
Pension Funds Burn Cities as $1 Trillion Shortfall Set to Grow - randomname2
http://www.bloomberg.com/news/articles/2015-07-17/pension-funds-burn-cities-as-1-trillion-shortfall-set-to-grow
======
lotsofpulp
Defined benefit pensions are a ridiculous idea to begin with. The underlying
assumption that humans can predict economic and biological conditions 30 to 60
years in the future is ridiculous. Add the fact that a huge pot of money can
be easily corrupted, and the concept of taxpayer funded pensions becomes
absolutely stupid, only working for the past 60 years due to a baby boom.

The voters in local elections are mostly government employees (edit: my
speculation based on a few elections, but also how unpopular it is to reduce
pension benefits nationwide), so you vote someone in who promises you more
pay, but the pay has to be deferred so it doesn't affect the current budget.
You also hire the actuary who will use the most liberal risk free rate of
return (hilarious that they assume 7%+ risk free rate of return over the next
30 to 60 years), so the costs look smaller than they are.

On top of all of that, you ignore the insufficient funding requirements the
actuary suggests to meet your budget somewhere else because there are no laws
around funding a taxpayer funded pension...which obviously makes sense because
you can just keep increasing taxes.

The only way taxpayer funded pensions make sense is for politicians and union
leaders, who gain from the influence that comes from sitting on billions and
billions of dollars and directing that money to money managers who will
somehow return the benefit (aka corruption). If they weren't corrupt, then
governments would just give the employees the cash to go out and buy an
equivalent life annuity from an insurance company. Of course, the annuities
don't exist or are ludicrously expensive because it's crazy to try and predict
the future so many years out.

~~~
chongli
No, the problem here is that elected officials are given access to the pension
fund to begin with. If the pension were set up independently and the
government simply handed over their bargained-for monthly contribution to the
independent fund then we wouldn't have the issue of politicians running
populist "loot the pension fund" campaigns.

~~~
rayiner
That's more or less how, e.g., Chicago funds its pensions:
[http://www.wbez.org/news/experts-say-chicago-has-public-
pens...](http://www.wbez.org/news/experts-say-chicago-has-public-pension-
system-set-fail-109329). Every year, they put in a fixed multiple of what
employees paid in two years' prior. The city skipped a number of payments in
the 1990's because the funds were projected be overfunded, but I've never seen
an account of these "loot the pension fund" measures you're talking about.

~~~
twic
Looting has happened, but as far as i know, mostly in the private sector.
Robert Maxwell was the last great example, and the rules in the UK were
tightened up considerably after him:

[http://news.bbc.co.uk/1/hi/business/1251019.stm](http://news.bbc.co.uk/1/hi/business/1251019.stm)

------
yardie
Chickens coming home to roost. While the employees have been making their
required contributions during each pay cycle their employer has been blowing
off their part. I guess, since most city comptrollers are elected or appointed
by those elected no one cared that the books weren't truly balanced. The
problem wouldn't manifest itself for a few decades.

If you look at Detroit as an example, the politicians will blame the
pensioners for being "entitled" to their pensions, declare bankruptcy, and
their retirees will be forced to eat cat food.

~~~
themartorana
Or all of New Jersey. Governor Christie loves to vilify public employees while
refusing to pay the legally required contributions to pension funds.

I get it - pensions are expensive. Figure out a plan to start transitioning
off of them for new hires. But this is just a refusal to meet contracted
obligations, while laying the blame at the feet of the people that held up
their end.

~~~
jqm
I'm sure it's not true of all public employees, but many of those I am
familiar with richly deserve vilifying.

There is no shortage of people who did very little during their working career
and expect to retire after 20-25 years with full health benefits and a livable
pension paid for the rest of their lives. In my opinion, this is a form of
freeloading and it certainly isn't sustainable.

I don't know what the solution is. I'd like to see better pension schemes for
private sector workers.. particularly those who don't stay at a company for 20
years. I suppose maybe a national scheme similar to Social Security. I don't
know...

