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Public Pensions are Underfunded
NBER ^ | November 2008 | Matt Nesvisky

Posted on 12/21/2008 4:30:56 AM PST by reaganaut1

The extent to which public pensions are underfunded has been obscured by governmental accounting rules, which allow pension liabilities to be discounted at expected rates of return on pension assets, according to NBER researchers Robert Novy-Marx and Joshua Rauh. In The Intergenerational Transfer of Public Pension Promises (NBER Working Paper No. 14343), they report that over the next 15 years, state pensions are expected to grow to a total of about $7.9 trillion. But Novy-Marx and Rauh conservatively estimate a 50 percent chance that the system will be underfunded by more than $750 billion at that time, and a 25 percent chance of a shortfall of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger, they write. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.

Novy-Marx and Rauh collected data on the largest defined benefit (DB) pension funds sponsored by U.S. state governments. In a typical DB pension plan, an employer pledges an annual pension payment of an amount that is a function of the employee's final salary and years of employment. To assemble the list of plans, the authors began with data from the Census of Governments published by the U.S. Census Bureau. They studied all plans with more than $1 billion of assets. There were 112 such plans at the end of 2005. They then examined the Comprehensive Annual Financial Report (CAFR) for each pension plan and collected total actuarial liabilities for each, along with the discount rate used by state actuaries to calculate these liabilities.

(Excerpt) Read more at nber.org ...


TOPICS: Government
KEYWORDS: pensions; publicpensions
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Taxes in many states, such as California and New Jersey, will have to skyrocket to pay for the pensions and other government spending, but raising taxes much higher will drive productive people out of those states. I think some states will eventually need to declare bankruptcy and scale back the overly generous benefits that have been promised.
1 posted on 12/21/2008 4:30:56 AM PST by reaganaut1
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To: reaganaut1

As far as I am concerned, state workers can go hang. At this point, I’d almost rather go back to the days when every new administration from every last political venue FIRED the whole raft of state workers and patronaged their own in. This way we wouldn’t have the unions OR the bloated, undeserved pensions to try to fund with MY tax dollars!


2 posted on 12/21/2008 4:32:47 AM PST by Mobile Vulgus
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To: reaganaut1

Young people really need to work more and hand over more.
/sarc


3 posted on 12/21/2008 4:39:53 AM PST by Leisler
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To: reaganaut1
I think some states will eventually need to declare bankruptcy and scale back the overly generous benefits that have been promised.

There will be a war over that.

Government employees are going to take to the streets to protect their pensions.

Expect massive strikes and civil unrest.

4 posted on 12/21/2008 4:44:12 AM PST by NoControllingLegalAuthority
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To: NoControllingLegalAuthority
Expect massive strikes and civil unrest.

You mean government might shut down? Sounds like a plan to me!

5 posted on 12/21/2008 4:46:08 AM PST by abb ("What ISN'T in the news is often more important than what IS." Ed Biersmith, 1942 -)
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To: Mobile Vulgus
Your frustration with this is completely on-target. Welcome to membership in the "Forgotten Man" club. Those of us hard working self-sustaining slugs are about to get reamed by the federal and state government for all the stupid promises they made to themselves, state and federal workers and the "less fortunate".

I'd try to make as much income as you can in cash as the state and federal governments intend to keep as much of your reported income as they can get away with because of the Taxpayer Act of 1943. That's the Act that gave the federal government the "right" to go into your wallet and take out as much as they "need" via payroll.

6 posted on 12/21/2008 4:47:08 AM PST by indi_girl447 (A liberal guy and a liberal gal buy a yugo....and they drive with pride)
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To: reaganaut1
This includes my union, the teachers. The UAW is a sand castle, we are the beach. Few pols are not totally owned by us.
7 posted on 12/21/2008 4:50:01 AM PST by Aevery_Freeman (Demon-rats shove Minnesota's nose in the Franken!)
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To: reaganaut1

Ping


8 posted on 12/21/2008 4:51:37 AM PST by mek1959
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To: reaganaut1
I think some states will eventually need to declare bankruptcy and scale back the overly generous benefits that have been promised.

