italy have higher taxes and still have a pretty big pension hole.
The problem is public sector employees are promised pensions higher than
county/city can afford. Unlike a corporation which has to balance its budget,
city officials go beyond means with their promises in order to get elected and
leave the problem for the next set. This is one of the main reasons why many
in this country prefer a small government vs big.

~~~
dunpeal
> The problem is public sector employees are promised pensions higher than
> county/city can afford.

Precisely. But in fact, it's worse:

 _The people doing the promising and those receiving the benefits are in fact
the same._

Who makes the promises? Local and state government employees.

Who receives the benefits? Local and state government employees.

Who pays for them? Us ordinary taxpayers who can only dream of such sweet
defined-benefit pension deals.

Yet some folks see this as reason we should pay even higher taxes, and
sacrifice our own pensions, which are already lower and less secure than these
privileged government pensioners.

Unbelievable.

~~~
sykhic
I'm a public employee. I don't cause the government to write its contract with
me to be the way it is. It's negotiated between my union and the state
Department of Education. It is then voted on by the legislative branch and
signed by the governor. It's a long process. At no point am I or my fellow
workers the ones making the promises.

It costs money to run government. Employees need to be paid. We have had lay
offs when budgets were constrained. The funding per pupil has steadily
decreased the last 30 years and hence tuition has similarly increased. Our
salaries relative to purchasing power has decreased over this time.

~~~
dunpeal
> I don't cause the government to write its contract with me to be the way it
> is. It's negotiated between my union and the state Department of Education.

Exactly. So one group of state government employees (your state's DoE) meets
another group of state government employees (your union) and decide to give
each other an incredible defined-benefit pension deal that _nobody outside of
government can even dream of_.

State government employees are giving each other dream pension plans, that are
unsustainable and wildly over-budget even if they were well-managed (which
generally they are not).

You know why nobody outside government has defined benefit pensions? Because
they were proven to be unsustainable decades ago. Yet government employees
keep conferring them upon themselves.

Then, when the inevitable deficit arises, as any economist would predict, you
have a great solution: me and my peers in the private sectors should pay more
taxes to bankroll your party!

I hope this slow-motion trainwreck would be a wakeup call, but either way,
know this: there is no amount of taxes that will prop up your unsustainable
pension plans. State and local governments wasted billions mismanaging these
funds, that are unsustainable even under the best management.

Any more taxes you collect will just fuel this fire for a couple more years,
before the inevitable next crisis arises.

You can't fix fiscal irresponsibility with more money, because all that money
(and no accountability) is what created fiscal irresponsibility in the first
place!

Your state government needs to start applying the same basic fiscal
responsibility that every single business in your state is adhering to.

~~~
sykhic
Pensions are not inherently unsustainable. They exist in the private sector in
other countries and there are still some well funded private sector pensions
in the U.S. They don't work well if they are not properly funded. Corporations
got rid of pensions not because the concept is inherently unsustainable but
because it's more profitable to do away with them.

My pension plan is not a good one. You characterization of one group of state
employees giving a dream set of benefits to another is not based in reality.
Administration does not negotiate strongly with us the contract won't be
approved by the legislature or signed by the governor. Our wages relative to
buying power has not been going up or remaining steady.

If pensions are inherently unsustainable then you must conclude that it is
unsustainable for a society to care for itself.

~~~
sheepmullet
> If pensions are inherently unsustainable then you must conclude that it is
> unsustainable for a society to care for itself.

How do you figure?

It is unsustainable for us to support all people over e.g. 60. But we can
support the 5% over 60 who really need the support and can't look after
themselves.

~~~
sykhic
Supporting that 5% who really need it would effectively be a means tested
pension system. The point of a pension (retirement savings) is to prevent
masses of destitute elders. The goal is to have a society in which masses of
elderly are not left without means to live at a reasonable standard. That’s
the purpose of a pension system. If the goal can be effectively accomplished
in another way then I support it. I’m not personally tied to the notion of a
pension system.

------
0x00000000
>For the past century, a public pension was an ironclad promise

Let's not pretend like this was ever seriously going to be sustainable. It's
just a big middle finger to future generations while an opportunistic
generation got to suck the system dry in prosperous times then peace out.

~~~
toomuchtodo
> Let's not pretend like this was ever seriously going to be sustainable.

There’s a bit of nuance to it. Predictions were made based on historical
market returns we’re only now discovering are unrealistic going forward (7-8%
historically, 4-5% predicted going forward).

The only issue is that no “relief valve” was constructed in the event
predicted returns turned out to be inadequate to fully fund the system,
triggering benefits cuts. This is the part that is generationally regressive.

Of course, there is no benefit to anyone whose wants to solve this prior to
insolvency, only pain. So the sinking ship continues and the band plays on.
Taxes, local, state, and federal, are going up eventually to pay for all of
this. Plan accordingly.

~~~
AnimalMuppet
Were predictions made based on historical market returns? Or were the
predictions optimistic even when they were made?

