
Who will pay Puerto Rico's pensions? - brownbat
http://www.reuters.com/investigates/special-report/usa-puertorico-pensions/
======
rayiner
This is the whole point of bankruptcy: when past mistakes collide with present
reality, the best way forward is almost always a controlled restructuring of
everyone's expectations. Unfortunately, there are various roadblocks in the
way of sensible bankruptcies for government entities swamped with pension
debt. The major problem is that there is no provision in the bankruptcy code
for a state to file for restructuring. Furthermore, there are statutory and
constitutional protections for pensions, which are usually the most
unsustainable sort of debt for states and municipalities.

One state at the cutting edge of this situation is Illinois: the Illinois
Supreme Court has in recent years struck down various measures to attempt to
restructure the state's untenable pension obligations. Such measures will
prevent the state from making a controlled crash landing and will instead
result in the state flying straight into the ground at 600 mph.

~~~
superuser2
Institutional lenders are in the risk management business. If they are
seriously harmed by a realistic proportion of debtors defaulting, it's because
they should have known better than to write those loans.

Are we really going to say that to sick and elderly people being thrown out of
hospitals, evicted from their homes, and cut off from food and medicine? To
their adult children who must now destroy their household finances to meet the
government's obligations in its stead, or carry the guilt of letting mom and
dad die of treatable conditions in a shithole?

>controlled restructuring of everyone's expectations

This euphemism seems appropriate when applied to banks and businesses for whom
counterparty risk is a cost of doing business. For individuals who gave their
entire adult lives to an institution in exchange for security in retirement,
it seems tone-deaf.

Maybe taxpayers need to bite the bullet and pay what it costs to run the
services they're benefitting from.

~~~
rubber_duck
>For individuals who gave their entire adult lives to an institution in
exchange for security in retirement, it seems tone-deaf.

When you put it like that it sounds like they had zero responsibility for the
situation. It's usually populist policies that are democratically elected that
lead to this situation in the first place - it's interesting how politicians
always get the blame but the people who voted/campaigned/supported them
because it was in their direct interest at the time aren't even considered.

Reality is _a lot_ of pension systems around the world are unsustainable and
built on the assumption that population and economy will continue to grow.
Even the mandatory "private" pension funds in my country (Eastern Europe)
mostly buy government bonds and that ends up being spent by the government.
And nobody is even talking about reducing government spending or getting a
sustainable budged they are just worried their privileges don't get touched
and throw around nonsensical demagoguery to rationalize their views.

I find it hard to be sympathetic with people that cause this kinds of problems
in the first place and impose it on others trough democratic process.

~~~
superuser2
> When you put it like that it sounds like they had zero responsibility for
> the situation.

We have no evidence that government workers voted to defund their own pensions
- presumably that was everyone else.

~~~
iofj
I don't get that such a thing is even possible. Those workers were offered
compensation, including future compensation, in trade for work now.

Why does the state get to annul the future compensation once the work is done
?

Even weirder: why do libertarians here seem to be in favor of the state doing
so ? You'd think breaking contracts would be a huge no-no for them.

------
magoon
Nobody, it seems. They committed to lifetime payouts of 75% of the average of
a worker's three highest years of salary, retiring at age 55 after 30 years of
service. And that's not for employees of a thriving/growing business -- but
for government agencies that, over time, don't/shouldn't grow and profit.

I'd like to see the original calculations they used as a basis for these
decisions.

~~~
Vivtek
The original calculations were pretty simple: "Will this get me more votes?"

Puerto Rico has always assumed that the economy would soon be turning the
corner and everything would work out, with a healthy helping of cargo-cult
New-Jerseyism.

~~~
galfarragem
This problem is widespread in all social states (democracies) all around the
world. Electoral system and responsible management doesn't play very well
together. Before 'shit hit the fan' is almost impossible to any government to
have enough power to change anything unpopular.

I wonder what the solution for this is.

~~~
SilasX
Usually, for constitutional provisions requiring that every such promise be
accounted as (or better, _paid for with_ ) a government debt on par with their
"real" bonds. Because that's what they are: the government _claiming_ it's
putting its full faith and credit behind your pension. It's horrible that they
can treat it as ultra-reliable when promising it, but can shuck it off like
it's nothing.

It's also why I don't understand all the whining (here and elsewhere) about
requiring the Post Office to actually _fund_ its pensions rather than just
assume Uncle Sam will have infinite funds to cover it later, and we Totally
Won't Renege or anything.