~~~
derefr
Whatever else it is, it was an option that was clearly on the table 20 years
ago when these people were deciding on a career, and is probably in large part
why they went into the public sector in the first place (as part of a larger
package of "job security.") It's not freeloading, I think, to accept the
"gift" of a nice career freely given; any more than it is freeloading to
accept a scholarship, or an inheritance.

~~~
jqm
You are right. Freeloading probably isn't the right term.

But it is an abusive scheme.. particularly given that performance expectations
usually aren't reasonable, and once someone has "gotten on", they are usually
very hard to get rid of.

In the meantime, someone in the private sector is being increasingly squeezed
for performance, can be gotten rid of almost on a whim and is very unlikely to
have lifetime pension benefits.. particularly ridiculously unsustainable ones
like public employees. True, they do have the potential of a larger salary and
probably more job satisfaction. I just wish a balance could be found allowing
people to actually enter productive jobs and make an effort towards improving
the world while enjoying (a more reasonable version) of the pension benefits
public "workers" (I use the term loosely) enjoy.

------
inthewoods
The sad part is that this isn't new - I've been reading about this since about
2006-2007 and I'm sure it was around prior to that. Combo of underfunding
pensions and then underperforming your model (which was ridiculous to begin
with) - just bad news all around. This is going to crush the elderly.

Moody's downgrading the cities - oh the irony. Rate junk housing bonds as
triple AAA and then do your actual job on the on the city pensions.

Agreed with everyone else on the politicians - particularly those on the right
- will be quick to seize on this as another supposed example of government
freeloaders.

I've thought for a long time that we're on the cusp of an inter-generational
finance war - with pensioners and retirees demanding what they've been
promised, while the funding required has to come from non-retired generations
that don't have any strong financial position themselves.

~~~
rayiner
Cutting benefits to make ends meet won't "crush the elderly." Just reducing
pension benefits to the social security rate will save a ton of money:
[https://www.illinoispolicy.org/reports/fact-finder-
pension-b...](https://www.illinoispolicy.org/reports/fact-finder-pension-
benefits-of-chicago-workers/)

~~~
Amezarak
That article is bizarre. It makes statements like this repeatedly:

> Some career city workers even retire in their mid-50s while collecting
> pension benefits equal to most of their final salary. In contrast, private
> sector workers cannot begin drawing a full Social Security benefit until
> nearly a decade later – at the age of 67.

Why on Earth would you compare Social Security with public pensions? Of course
private sector workers cannot draw Social Security until 67. City workers
can't draw Social Security until 67 either. But private sector workers can
draw on _their_ pensions (the few that are left) and on 401(k) accounts as
early as age 55, too.

Both city workers and private sector workers draw on Social Security _and_
their retirement funds, whether those be investment accounts or pensions. Why
the strange pretense that public sector pensions are equivalent to private
sector retirees collecting Social Security?

We're supposed to be outraged at 'excessive' pensions that, at the extreme
end, match the salary of the retiree before they retired. But that's exactly
where private sector pensions are, and that's exactly what you're supposed to
target in your 401(k)/IRA etc. (Of course, the reality is that the vast
majority of 401(k) accounts are drastically underfunded, but as this doesn't
represent a liability to anyone, nobody cares.)

Then you have paragraphs like this:

> The amount of money a career city worker contributes to his or her pension
> has no bearing on what that worker will receive in retirement.

...And the article then goes on to note that a) pension contributions are a
percentage of your salary and b) the % of your salary depends on your years of
service and c) the pension ultimately pays out your salary every year,
assuming (b). So it absolutely does depend on the amount of money a career
city worker contributes.

Finally, you have this comparison:

> Rhea Fries Boldman’s experience as a Chicago Public Schools teacher reveals
> just how out of sync city worker contributions are compared to the benefits
> they receive.

> Boldman retired in 2012 at the age of 59 with a final average salary of
> $87,057.

> Boldman is receiving an annual pension of $71,674 – and she will receive
> $2.4 million in pension benefits during her retirement if she lives to her
> full life expectancy.

> Yet she contributed just $147,032 to the pension system over her 30-plus
> year career. Her direct contributions to the Chicago Teachers’ Pension Fund
> will cover just 6.2 percent of her expected lifetime benefits. Including the
> interest earned on those contributions, the total would cover approximately
> 12 percent of her expected lifetime pension benefits.

Hopefully Boldman is earning a lot more than interest in her pension account.
If not, that's mismanagement. These numbers aren't _drastically_ different
from what you'd see in a 401(k). Were I to retire at 59, my company's 401(k)
projection calculator says I'd have contributed 380k and would receive 3.5
million. I expect this is optimistic, but you can still see there is nothing
_totally_ ludicrous about those numbers.

EDIT: My own back-of-the-hand calculations indicate 'optimistic' is perhaps an
understatement. Hm.