Nay, they will just tap into private assets to fund the public liabilities like 401 (K),annuities, property values, whatever isn't nailed down or squirreled away in a mason jar

9 posted on 12/21/2008 4:52:01 AM PST by Popman (Dont worry Barney Frank has your ass-ets covered!!!)
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To: indi_girl447

Some cold winter afternoon when you have an hour or so to spare, take a look at this. One of the very best articles ever published on that subject.

http://www.cato.org/pubs/journal/cj14n3-1.html
EVOLUTION OF FEDERAL INCOME TAX WITHHOLDING: THE MACHINERY OF INSTITUTIONAL CHANGE

Charlotte Twight


10 posted on 12/21/2008 4:52:17 AM PST by abb ("What ISN'T in the news is often more important than what IS." Ed Biersmith, 1942 -)
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To: reaganaut1

“Underfunded” is a spin term.

The correct description is “looted.” State governments looted the pension funds to pay for entitlement spending.


11 posted on 12/21/2008 4:57:57 AM PST by Terpfen (Ain't over yet, folks. Those 2004 Senate gains are up for grabs in 2 years.)
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To: reaganaut1

—some of those of us who have been awake to government spending for the last thirty years are already aware of this—


12 posted on 12/21/2008 4:58:14 AM PST by rellimpank (--don't believe anything the MSM tells you about firearms or explosives--NRA Benefactor)
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To: NoControllingLegalAuthority
I don't know about war, but there will be some trouble.

I'm retired on a pension from N.J. that I earned according to the laws of the state.

Someone is going to pay that retirement, or I will have to make it up some other way.

Robbing banks? No ... they're broke.

Strong armed robber? No ... too much competition there already.

Kidnap some Jersey politicians for ransom? Nah ... they aren't worth spit.


Hummmmm .... any suggestions?

13 posted on 12/21/2008 5:00:33 AM PST by G.Mason (Duty, Honor, Country)
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To: Terpfen
The correct description is “looted.” State governments looted the pension funds to pay for entitlement spending.

Bingo!!

14 posted on 12/21/2008 5:00:40 AM PST by Popman (Dont worry Barney Frank has your ass-ets covered!!!)
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To: reaganaut1

So it sounds from this article that government pension funds do not have to follow the same funding requirements that private company pension funds must follow? Private company pensions are also feeling huge unexpected underfunding pain now, and I have been wondering how in the world companies are going to comply with the funding requirements, in down times.


15 posted on 12/21/2008 5:10:18 AM PST by Old_Grouch (61 and AARP-free)
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To: Popman

How much longer can Big Government bail out Big Government? Supposedly 41 states are underwater and looking to the Feds for bailouts.


16 posted on 12/21/2008 5:10:25 AM PST by doosee
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To: G.Mason

” I’m retired on a pension from N.J. that I earned according to the laws of the state.

Someone is going to pay that retirement, or I will have to make it up some other way.”

While your perspective is understandable, there is another angle to consider - There are legions of taxpayers who expect services from the governments to whom they pay taxes. What do you think will happen when 100% of their tax burden (which is likely to increase greatly) is used to pay retirees, and they get no services in return?

The likely answer is that state/federal government retirees are likely to get far less than they expected. The funding of taxpayer services is going to be a priority over retiree pensions - and that’s probably the best case.


17 posted on 12/21/2008 5:23:40 AM PST by RFEngineer
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To: Mobile Vulgus

Yup. Every state and federal pension (exception for military) should be converted to Socialist Security.


18 posted on 12/21/2008 5:25:26 AM PST by Kozak (USA 7/4/1776 to 1/20/2009 Requiescat In Pace)
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To: Mobile Vulgus

Here in NY, the teachers pensions are killing us.


19 posted on 12/21/2008 5:26:06 AM PST by Sacajaweau (I'm planting corn...Have to feed my car...)
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To: NoControllingLegalAuthority
Government employees are going to take to the streets to protect their pensions.

So, whats the downside?
20 posted on 12/21/2008 5:26:15 AM PST by Kozak (USA 7/4/1776 to 1/20/2009 Requiescat In Pace)
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To: doosee
Supposedly 41 states are underwater and looking to the Feds for bailouts.

Many of those states have to balance state budgets by law. Instead of making tough economic and political decision to balance their own budgets, they look to US taxpayer to ease them off this burden.

21 posted on 12/21/2008 5:28:37 AM PST by Popman (Dont worry Barney Frank has your ass-ets covered!!!)
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To: reaganaut1

I know a public school teacher who teaches in NYC (has 35 years in) who said he would actually have MORE money from his pension if he retired than he gets while still working. He loves what he does, so to him money is no object.


22 posted on 12/21/2008 5:32:38 AM PST by randita
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To: Terpfen
You are correct. Many state pension funds are, like the Social Security "Trust Fund", fictions of accounting. The requirements for state governments to maintain sufficient invested reserves to fund retirement liabilities are often ignored in favor of new spending. Deficits and interest on debt service result. Politicians then turn to the private sector for relief of the problems their own profligacy has caused.