~~~
justin66
>It's also why I don't understand all the whining (here and elsewhere) about
requiring the Post Office to actually fund its pensions rather than just
assume Uncle Sam will have infinite funds to cover it later

Some people believe the post office is required to pay quite a bit more into
those pension funds than is necessary for their financial well being. Nobody
in that discussion claimed or assumed the government has infinite funds to
cover the post office's obligations.

It's as if you were having a discussion with yourself that happened to occupy
the same space as another, ongoing discussion on the same topic. Hence the way
some tried to engage with you (unsuccessfully) and some just downvoted you.

~~~
SilasX
I explained (with visible frustration) how it's eminently fair to expect a
business to fully fund its obligations. If someone believes that the _way_
this is calculated is unreasonable, then their primary complaint needs to be
about _that way_ , not (as every commenter does on this issue) complain about
the mere requirement to fund the pension.

A complete argument would look like this: "It's unfair to require the post
office to fund future benefits by X standard, when common, reasonable practice
is to use more lenient standard is Y."

A complete but stupid argument would have X="include all obligations forever"
and Y="ignore stuff after 75 years". This is because post-75 years can have
non-trivial implications for its sustainability, and assuming them away _does_
require belief in a bottomless pit.

I'm interested in an exchange of ideas on this issue; I just wish people were
capable of presenting a defensible argument about the Post Office pension
requirement. Your own argument on the thread [1] does not meet that standard,
as it was just "wow, that would be a lot of money". Well, yeah, if you've
promised something with a (net discounted present) value of $75 trillion, then
yeah, it's gonna be a pain to fund! Why is that an unreasonable requirement
that you not just kick the can down the road?

I'd like to hear an intelligent answer to that question. "They hate the Post
Office and want it to fail" doesn't count as one.

[1]
[https://news.ycombinator.com/item?id=11464618](https://news.ycombinator.com/item?id=11464618)

~~~
justin66
> I explained (with visible frustration)

You're being entirely too generous to yourself by characterizing your attitude
as "frustration."

------
nradov
This is why defined benefit pensions are a bad deal for everyone: employees,
employers, and taxpayers. Pension plans encourage employers to defer expenses
by over promising and under funding (moral hazard), only to stick taxpayers
with the obligation later and force pensioners to take a haircut. Governments
should terminate their pension plans and switch employees to defined
contribution plans like 401(k) with contribution matching. That way the
employee retirement funds will be safe even if the employer goes bankrupt.

~~~
bdavisx
Actually, pension plans are pretty good when the company/government funds them
the way they are supposed to be funded.

~~~
nradov
Lots of things would work pretty well if everyone did what they're supposed to
do.

------
yummyfajitas
Consider two individuals. One is a 65 year old Puerto Rican government worker
who repeatedly voted for politicans who made promises that were mathematically
impossible to keep. If anyone is responsible for the current mess, it's him.

The second is a 24 year old software engineer in California. He never had the
opportunity to vote in any election prior to 2010 (when the mistakes were
deliberately made) and never got to vote in PR.

A bailout would be a hugely immoral transfer of wealth from the second person
to the first.

Puerto Rico and Illinois need to be made an example of. As the rest of the
country watches PR and Illinois collapse they might demand that their
politicians engage in some degree of fiscal responsibility.

~~~
thefastlane
it would be the height of immorality to renege on contractually agreed-upon
compensation for workers.

~~~
yummyfajitas
California and NY have no contract with Puerto Rican or Illinois pensioners.

------
fiatmoney
The US has kind of lost track of the reason for having colonies. What exact
benefit does it receive for maintaining control and responsibility for a low
income quasi-country with its own separate ethnicity, language, and culture?
Protecting the Panama Canal from the Kaiser's dreadnoughts?

~~~
saganus
What about protecting it from Chinese interests?

Not really sure if this is plausible, but maybe if you let enough Chinese
capital into Panama, they can defacto control it, vs having the US impose
restrictions on Chinese capital investments in strategic property or whatever.

~~~
fiatmoney
With a very few exceptions, the US has been pretty adept at keeping foreign
influence out of its hemisphere since the 1800s.

It also begs the question of why the US would care.

------
innocentoldguy
This isn't just a problem in Puerto Rico. My state is dealing with this issue,
and their solution was to cut pensions. I know several people who worked for
the state for 30+ years, who were promised life-long health insurance and
other benefits as part of their pension packages, who are not getting any of
those benefits now. Even after all the cuts they have done, it still isn't
working.