~~~
rayiner
> Why on Earth would you compare Social Security with public pensions

Because both are paid for with tax dollars, while private sector pensions and
401(k) accounts are not. Moreover, the public can't be forced to raise taxes
to bail out underfunded private sector pensions, while courts are doing just
that with public pensions.

> We're supposed to be outraged at 'excessive' pensions that, at the extreme
> end, match the salary of the retiree before they retired.

The fact is, that if you were an employee whose private sector employer went
bankrupt or you didn't put enough into your 401k, then you're stuck with
whatever you get from Social Security. I love paying my taxes, but I don't
want to see that money go to giving former public employees a standard of
living _beyond_ that enjoyed by those who worked for private employers that
failed.

~~~
timsally
> Moreover, the public can't be forced to raise taxes to bail out underfunded
> private sector pensions, while courts are doing just that with public
> pensions.

The Pension Benefit Guaranty Corporation (a government agency) explicitly
exists to bail out private sector pensions with tax dollars. These taxes are
already "raised" so the public isn't being forced to do anything in addition.
This is just to say that we do spend tax revenue backstopping private pensions
beyond just social security.

One other thing I would point out is that the courts are forcing the public do
pay pensions because the public wrote it into law (the frickin' state
constitution in the case of Illinois). It was truly an idiotic idea, but the
public and the lawmakers need to undo it, not the courts.

> The fact is, that if you were an employee whose private sector employer went
> bankrupt or you didn't put enough into your 401k, then you're stuck with
> whatever you get from Social Security.

Plus PBGC payouts, as mentioned above.

> I love paying my taxes, but I don't want to see that money go to giving
> former public employees a standard of living beyond that enjoyed by those
> who worked for private employers that failed.

Definitely. The yearly caps for PBGC coverage of private pensions
([http://www.pbgc.gov/news/press/releases/pr14-12.html](http://www.pbgc.gov/news/press/releases/pr14-12.html))
would be a good place to start for public pensions. More serious reform is
probably needed though. The math doesn't lie. We can't be mortgaging our
future to fund unsustainable retirement payments. Cap existing payouts, close
the plan to future participants, bolster self-managed retirement options like
401ks, and strengthen the social safety net by injecting some capital into
social security. It definitely would be a raw deal for many people, including
some people who are very close to me. However, there's just no other way to
make the numbers work out.

~~~
briandh
> The Pension Benefit Guaranty Corporation (a government agency) explicitly
> exists to bail out private sector pensions with tax dollars.

Are you sure? From what I'm reading it draws the money it uses for payouts
from premiums and the assumed assets of failed plans.

[http://www.ebri.org/pdf/publications/facts/0107fact.pdf](http://www.ebri.org/pdf/publications/facts/0107fact.pdf)
[http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/66xx...](http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/66xx/doc6657/09-23-guidetopbgc.pdf)

------
seibelj
7% assumed return is the most ridiculous part of it all. I remember when NYC
tried to reduce their assumed rate from 8.5 to 7.5 and people threw a fit
([http://www.bloomberg.com/news/articles/2010-08-20/new-
york-m...](http://www.bloomberg.com/news/articles/2010-08-20/new-york-may-cut-
assumed-8-rate-of-return-on-retiree-pension-investments))

Everyone has their head in the sand

~~~
tosseraccount
Really?

Asset class returns:
[http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/...](http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/histretSP.html)

Stocks: 11.53% Ten year T's 5.28%

7% return is easily obtainable.

Not guaranteed, but very probable.

50% stocks and 50% bonds, should on average return 8.5%

[ This analysis is not inflation adjusted ; average annual inflation is about
3.2% ; subtract this number for "real" returns ]

~~~
bobcostas55
You are making the fundamental mistake of basing the discount rate on the
assets used to fund the liability, but the correct discount rate is that of
the liability. That rate is the risk free rate.