It is also interesting to note that most private companies have shifted their retirement plans from defined benefit (formula-based and employer-funded) to defined contribution (employee-controlled and -funded, with a tax incentive for employer matches). These plans, of which 401(k)'s are the dominant type, are more efficient and shift responsibility for retirement funding to the individual rather than the employing entity.

Government employers at all levels have resisted any such efforts at reform because of state and municipal union pressure and the politicians' endless appetite for more spending and vote-buying. Many of these underfunded/looted IOU's will soon come due, and the results will not be pretty.

23 posted on 12/21/2008 5:42:43 AM PST by andy58-in-nh (Liberty has few friends, many enemies, and no adequate substitute.)
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To: G.Mason

By all the dope you can in Columbia. Fly it back and probably make a fortune . Statistics have shown that only 5% get caught . Better odds than the lottery .


24 posted on 12/21/2008 5:47:01 AM PST by Renegade (You go tell my buddies)
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To: Sacajaweau

You probably COULD have been a teacher and chose not to become one . Why blame someone for their choice of profession that you chose not to pursue? If you had become a teacher, you would not be venting over the pensions they receive .


25 posted on 12/21/2008 5:49:54 AM PST by Renegade (You go tell my buddies)
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To: RFEngineer

The ONLY way to get less than in NJ if you are already retired is to change the State Constitution . That ain’t gonna happen .


26 posted on 12/21/2008 5:52:06 AM PST by Renegade (You go tell my buddies)
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To: Mobile Vulgus
Good idea. Even if some were rehired, they would have no more than 4 years seniority. No where near the 10 years (close enough) required to retire.
27 posted on 12/21/2008 5:54:43 AM PST by Mark was here (The earth is bipolar.)
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To: Renegade

“The ONLY way to get less than in NJ if you are already retired is to change the State Constitution . That ain’t gonna happen .”

I understand that - however, when the state doesn’t have the money, and can’t borrow it, and can’t get it from taxpayers, then the state will give pensioners IOU’s that will be backed by the full faith and credit of the state of NJ.


28 posted on 12/21/2008 5:55:51 AM PST by RFEngineer
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To: RFEngineer

“Full Faith and Credit by the State Of NJ”

That’s a good one . Remember NJ TAXES pensions as income so if they default that means even less tax income . Then if there is no pension $$ there will be enormous defaults on mortgages as well as the loss of sales and sales tax from all the people who didn’t get paid . Its a Catch 22 situationwhich will only compound the problem .


29 posted on 12/21/2008 6:10:35 AM PST by Renegade (You go tell my buddies)
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To: RFEngineer
" ... The funding of taxpayer services is going to be a priority over retiree pensions - and that’s probably the best case."


Like I said ... I WILL make it up some other way, and it won't be as a greeter at Wally World either.


The way things are going there just may be a bounty on all elected officials ... soon.

30 posted on 12/21/2008 6:17:56 AM PST by G.Mason (Duty, Honor, Country)
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To: G.Mason

Start running moonshine?


31 posted on 12/21/2008 6:18:55 AM PST by TSgt (Extreme vitriol and rancorous replies served daily. - Mike W USAF)
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To: MikeWUSAF; Renegade
No dope ... no moonshine.


Kidnapping politicians seems to be looking like the way to go ... at the moment. ;)

32 posted on 12/21/2008 6:24:32 AM PST by G.Mason (Duty, Honor, Country)
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To: Popman
Bingo!!

Indeed, and the "unerfunded" social security ponzi scheme is right behind it

33 posted on 12/21/2008 6:32:08 AM PST by Las Vegas Ron (The tree of liberty is getting mighty dry)
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To: reaganaut1

The correct headline: Public pensions are too high and must be cut


34 posted on 12/21/2008 6:53:47 AM PST by tbw2 (Freeper sci-fi - "Humanity's Edge" - on amazon.com)
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To: G.Mason

I clean houses in the nude. Make $400 per week. All in cash. Without this money, I would be unable to survive.


35 posted on 12/21/2008 7:38:10 AM PST by shaft29 (Just your typical black woman.)
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To: abb
Expect massive strikes and civil unrest.
You mean government might shut down? Sounds like a plan to me!