------
6stringmerc
Well if going on Greece's relationship to the EU as a guiding framework, where
Germany ended up pretty much funding what got deployed, I'm going to have to
go with the United States. It sure ain't going to be Puerto Ricans living on
the island. Oh, and it ain't going to be Illinois either. They're the next
name on the 'bag-o-crap' pension outlook.

~~~
barking
I don't think that is an accurate thing to say. There seems to be a widespread
misunderstanding of the word bailout which leads people to believe that what
was given was a gift rather than a loan with a lot of strings.

And a lot of the motivation was self interest in order to prevent contagion
and also to allow the banks with loans in bailout countries to recover their
money. Much of the money that went in went straight out again in loan
repayments and a lot of debt was transferred from private debtors onto the
shoulders of the taxpayers in those countries.

~~~
yummyfajitas
Lets look at this in terms of resources. For years, Germans worked hard making
things and Greeks reaped the benefits of German labor via imports.

Now Greece is unable to make enough things for themselves, and Germans are
bailing them out. The bailout results in Germans making more things which then
get shipped to Greece.

How is this not a gift from Germany to Greece? Will the Greeks ever provide
goods and services to Germany which exceed what the Germans gave them? If so,
when?

~~~
yequalsx
For years German and French banks gave massive amounts of cheap credit to
Greeks and the Greek government. The so called bailout is nothing more than
the German government giving money to Greece with strings attached so that
Greece can then give the money to German banks. The banks don't pay for their
bad loans. The Germans benefitted from the euro and the imbalances that
monetary union has created. Greeks suffer for their dumb loans but not the
German bankers.

~~~
yummyfajitas
I'm sure numbers in a bank computer might change. Who cares? In terms of goods
and services, how does any of this benefit the Germans or French?

~~~
barking
The ECB sets interest rates to suit Germany because it is the economic monster
in the EU. So if Germany needs low interest rates to stimulate the economy,
the eurozone gets them even countries whose economies are in danger of
overheating. This is what happened to some degree in the early noughties.
Cheap loans in Europe both boosted German exports and contributed to the later
recession in the countries worst affected.

And as for breaking the eurozone rules, well even Germany did that when it
suited them.

I am not an expert on the Greek economy but I'd imagine that tourism makes up
a lot of their 'exports'. Otherwise I don't know. They are a relatively small
country and so are unlikely have many indigenous multi-national brands that
you or I would have heard of.

~~~
yummyfajitas
Interest rates are numbers in a computer.

As far as real resources, you seem to agree with me that the Germans worked
hard to make stuff that was then sent out of Germany ("boosted German
exports"). Germans work, Greeks consume.

I guess when the British empire stole stuff overseas for consumption in
Britain, that was bad for Britain and good for the world? If production is
good and consumption is bad, maybe we can tax the poor and make them work but
give the proceeds to the rich?

------
Spooky23
A: US states are nominally sovereign, they just don't pay what they can't pay.

Not sure about the nuance of a US Territory vs a state.

------
intrasight
Many states and municipalities will soon be facing their own pension crisis.
We can all rest-assured that all our taxes will be going up.

~~~
rayiner
There is a limit on the ability of states to raise taxes to cover pension
obligations. There is already a net internal migratory pattern from northern
states to southern ones. States like raising taxes to fund pension obligations
will only accelerate that trend, gutting the tax base those states are
counting on to make ends-meet.

~~~
khuey
This is already happening in New Jersey.

~~~
hkmurakami
I was surprised when I heard that the departure of hedge fund manager David
Tepper (worth $10B) from New Jersey to Florida is causing a legitimate fiscal
planning challenge for the state.

[http://abcnews.go.com/US/wireStory/billionaires-move-puts-
je...](http://abcnews.go.com/US/wireStory/billionaires-move-puts-jersey-tax-
rates-spotlight-38288362)

~~~
duaneb
Hmm, maybe delaware should jack up pensions.

------
seivan
Applies to Sweden as well. Becoming the gender students and Middle East little
collective pension fund.

Puerto Rico isn't alone nor anything apecial when it comes to blown up
pensions.

If you want to read more about it Tino Sanandaji has done a lot of research on
this and can make you wonder how dumb a nation and its people can get in such
a short duration. [http://foreignpolicy.com/2016/02/10/the-death-of-the-most-
ge...](http://foreignpolicy.com/2016/02/10/the-death-of-the-most-generous-
nation-on-earth-sweden-syria-refugee-europe/)