To make the intuition clear: if you were to go to the market and purchase an
asset whose cash flows exactly match those of a riskless DB pension, what
return would you expect on that outlay? Stock market returns? Of course not,
that would represent a clear and huge arbitrage opportunity. The rate of
return would be the risk-free rate for that horizon. 30 year treasury bonds
earn ~3.1% today.

~~~
tosseraccount
There is no "fundamental mistake".

This is the historical average returns for assets classes.

It's very imprudent to ride "risk free" for a lifetime. 50% stocks and 50%
bonds is a very safe base over time.

You should take some risk.

~~~
bobcostas55
>You must take some risk.

DB pensions have no risk at all, tell it to them.

~~~
hga
That would be news to the Pension Benefit Guaranty Corporation
([https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo...](https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation)),
which I'll note was set up in 1974. Yeah, it's for private plans, but no one
who's been following current affairs is surprised by what's been happening
with government pensions, if you study much economic history you'll know
municipalities went bankrupt during the Great Depression, and that the Federal
government massive devalued the dollar in the early '30s when it seized all of
our gold.

~~~
tosseraccount
Actually, Plutonium deliverable on short notice is the base for U.S. currency;
not gold stored in vault.

A government’s ability to back its currency is the basis of currency value;
not hoarding metal bars.

Churchill considered his return to the gold standard the greatest mistake of
his life.
[https://en.wikipedia.org/wiki/Winston_Churchill](https://en.wikipedia.org/wiki/Winston_Churchill)

~~~
hga
Perhaps; I'm not sure we have the will to enforce that, and I'm sure we don't
against other nuclear powers. But it's true that there's a correlation between
relevant military power and currencies, Switzerland is an example.

But I'm talking about FDR's Executive Order 6102
([https://en.wikipedia.org/wiki/Executive_Order_6102](https://en.wikipedia.org/wiki/Executive_Order_6102)),
which seized the nation's private gold bullion stores at $20.67/oz, and then
repriced it for international transactions at $35/oz. Per Wikipedia and the
current BLS inflation statistics, that was $51.40 billion in 2015 dollars
confiscated from the American people.

National level politicians are already starting to talk about helping
themselves to private retirement money; my major point is that there's no
guarantees in this domain (once you go beyond your family).

~~~
tosseraccount
I obviously touched a raw nerve among the gold bugs. Sorry; but some people
think gold is just a metal.

Why not back a currency with tin or lead? I know! Cattle would be the best
commodity. No? How about gasoline?

According to this ...
[http://www.nma.org/pdf/gold/his_gold_prices.pdf](http://www.nma.org/pdf/gold/his_gold_prices.pdf)
Gold was not $35, it was $26 ounce at the time. After a recent run up no less.
Where did you get your info, some Rand Paul/Zero Hedge site?

FDR did this to expand the money supply. The U.S. was suffering from
deflation.

Do any countries actually back their currency with gold?