My understanding (which is from a distance, and could easily be wrong) was
that even when made, the estimated returns were optimistic - not necessarily
wildly optimistic, but toward the top end of the historic range of returns.
This reduced the burden of funding the pensions at the time they were defined,
making funding them less painful for the people running things at the time
they were granted.

~~~
rayiner
Until the 2008 recession, the vast majority of Illinois public pension funds
assumed returns in excess of 8%:
[https://www.civicfed.org/iifs/blog/comparing-investment-
retu...](https://www.civicfed.org/iifs/blog/comparing-investment-return-
assumptions-illinois-pension-funds-national-trends). That was more than the
market returned in 1960-1980, but less than the market returned from
1980-2005.

But, those projections don't include unplanned pension benefit increases for
existing retirees, which happens periodically.

~~~
Shivetya
Chicago pensions to bankrupt by 2021, the numbers in the article are amazing
for payouts [https://chicagocitywire.com/stories/511130434-projection-
chi...](https://chicagocitywire.com/stories/511130434-projection-chicago-s-
police-pension-fund-will-be-broke-in-2021)

------
captain_perl
Since the comments in this thread are missing historical context, here's a
review wrt California:

1) the State Treasurer presented 3 options (low - 6%, middle - 7%, high - 8%),
but said high was dangerous 2) the State picked high, since they were voting
on their own pension payments 3) the municipal unions went to the mayoral
candidates across the state and said, "if you want our support on election
day, support 8%" 4) the courts have ruled that once a pension plan is
approved, it can't be repealed for existing members 5) the San Jose mayor
actually tried to repeal it to prevent city bankruptcy, and was ground into
the dust by the public unions and courts 6) the last city employee in each
city will be the Treasurer, to sign pension checks. There will be no city
services (fire, police, libraries, etc.) - just pension payments. This is
already happening in California 7) Public union members receive higher
salaries now (thanks to COLA) than the private sector, plus multi-million
dollar pensions. My dentist calls them "royalty" because their benefits are on
a different level than the private sector.

What's ironic is that Marx predicted that in a democracy, the voters would
eventually vote themselves ruinous entitlements. He was correct, but all it
took was the public unions.

------
IIPA_Master
Your taxes do NOT fund most pensions.

I’m a teacher in NY. My pension plan is self funded by our membership
(teachers). Taxpayer dollars account for the annual school budget (you vote
on!) which does include salary and employer healthcare contribution however it
also pays for grounds and buildings, transportation, extracurriculars, etc...

Additionally, the current tier 6 of NY state workers pays a “retirement fee”
into their retirement which is how the TRS in NY is funded. This fee is not a
% of salary, it is an annual fee spread over pay periods.

So just to debunk one point, most public worker retirement funds are self
funded by members.

~~~
scaryspooky
Public employees are paid via taxes, so yes they do 'fund' public pensions.

------
kyrra
Paywall bypass. [http://archive.is/ITINt](http://archive.is/ITINt)

------
safgasCVS
If I paid for WSJ and this is the low quality journalism I got I'd be peeved.
This article barely touches on how it got to be so bad. Excuse me but no - a
single paragraph stating the obvious 'benefits promised were too rich' doesn't
cover it. How is it possible that a solvency ratio can drop from 100% to 75%
in 18 years? This doesn't just happen because eh seemingly every pension
administrator just decided. How much does WSJ cost again?

~~~
ngould
Care to enlighten us pension finance non-experts on what the article misses?

~~~
aurailious
Laws were changed to intentionally weaken pension funds and then articles like
this are funded to further destabilize trust in them.

Another way of saying it: rich people were unhappy they have to pay taxes.

~~~
DuskStar
Wow, I didn't know that the anti-pensioners had so much influence in
California!

Another way of saying it: I don't think your summary is particularly fair or
accurate.

~~~
tomjakubowski
The anti-pensioners' historical influence is enshrined in the California
constitution, Article XIII A.

[https://ballotpedia.org/Article_XIII_A,_California_Constitut...](https://ballotpedia.org/Article_XIII_A,_California_Constitution)

------
epx
Same in Brazil, with the additional complication that public
servants/pensioners are the top of pyramid.

------
jimjimjim
you know that research test they do where the subject can have $5 now or $50
at the end if they don't take the $5 and a disappointing amount of times they
go for the $5.

The problem is everyone cheers on the politician that says you can have the $5
AND the $50.

