Skip to comments.Public Pension Plans: Boom and Bubble Forever Or Bust
Posted on 06/12/2014 4:09:14 PM PDT by Lorianne
Public pension plans of states and cities have been in a heap of trouble for years. Promises of juicy pensions after a relatively short time on the job, with many decades of life expectancy remaining, are easy for politicians to make and buy votes with, and for unions to demand to please their membership. But theyre a tad expensive to live up to. Some have been involved in bankruptcies of their municipalities, including those of Detroit. Others are headed that way.
Now the Center for Retirement Research at Boston College released a study, based on 150 public pension funds, that sheds light on just how essential a permanently booming economy and everlasting bubbles in the stock and bond markets are to the survival of these funds and how theyre already integrated into the calculus.
The best-case scenario, which is also the base scenario, assumes return on investment is 7.7% for all plan assets combined, for all years to come. So were in the biggest credit bubble in history, when 10-year Treasuries yield 2.6%, and paper with short maturities yields close to zero. Even many junk bonds dont yield 7.7%, and defaults are excluded from the scenario. So stocks over 50% of the assets in these plans and other assets have to make up the difference. Last year they did, and in some of the prior years they did, but then there was the crash of the financial crisis, and before then, it was the crash of the dotcom era, and in the future, the swoon will have some other name, but there will be a swoon.
(Excerpt) Read more at testosteronepit.com ...
The California plans have been in trouble for at least 30 years. Nothing to see here. Move on(.org)
When stocks crash (and they will, they are incredibly artificially high due to Fed pumping), then we are all screwed.
Short, puts, etc.
You can be the next John Paulson.
We all know what’s gonna happen.
The difficult part is getting the timing right.
Somehow I doubt we are all going to get screwed equally.
1. Outlaw public employee unions.
2. Outlaw career politicians through term limits.
If politicians don’t have to run for re-election, the opportunity for corruption approaches zero.
There was an acceleration in the late 90s when local and state peace officers and firefighters formula was boosted to 3% per year at age 50 instead of 55. Maximum was set at 90%. California poff formula
Screwed enough. This next collapse will most likely be Global, deep, and life changing beyond all description.
I don't see that at all. They can still be promised things after their term is up, or promised things for their wife, son, niece, cousin, etc.
It's a very sweet deal. They get more money after retirement than when they were working. While working they have many deductions from their gross salary. After retirement, there are few deductions like fed and state taxes. Most of the other deductions vanish. So they'll get a higher net income off that 90% payout than from when they worked.
Cops and firefighters get way too much on their retirement formula. Other salaried government workers get 2% per year at age 60, and a maximum around 70%. Cops and firefighters are bankrupting cities.
I agree with last para
However. Retirement income is taxable
Medical retirement can be part tax free
Some cal retirees move to states with no state income tax
Yes, it is. But as I said, fewer deductions after retirement. That's how it is in my case. I did calculations when retiring, that my net was about 24 percent higher as as a percentage of my income after retiring. The taxation on retirement income is double-taxation. Taxes were paid on that portion while working, and again when received as a pension. Not too long ago Social Security payouts to retirees was not taxable, but now it is; the politicians lied as usual (Democrats originally promised that Social Security would never be taxed as income upon retiring). Anyway, regular workers get up to two-thirds salary (most far less), but cops get all of what they got while working upon retiring.
“The California plans have been in trouble for at least 30 years. Nothing to see here. Move on(.org)”
Same here in NJ; it has been crippling the state for decades, and ensures that it will be an economic basket case for years to come. The gibsmedat workfare class still demand more, though.
In the short term—but the short term is limited. That means they have little time to become entrenched, reliable proponents of the special interests. The cost of lobbying goes up and the returns go down. Is it a cure all? No. But it will be a huge help. George Washington went back to the farm—so should the rest of them.