Tag: pensions

Categories
folly too much government video

Video of the Week: California PERS Aristocracy

In vignette after vignette, this mash-up provides a helpful (and amusing) take on California’s pension fiasco:

It’s not easy thinking about government-enacted pensions, I guess. Everyone wants to retire young and well-off, and no one wants to appear stingy. But there has to be responsibility in how these things are set up.

I touched upon the subject earlier this week, in “Pension Declension.” Two of my commenters — Charles Sainte Claire and SkipppingDog — strike me as perhaps not quite getting why pension reform is necessary.

What Charles and Skipping aren’t saying is that a defined benefit plan guarantees a certain return whether or not the money has been invested to produce such a return. So, where does the money to pay the defined benefit come from?

Yep, you guessed it: The taxpayers. Future taxpayers who can’t even be blamed for having elected the dishonest pols who cut these fraudulent deals with the politically active and powerful public employee unions.

In the public sector, the pressure will then be off the workers and politicians to actually fund today what will be spent tomorrow. Which means embracing the sort of chaos now destroying states and municipalities in California and across these United States.

What about in the private sector? Did someone say “private” sector? Well, even in the private sector, it will be the taxpayers who get stuck with the bill.

To suggest that defined benefit plans are the way to go is to suggest that workers can have whatever they desire and some magic person named The Taxpayer will always be there to pay for it. It is to embrace fleecing future generations.

Of course, we’ll be told that it “worked well in the past.” In a manner of speaking. After all, Bernie Madoff’s fraudulent scam worked well “in the past.” Most rip-offs “work well” . . . that is, until the very moment when honest, hard-working people realize they’ve been had.

Categories
initiative, referendum, and recall responsibility

Pension Declension

The ugliest truth about California’s newest, gimmick-ridden budget, is that it doesn’t address the looming public employee pension issue. Adam Summers, a Reason Foundation policy analyst, gave some figures in the Orange County Register, explaining that these pensions have been “recently pegged at up to roughly $500 billion — roughly $36,000 for every household in California”:

Throw in the $50 billion or so in unfunded retiree health care liabilities, a $10 billion unemployment insurance fund debt, and the state’s $152 billion in general obligation bond debt, and you start to get a fuller sense of the state’s true financial problems.

The current plan to deal with this — reducing pensions for new state hires back to 1999 levels — Summers says was tried before, and failed. And by “failed” I mean revised after the fact and retroactively negated by the state Assembly.

Summers says there’s only one way out:

Politicians can’t continue to merely nibble around the edges of the state’s pension crisis. It’s time to admit that the 401(k)-style retirement plans that are good enough for nearly every private sector worker are going to have to be good enough for state workers, too.

But do politicians have the guts or the principles required? An initiative is needed. No level of government should be allowed to offer any pension not fully invested at the time of wage or salary payment — or promising a specified pay-out.

That would be as revolutionary as the legendary Prop 13.

This is Common Sense. I’m Paul Jacob.

Categories
folly national politics & policies

Save the Unions’ Ponzi Schemes?

Senator Bob Casey from Pennsylvania is legislating something big, the “Create Jobs and Save Benefits Act.”

Innocuous? Everyone wants more jobs. Government may have a lousy track record creating jobs that actually produce things demanded by people, but still — the bill is hardly unexpected in times like these.

It’s the second half of the title that indicates the powder keg within. The bill would bail out horrendously mismanaged union pension plans.

Unions, in the current legal context, are legal creatures of the state, with special privileges. And, surprise surprise, their own pensions — the ones that they manage — appear to be in as bad shape as the public-employee pensions I’ve talked about before, the ones that are building into a tsunami of insolvency.

A public bailout would transfer money from people without any special pension plan to people with pensions that are going bust. This is horribly unjust. That’s why Americans for Limited Government — a past sponsor of this program — is calling out Republican politicians who’ve signed onto Casey’s audacious scheme.

“At issue are multi-employer pension plans, in which companies across an industry pay into a single pension pool,” explains the Wall Street Journal. “[E]ven before 2006 only about 6% of multi-employer plans were fully funded, compared to about 31% of single-employer plans. The real problem is that multi-employer plans have become a sort of pension Ponzi scheme.”

Hmmm. Where have we heard that before?

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets

The Next Market To Melt

“During melting markets, all pension funds come under siege.”

I’m quoting from a February article by John Entine. This Reason magazine cover story is entitled “The Next Catastrophe,” and, like so many things these days, it’s scary. Entine explains how fragile pension funds can become when markets collapse.

Regular listeners know that I’ve been worried about what we might call the Ultimate Catastrophe. Increasing demands on Social Security and other entitlement programs, like Medicare, added to never-ending deficit spending, threaten to bankrupt the nation.

But Entine looks at a different economic crisis. He points out that all pension funds can become unhinged in chaotic markets. Old news. What’s new? Well, many government and union pension funds began taking riskier stances regarding stock investing a few decades ago. And with greater risk comes You Know What.

Worse yet, many funds have been hijacked by well-meaning do-gooders, investing in “socially responsible” causes rather than reasonably run profitable companies. These funds are worth over $2 trillion. That is, they are until their fundamentals prove weak or worse, and they go down, down, down.

As with the mortgage markets, it seems that pension management has undergone a huge paradigm shift, away from security and savvy, towards . . . nonsense.

Things are not looking up, up, up.

This is Common Sense. I’m Paul Jacob.