~~~
sp332
Doesn't this show that the people who took $5 up front were right? The ones
who waited for $50 at the end are getting screwed.

~~~
jimjimjim
the ones in the test the took the $5 look like untrusting fools because we
make assumptions about fair and reasonable outcomes with repercussions on
those parties in an agreement that don't fulfill their obligations.

politicians should be held accountable like CEOs. They should be able to be
sued. Screw over the company? your ass is going to get kicked. Say you didn't
know? you shoulda listened to the people giving you the numbers. didn't have
the numbers? shoulda hired people to give you the numbers.

there needs to be a lot more repercussions on those people making bad
decisions.

------
rapjr9
How are AI and automation going to affect pensions? If many jobs become
automated who contributes to the pension funds and Social Security to support
the previous generations? All the discussion I see here seems to assume the
future is like today. Those lists of which jobs are most likely to be
automated soonest may also be lists of which pensions will not be funded in
the future.

------
eecc
OTOH administrations have to deal with significant shortfalls due to corporate
tax elusion, compounded by the interests paid to compensate for them (possibly
and ironically the bond holders might be the same corporations whose tax money
is missing.)

I wonder how significant that amount is. I’m a Scala jockey and I bookmark a
totally different part of the internet, I'd love the input of someone who has
a better idea of these numbers...

------
Nelkins
Why no comparisons to the pension systems in other countries? I'm always
hearing about how Europe has a much more generous pension system. Do they work
the same way? Are they all similarly underwater? If not, what are they doing
differently?

------
adreamingsoul
I can't help but think of my father, who has been a firefighter for the last
20+ years. He lives a comfortable middle class life, and still works even
though he already qualifies for retirement.

------
spectrum1234
This is a great reason to use a ROTH 401k over a Traditional and max your ROTH
IRA every year.

Why? It's nearly impossible that taxes won't start skyrocketing soon.

------
tasty_freeze
The paywall prevents me from reading it, but the title makes me wonder. Does
it claim that the per year pension deficit matches the entire economy of
Japan, or are they saying the cumulative debt (which would accrue over
decades) matches one year of Japan's economy?

------
abledon
How much money does one need to live in retirement? If they are doing daily
exercise(1-2hr), cut out most processed foods and sugar , no alcohol , cook
all their food from scratch using cheap staple ingredients , entertain
themselves with books , community , local events and cut out expensive
vacation plane trips (only an invention of the past century). An
‘uncomfortable’ lifestyle shift but doable for a human.

[edit] Yes for people who are permanently injured, its great we have these
systems in place. But for otherwise healthy retired individuals, I think the
21st century western 'retired' lifestyle is a bit rich in comparison to what
the rest of the world is living.

~~~
dv_dt
How much money does the low-taxed wealthy need that so many others need to
live a paupers life style. Is there not productivity enough in our society to
provide better?

~~~
ars
What are you talking about? The wealthy are not low taxed, the US taxes the
wealthy more than just about any other OECD country.

Source: [https://www.taxpolicycenter.org/briefing-book/how-do-us-
taxe...](https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-
compare-internationally) Figure 2.

~~~
dv_dt
What are you talking about? figure 2 is a share of total tax total revenues by
source. Figure 1 shows that Us total tax percentage of GDP is lower than every
OECD nation out there with the only lower total tax share in the nations of
Korea, Ireland, Chile and Mexico.

The figure 2 breakdown also does not distinguish between taxes on Income +
"profits", and capital gains and corporate taxes where the wealthy accrue
significant wealth are very low in the US...

~~~
ars
Go read it again. The only reason the US is lower on a GDP basis is that the
US does not have a VAT on goods and services (which as you know, hurts the
poor much more than the rich).

i.e. the US taxes the wealthy much more than virtually any other country.

~~~
dv_dt
The VAT figures into the "total taxes" of figure 1 as described in the last
paragraph is broken out as "goods and services" category of fig 2. This still
does not change the meaning of fig 1 where the US is strongly below average
taxes.

If the wealthy are the most taxed in the US, how is it what inequality of both
income and wealth is massively skyrocketing in the US?

~~~
ericd
>If the wealthy are the most taxed in the US, how is it what inequality of
both income and wealth is massively skyrocketing in the US?

Asset appreciation - a massive bull run in the stock and housing markets. The
side effect is that those who own assets benefit far more than those who
don't.

When everyone talks about Bezos making a huge amount of money this year,
they're talking about his unrealized gains. If he actually tried to realize
those gains into USD (at which point he'd pay taxes), his wealth would shrink
very quickly as Amazon's market price dropped.

Also, VAT is a relatively regressive tax.

------
vuldin
This is a good example of the type of debate that well-meaning, thoughtful
people decide just steer clear of due to the (lack of) perspectives of the
majority of those currently taking part in the conversation.

The United States spends the better part of a trillion dollars per year on its
military. A relatively small fraction of that would solve any issues their
social welfare programs currently have.

It's a matter of prioritization and the perspective of those leading the
discussion. Instead of turning focus towards changing priorities (the
priorities are already seemingly in their favor), they turn to how expensive
and unmaintainable the programs are that they wish to further de-prioritize.
In the process, they draw attention away from the stark contrast of funding
between various government programs. Namely social welfare vs military, or
improving their society vs destroying others.

~~~
ars
> A relatively small fraction of that

And what would you do with the large number of unemployed people that would
result?

You can't just change one thing and ignore any consequences.

And don't forget that the broken window fallacy only applies to economies
where everyone is working full time. If they are not then it does not apply,
and your analysis needs to be more thorough.

~~~
dunpeal
> And what would you do with the large number of unemployed people that would
> result?

US demand for labor is at an all time high.

They can find employment in the private sector and produce goods and services
that benefit others.

~~~
ars
But most of the money is spent on research and high tech manufacturing. Those
are not easy fields to find private employment for.

~~~
dunpeal
Are you kidding me? You are saying in the current market, there's no demand
for highly skilled and educated R&D employees?

~~~
ars
If there was they'd already be working there. The private sector pays much
better than government.