Any modern country ? Not "stores a bunch" but actively exchanges currency for
gold on a consumer level?

~~~
hga
I referred to gold in the 1933 Executive Order because world trade was then,
and until Nixon closed the gold window in 1971, a world standard for trade.
Hence FDR's action having measurable effects of all sorts (and I'll add that
the major virtue of something like a gold standard is that it makes it obvious
when the government decides to start cheating the people).

As for where I got my specific figures, the notorious "Rand Paul/Zero Hedge"
site known as Wikipedia, a link to which I included, specifically
[https://en.wikipedia.org/wiki/Executive_Order_6102](https://en.wikipedia.org/wiki/Executive_Order_6102)
for prices (and this matches my memory from other, independent sources,
including the history that got brought up when Ford signed a bill in 1974
allowing us to again own gold):

 _Executive Order 6102 required all persons to deliver on or before May 1,
1933, all but a small amount of gold coin, gold bullion, and gold certificates
owned by them to the Federal Reserve, in exchange for $20.67 (equivalent to
$376.58 today[4]) per troy ounce....

[ Exemptions. ]

The price of gold from the Treasury for international transactions was
thereafter raised to $35 an ounce ($587 in 2010 dollars). The resulting profit
that the government realized funded the Exchange Stabilization Fund
established by the Gold Reserve Act in 1934._

Click through the latter link for the value I then plugged into
[http://www.bls.gov/data/inflation_calculator.htm](http://www.bls.gov/data/inflation_calculator.htm)
to get 2015 dollars.

------
rayiner
This is going to be an existential crisis for most cities, and to survive they
will have to figure out how to avoid paying these pensions. Whoever is to
blame for the mess, the current generation of workers isn't going to want to
pay higher taxes while having reduced services just so public employees can
have their benefits. Especially when for most of that current cohort, those
benefits will be far more generous than anything they will ever get, as
everyone cuts benefits for newer hires first.

For all but the most compelling cities, this situation ends with their tax
base moving to non-Union cities in the south.

~~~
moonchrome
According to contemporary economic thought in the media : just exit the USD
and start printing your own currency - it makes no sense to have entire US
economy under one currency and not allowing separate regions to manage trade
imbalances and remove their fiscal obligations trough monetary tools

:D

~~~
SapphireSun
That's different, this is money we owe ourselves rather than money we owe
foreign creditors. Printing more dollars can be used to fix a trade imbalance.
When the problem is domestic, we can just pass laws to clean it up. The
question is who's going to be on the losing end of a renegotiation.

~~~
YokoZar
To be clear, instead of passing laws shirking the debt we could also "solve"
the problem by inflating the currency (printing money to pay the pensioners).

~~~
emp_zealoth
Cynical part of me instantly thought how nice of a way it is to screw everyone
except the uber rich

------
gaius
Kinda the problem in the UK is that if an organization was deemed to have
"over-funded" its pensions scheme in the good years, it would be done over by
the taxman. Even tho' everyone "knew" that markets could go down as well as
up! So you're damned if you do and damned if you don't.

------
marcusgarvey
Oh, pension fund investment dysfunction...the gift that keeps on giving.
Recently it was revealed that CalPERS (the largest U.S. pension fund that
manages investments for Cali. public employees), has no idea of all the fees
it's paying to private equity firms to manage their money. It took an intrepid
indy blogger to do this digging.
[http://www.nakedcapitalism.com/2015/06/calpers-admits-it-
has...](http://www.nakedcapitalism.com/2015/06/calpers-admits-it-has-no-idea-
what-it-is-paying-in-private-equity-carry-fees.html)

It has now led to NYT Dealbook,the Sac Bee and the California treasurer
picking up the scent.

And, by the way, this lack of fee transparency is just one of the the factors
that contribute to private equity being a very overrated asset class. Yves
Smith of Naked Capitalism has been sounding the alarm. If you're interested,
she's one to follow.

~~~
fredfoobar42
Hedge funds aren't much better, and have the added "benefit" of being
completely opaque to the investor with higher fees. Part of why there's so
much investment in Venture and Growth Capital by so many institutions,
including pensions, is that it's one of the few places that's seeing real
returns. And when that bubble bursts...

