This fight is about the kids?

[Jim]

I am not deriding it, although I strongly disagree with the way it was implemented. I am saying that the value of a 401(k) appears no more sustainable than that of a public pension funds considering that without taxpayers saving the market from a much worse crash who knows where we'd be now. What do you think allowed stocks to recover their pre-crash value in the last 2 years? the roaring economy?

 

Oh, I strongly disagree. While pension funds and 401ks are both subject the vageries of the market, the vast amount of pension funds are woefully underfunded - meaning that states and local jurisdictions are in debt against their obligations. All the arm waving in the world can't dispute those facts. The financial crash made no differnce in this issue. 401ks by definition are self funded - no debt - so really no comparison.

[j_b]

Once again, most of the debt in pension funds is due to the market crash and these pension funds have subsequently recovered a good part of this shortfall. Something that you have been told several times already and your ignoring it isn't going to make it go away. I can guarantee you that much.

 

Public employee compensation is earned [as much as the funds that you put in your 401(k)] and it isn't the employee's fault that demagogue politicians didn't invest funds and preferred to give tax breaks instead. Also, a 401(k) or pension funds being funded by earnings has nothing to do with the value of these investments being sustained by taxpayer bailouts.

[j_b]

Since selective reading seems to be your forte, here it is for a repeat. Make sure you answer the points brought up before regurgitating the same lies about the cause of pension funds shortfall:

 

The Truth About Pensions

by Paul Krugman

Dean Baker has a deeply enlightening analysis of state pension shortfalls ( Baker's report), containing a lot of stuff I didn’t know. The basic moral is that the official story these days — of years and years of huge giveaways to unions, resulting in gigantic, unpayable debts — is just wrong: to a very large extent, the pension shortfall has emerged just since 2007, thanks to the financial crisis, and even then it’s not nearly as big relative to future state incomes as widely imagined. The truth about Pensions

 

 

 

Edited March 4, 2011 by j_b

[Jim]

Bullshit with no proof. Any actuary would look at states' pension funds and conclude they are underfunded. Their RETURNS, similar to 401ks were diminished, but how they were FUNDED - meaning that legislators choose not to, or were unable to, fully fund their obligations is the crux of the matter.

 

Previously someone posted a "report" that Krugman cited and the lovely graph that noted how the market deviated from a safe return of 4%. Yea - but - earlier in the thread we were discussing how NJ, and other states, were making the ASSUMPTION of an 8.5% return and over ten years getting 2.5% returns - and not FUNDING their debt obligations so that they were adding DEBT. Get it?

 

Really dude, you need an economics or accounting class.

[Crux]

As if Economics and Accounting were the same.

[Jim]

And thanks for providing that link. But did you actually read it? Notice the "risk proof investment line" --- well great - without any link to reality and how states and municipalities were assuming their investments would grow. Excellent! A graph! Please lean how to interpt them.

 

AND - the artlice says NOTHING on how states and municipalities were consitently, year after year, not setting aside funds to meet their pension obligations. While I generally like Krugman this article is disingenous.

[j_b]

You seem so sure of yourself it should be easy to refute Baker's report point by point. I am waiting.

[j_b]

Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009. If pension funds had earned returns just equal to the interest rate on 30-year Treasury bonds in the three years since 2007, their assets would be more than $850 billion greater than they are today. This is by far the major cause of pension funding shortfalls. While there are certainly cases of pensions that had been underfunded even before the market plunge, prior years of under-funding is not the main reason that pensions face difficulties now. Another $80 billion of the shortfall is the result of the fact that states have cutback their contributions as a result of the downturn.

[j_b]

You also failed to answer this question:

What do you think allowed stocks to recover their pre-crash value in the last 2 years? the roaring economy?

[Mal_Con]

The problem is that in the States the social contract was broken beginning in the 80's. Now the chickens are coming home to roost. It is not just because of the R's the D's starting with Wild Bill and continuing with BO have gone along with the program. Someday there will be hell to play but as someone fare wiser than us once said, "Nobody knows the date". Have fun beyotches.

[j_b]

AND - the artlice says NOTHING on how states and municipalities were consitently, year after year, not setting aside funds to meet their pension obligations. While I generally like Krugman this article is disingenous.

 

No, you are being disingenuous since Baker makes abundantly clear that most of the debt is due to the market crash. Of course it doesn't jive with your talking point. Not my fault.

[Jim]

Seems pretty dang clear ---Pew report on pensions:

 

Regardless of stock market fluctuations, pension funds were destined to fall down a budget hole, the non-profit research center found.

 

“Over the last 10 years, many states have shortchanged pension plans in good times and bad,” said Susan Urahn, the center’s managing director, who called the beginning of the century a “decade of irresponsibility.”

 

States did not save for the future and manage costs well, said Urahn. She also cautioned that the 8 percent return on investments most states typically expect may need to be lowered. --- duh!!!!

 

In 2000, they were only required to pay $27 billion total into their funds. By fiscal 2008 that amount had more than doubled to a $64 billion deposit.

 

Describing state pension funds as operating similarly to credit card holders who make minimal monthly payments on their debt but continue to charge, Urahn said the funds were making their problems worse by not preparing for impending retirements.

 

[Jim]

No, you are being disingenuous since Baker makes abundantly clear that most of the debt is due to the market crash. Of course it doesn't jive with your talking point. Not my fault.

 

Actually that is what he says, without any supporting data - point me to the data please.

[Jim]

The problem is that in the States the social contract was broken beginning in the 80's. Now the chickens are coming home to roost. It is not just because of the R's the D's starting with Wild Bill and continuing with BO have gone along with the program. Someday there will be hell to play but as someone fare wiser than us once said, "Nobody knows the date". Have fun beyotches.

 

Exactly!

[j_b]

In the period since the beginning of the recession, annual

payments into state and local pension funds have averaged $6.9 billion less than withdrawals. By contrast, in the three years prior to the downturn, payments averaged $18.4 billion more than

withdrawals.1 If state and local governments had continued to contribute to their pensions at the same rate as they had in the prior three years, then the total assets of these funds would be $77 billion higher than was reported at the end of the third quarter of 2010. Adding this to the $857 billion figure above results in an additional $934 billion in pension funds, a figure far higher than most estimates of the size of state and local government shortfalls.

[Jim]

Learn how to f****** read a friggin economic output report dude - this says nothing about the relative debt obligations of states - NOTHING. Here's a primer for you:

 

ARE STATE PUBLIC PENSIONS SUSTAINABLE?

 

Why the Federal Government Should Worry About State Pension Liabilities

 

Joshua D. Rauh

 

This paper analyzes the flow of state pension benefit payments relative to

asset levels and contributions. Assuming future state contributions fund

the full present value of new benefits, many state systems will run out of

money in 10-20 years if some attempt is not made to improve the funding

of liabilities that have already been accrued. The expected shortfalls raise

the possibility that the federal government will be faced with a decision as

to whether to bail out states driven to insolvency by their pension

programs.

 

Keywords: public pensions, state budgets, fiscal policy, pension reform

JEL Codes: H55, H72, H74

 

Downloadable here: http://www.cheap-credit-cards.org/pension-news/u-s-state-pension-funds-in-1-trillion-deficit/

 

Seriously - if you want to argue this stuff get educated.

[j_b]

No, you are being disingenuous since Baker makes abundantly clear that most of the debt is due to the market crash. Of course it doesn't jive with your talking point. Not my fault.

 

Actually that is what he says, without any supporting data - point me to the data please.

 

It's right off figure(1), (the difference between risk free and actual in 2010), which puts your claim that only you can read figures into perspective.

[j_b]

LOL you can't read a damn figure but you'll keep pretending to give lessons, right? priceless!

[Jim]

It's right off figure(1), (the difference between risk free and actual in 2010), which puts your claim that only you can read figures into perspective.

 

Figure 1 shows this: the difference between a safe investment of 4% and the actual stock market returns over the same period. Newsflash: it says nothing about how states are managing their portfolios, nothing about how states are funding their pension funds, and nothing about how states make assumptions regarding their returns.

 

So - assuming I'm talking to freshman economics 101 here - states are in trouble with their pension funds because of all three reasons where they have strayed -1) states managed their portfolios with too much risk - way above the 4% noted in the graph, 2) states consistently underfunded their pension obligations - this means that each year for the past 15 yrs or so, they have not put in the capital they needed to meet current and future retiree obligations, and 3) they assumed much higher returns than they acutally received. All of these combined to screw themselves, and the taxpayer or the retirees in the long run.