------
sadris
How to solve the pension crisis without being sued for breaking contracts:
income tax on pension benefits at 95% rate for all amounts over $40,000.

~~~
danielweber
Could be a bill of attainder.

And if it works, even if you like the ends, those means should scare the shit
out of you. The government can go after anyone unpopular at any time just by
carefully crafting an income tax.

------
imglorp
Let's not forget the largest fund of them all: Social Security will be tango
uniform in 2033.

[http://www.nytimes.com/2013/01/06/opinion/sunday/social-
secu...](http://www.nytimes.com/2013/01/06/opinion/sunday/social-security-its-
worse-than-you-think.html)

~~~
sigzero
Nah, Congress will never let that happen. They will tax us into oblivion to
shore it up.

~~~
Retric
Moving back the retirement age is far more likely than you might think. From
the cost perspective it's front loaded by age as there are a lot more 65 year
olds than 95 year olds walking around. With a little warning someone can wait
another year to retire, but a 95 year old has little recourse if you cut
benefits.

------
hchenji
I don't understand...how can there be a shortfall when annualized returns
exceed the promised 7.x%? Take Ohio for example
([https://www.strsoh.org/_pdfs/investments/investments.pdf](https://www.strsoh.org/_pdfs/investments/investments.pdf)).
They seem to return an annualized 8% over the last 10 fiscal years (june-
june). Why can't other state pension funds just ape this asset allocation?

~~~
lotsofpulp
The mortality rates used could have been wrong, and people living longer than
expected means more money having to be paid out than expected. I'd also take
pension fund return #s with a grain of salt, as there are lots of ways to
massage taxpayer funded pension numbers. And all pension funds can't just copy
each other, otherwise a bubble happens and in the end everyone ends up with
less. The only way out for all pension funds to win is to inflate the dollar,
i.e. making the people receiving the pension lose. Or to increase taxes,
making taxpayers lose. Actually, taxpayers lose in both cases.

------
cheriot
Pensions seem like the same kind of problem as long term insurance policies
(life, liability, etc) and I've not heard of these kinds of issues happening
there. I suspect the problem with pensions is that they're run by people (CEOs
and politicians) that are strongly incentivized to under fund them.

------
curiousjorge
it never made sense as to why people are required to take a pay cut with hopes
some opaque group will promise them greater return in the future.

You can't expect fund managers to consistently return 7% without taking risks
and having exposure to market downturns. You know who else offered a
consistent market return on stocks year after year for decades? Madoff

------
spoiledtechie
Its the same for the USA as it has 126 Trillion in unfunded liabilities. In
the next 30 years, the US will face the same problems as cities are today.

~~~
rayiner
That number probably isn't real: [http://www.washingtonpost.com/blogs/fact-
checker/wp/2013/10/...](http://www.washingtonpost.com/blogs/fact-
checker/wp/2013/10/23/does-the-united-states-have-128-trillion-in-unfunded-
liabilities).

There are also a couple of key distinctions:

1) The Supreme Court decided in _Fleming v. Nestor_ that people do not have a
contractual right to their social security benefits. Therefore, the benefits
can be changed at any time. In contrast, several states have a constitutional
amendment protecting public pension benefits.

2) Most of the liabilities are Medicare, which doesn't have a defined benefit
at all.

3) Unlike the states, the Federal government can print money to reduce the
real value of benefits.

4) The tax base is far less mobile between countries than between cities and
states.

~~~
SilasX
It's not real because the government can just not pay it? Because, even though
people are counting them, they're not "really" liabilities that the government
really takes seriously?

I can't say that dissolves my worry about this...

~~~
rayiner
No, it's two separate points. One that the $127 trillion number is almost
certainly overstated. Two that whatever the number is, it's of a fundamentally
different nature than state pension liability.

In Illinois, Gov. Rauner's modest attempt to reform the pension situation in
the state was shot down by the Illinois Supreme Court because the state has a
constitutional amendment guaranteeing pension benefits. Under _Fleming_ the
federal government can reduce Social Security and Medicare benefits if
necessary. It'll be politically divisive, but it'll be possible. You won't
have the situation you have in Illinois where the courts are telling the
electorate they can't make certain reforms.

~~~
SilasX
I'd say that they're the same issue -- whether the state can honor expensive
obligations that a lot of people are depending on -- and that distinguishing
them is pedantry. ("Oh, see, it wouldn't _technically_ be reneging on a
debt.")