 

As the Pew report notes - states acted as if they were making minimum credit card payments over the past 10 years.

 

Arm waving isn't changing the numbers. But continue the hysterics at will.

[JayB]

Private 401(K) balances aren't backed by guarantees that the public is obliged to fund with tax revenues in the event of a shortfall.

 

Public employee pension shortfalls are. Those shortfalls are staggering, even with the completely bogus discount rate that public entities are using to calculate the magnitude of the unfunded liabilities that will completely annhihilate the budget for every other public priority and, in the ultimate irony - eventually manifest in the massive layoffs that unionized public sector workers seem to prefer to cuts in pay and benefits.

 

"Costa Mesa to lay off nearly half of city workforce, outsource services

 

The city of Costa Mesa plans to lay off more than 200 employees and outsource 18 city services by the fall.

 

The layoffs would cut the city's municipal workforce by 43%. The City Council approved the layoffs in a 4-1 vote late Tuesday night, despite nearly unanimous opposition from the audience.

 

City officials said pink slips will go out in the next six months. The mayor blamed years of missteps by city staff and rising pension costs.

 

"This has been coming on for a long time, and we're coming to a point that's rock bottom," Mayor Gary Monahan told the crowd of mostly city employees."

http://latimesblogs.latimes.com/lanow/2011/03/costa-mesa-to-lay-off-nearly-half-of-city-workforce-outsource-services.html

 

Look for this to continue until either the taxpayers insist on maximizing cost efficiency in the public sector, or the bond market does the same.

[j_b]

I presume that Baker took freshman economy 101. What do you think? [/clown] and, please give up the know-better-than-thou shtick.

 

The figure $857 billion comes from figure(1), which shows what would be the value of these funds without market crash. Their value would be 857 billion higher than it is today, and most estimates of pension fund liability is smaller than that, which puts your various claims into perspective.

 

 

[Jim]

Ok, great - the funds would have been higher than before the crash. So what? The solvency question has to do with debt vs obligations - which this article doesn't even address. So what is your point of posting this blurb and that graph? Huh?

 

Meanwhile in a fuller analysis:

 

There is substantial cross-sectional variation in the health of the pension plans. Assuming 8% asset returns, Illinois would run out in 2018, followed by Connecticut, New Jersey, and Indiana in 2019. Five states never run out, including New York and Florida, and 17 other states have a horizon of 2030 or beyond. If all states experience 8% average returns, 20 of the states will have run out of pension money by 2025. If the average returns are 10% then only 11 will have run out by 2025. If returns are 6% then 31 will have run out by 2025.

 

And notice this is with a rather rosy 8% return. Read here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1596679

 

[j_b]

So what? like there wouldn't be a huge shortfall but some debt here and there. Can't you tell the difference or is claiming impending doom because of 'unreasonable public employee compensation' too attractive of a talking point for you to tell the difference?

[j_b]

Arm waving isn't changing the numbers. But continue the hysterics at will.

 

Baker got his numbers from figure(1) so I don't see what so arm wavy about it, nor is it hysterical to point out that you didn't understand figure(1) after claiming that you were some kind of expert (talk about shooting yourself in the foot).

[JayB]

I presume that Baker took freshman economy 101. What do you think? [/clown] and, please give up the know-better-than-thou shtick.

 

The figure $857 billion comes from figure(1), which shows what would be the value of these funds without market crash. Their value would be 857 billion higher than it is today, and most estimates of pension fund liability is smaller than that, which puts your various claims into perspective.

 

 

Basing your pension funding liabilities on the assumption that markets will never crash - this is supposed to be a serious analysis?

 

Would anyone take a structural engineer seriously if they said something like "If it hadn't been for the earthquake this building would still be standing.."

 

An easy way to get the true measure of the magnitude of the funding shortfall would be to find a company that manages annuities in the private sector and asking them how much it'd cost to get them to assume the public sector pension liabilities for a given state or local government.

 

Given that they'd have to base that figure on what the total contributions plus their earnings would be worth relative to the payouts over time using the same methods that private sector pension plans do - we'd be able to get a very clear picture of how much taxpayers are going to have to cough up to make up the difference. The number would be massive.

 

That's not even counting the cost of public retiree health benefits, the vast majority of which are completely unfunded and will have to be covered by the general fund.