When someone brings up the figure, the point is, "hey, there is a huge bill
coming due, and not paying it would screw over a lot of people". When you
dismiss that on the grounds that:

\- We can just not pay it

\- We can debase its real value

\- It wouldn't be a default in the legal sense

then you are not addressing the core point. I don't see how someone can read
your post and say, "oh, I guess I don't have to worry about this anymore", and
if your post is _not_ arguing to that effect, then I'm not sure what it adds
to the discussion. At most, you're just saying, "you shouldn't _totally_ freak
out because the figure is just $60 trillion."

Let's assume for a minute that Illinois did have legal recourse -- say, but
implementing a special tax on pensions. Would you feel any better? I wouldn't;
someone is still getting screwed, the situation is still bad.

~~~
rayiner
> whether the state can honor expensive obligations that a lot of people are
> depending on -- and that distinguishing them is pedantry.

Distinguishing them isn't pedantic at all. First, there is a big difference
between a defined benefit pension and say Medicare (which is the bulk of the
unfunded liability). The former is a dollar amount people expect to receive.
The latter is a general public service. It's like school funding or
transportation. Nobody has an entitlement to receive a particular level of any
of those services, even if they rely on them.

Second, and perhaps more importantly, not being able to "honor expensive
obligations" is not the end of the story. It certainly matters what happens
when the ends don't meet.

> "oh, I guess I don't have to worry about this anymore"

I didn't say we don't have to worry about it anymore, I said it's a different
problem. The pension crisis in many cities and states is an _existential
problem_. They can't cut benefits, so they have no choice but to raise taxes
and cut services, driving away their tax base. It'll lead to a vicious cycle
that'll gut these local economies. At the federal level, cutting retiree
benefits will hurt some people, but the government won't be forced into a
position of fundamentally compromising its competitiveness vis-a-vis other
countries.

> Let's assume for a minute that Illinois did have legal recourse -- say, but
> implementing a special tax on pensions. Would you feel any better? I
> wouldn't; someone is still getting screwed, the situation is still bad.

Yes! I'd rather see pensioners get less than they expected than see tax hikes
and service cuts that accelerate the trend of people migrating from places
like Illinois to places like Georgia.

~~~
SilasX
So you're saying Illinois pension liabilities are _more_ problematic than
those at the federal level, meaning that the former should be counted as
_worse_ for purposes of tabulating future promised benefits, and therefore the
OP's figure _understates_ the extent of the problem?

Then why did you present the evidence as contradicting the OP's point when it
actually supports it? It seems your post should have read:

"That figure understates the severity of the problem because some of the
liabilities are promised by states and localities that are far more
constrained in their ability to get out of paying."

Also, if governments are serious about honoring pensions, they should be
accounted for on par with their bonds. If not, they should help future
pensioners plan against the risk of non-payment. Framing it as "like tentative
road construction" is trying to have it both ways: expect people to work as if
the pension is guaranteed by the credit of the state, but really keeping it
separate therefrom.

~~~
rayiner
I think we parsed OP's original point differently. He said: "Its the same for
the USA as it has 126 Trillion in unfunded liabilities. In the next 30 years,
the US will face the same problems as cities are today."

The term "US" here means "United States i.e. the federal government" not
"United States as a whole country," since in the second sentence it is
comparing the federal government's problems to those of cities.

And the reason I think OP overstates the severity of the problem is because
state finances aren't your problem if you don't live in that state, while
federal finances are everyone's problem. Essentially, what OP is saying is:
"even if you don't live in Illinois or California, you'll be facing the same
problems in 30 years because the federal government has problems that are just
as bad." But the federal government's problems are a lot less bad. Which is
good, because you can move out of Illinois or California much easier than
moving out of the U.S.

> Also, if governments are serious about honoring pensions, they should be
> accounted for on par with their bonds

The crucial distinction is that re-negging on bonds affects your finances
going forward (increases borrowing costs), while re-negging on pensions does
not.

> Framing it as "like tentative road construction" is trying to have it both
> ways

I think you misread my post here. I didn't say pensions are like just another
public service, I said Medicare is, unlike pensions. Nobody bargained for a
particular number of Medicare dollars in 30 years in return for doing a
particular job. That's why the Federal government is in better shape--most of
its obligations are things that aren't considered (legally and politically)
guarantees in the same way as pensions.