Someone has to say it: "A riot is an ungly thing... undt, I tink, that it is chust about time ve had vun." -- courtesy Inspector Kemp

36 posted on 12/21/2008 7:52:21 AM PST by Oatka ("A society of sheep must in time beget a government of wolves." –Bertrand de Jouvenel)
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To: indi_girl447
I'd try to make as much income as you can in cash

Figures from a few years back, which by now will be greater, indicate that about 10% of the US economy is already off the books, ie, cash transactions. The government knows this, as it costs them over a hundred billion a year in federal taxes, and states lose millions in sales taxes. But I expect to see more and more local merchants and service people asking to be paid in cash.

37 posted on 12/21/2008 7:59:30 AM PST by hinckley buzzard
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To: reaganaut1
Public Pensions are Underfunded Overpromised
38 posted on 12/21/2008 8:00:47 AM PST by Mr. Jeeves ("One man's 'magic' is another man's engineering. 'Supernatural' is a null word." -- Robert Heinlein)
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To: G.Mason
Hummmmm .... any suggestions?

Retire outside the United States. Get in ahead of the crowd, before all of the good countries fill up with disgruntled old Americans. ;)

39 posted on 12/21/2008 8:04:24 AM PST by Mr. Jeeves ("One man's 'magic' is another man's engineering. 'Supernatural' is a null word." -- Robert Heinlein)
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To: G.Mason
Kidnapping politicians seems to be looking like the way to go

Who would pay for a used NJ pol?

The market would be limited to next of kin and paid coat holders.(Maybe)

It could go bad if you grabbed O. Henry's Red Chief or very bad with a Bette Midler type from Ruthless People .

Best to leave this type of work to the pros south of the border.

40 posted on 12/21/2008 8:08:41 AM PST by DUMBGRUNT (The best is the enemy of the good!)
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To: G.Mason
Kidnapping politicians seems to be looking like the way to go ... at the moment. ;)

I am thinking "The Ransom of Red Chief" in that case.

41 posted on 12/21/2008 8:11:58 AM PST by Harmless Teddy Bear (Faith Manages. I consider myself a bit of a purist, and proud of it.)
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To: reaganaut1

Ive enjoyed a good career as a welding instructor in the public vocational school system.I taught many young people how to go out and earn a living . And hopefully passed on some life skill and values.
Been there 25 years.I need thirty. I did not start teaching immediately after college. I did not go to college. I went into the navy then learned welding and later finished my education while raising a family and working full time welding jobs usually combined with side work. Looking forward to retiring someday, and getting my pension. That was the agreenet that i signed onto in good faith.
I`ve always kept doing the side work as a welder however. Summer Vacations (unpaid) that teachers get allowed me to spend time welding, some would say working. But there must be something wrong with this public employee `cause i love working with metal.
When I was a kid my grandpa, drilled it in to me that what i needed to do was learn a trade, any trade. Then I would always have a roof over my head and food on the table.
So yes I would hate to loose my pension or have it cut in any way , i will not be surprised if that happens. I will fight to keep the pension that i paid for out of the wages Ive earned. But in the meantime I`ll just suck it up and keep on welding and do what i can to pass it on. ALTHOUGH i`M SURE GOING TO HAVE TO RAISE MY RATES. Especially if i recognize a customer as a liberal elitist.
Not all of us “public screwel teachers” arn`t worth it. There are many trade instructors that have followed the same path that i have and do not deserve to be screwed, by the politicians or the public. I`ve helped raise your children, in many cases more than you realize.
Just want to contribute to informing as many people as possible that many of us public employees are worth it.


42 posted on 12/21/2008 8:15:24 AM PST by weldAllday (John the Welder)
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To: Renegade; G.Mason

Rob a bank and wait for the cops.

Three hots & a cot, free medical care, TV, exercise room, free medical care...


43 posted on 12/21/2008 8:22:08 AM PST by patton (T)
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To: shaft29

Your comment is not believable without pics!!! LOL (just kidding)

Your approach is novel and obviously lucrative; however, gravity will someday have an affect on your job rates. So be sure to sock some of that cash away.

In the meantime, would you come clean my igloo in Point Barrow? hehe


44 posted on 12/21/2008 8:50:22 AM PST by biff
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To: patton
Hmmm, this is sounding appealing. Is there a crime I can commit that will get me a minimum security prison? I don't want to become somebody’s girlfriend in a maximum security prison but I still want the free healthcare, TV, exercise room etc.

Any ideas?

45 posted on 12/21/2008 8:52:20 AM PST by mek1959
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To: mek1959

Run a wall street ponzi scheme?


46 posted on 12/21/2008 8:57:09 AM PST by patton (T)
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To: patton
Great idea. Ok, I've got a deal for you Patton. If you invest $100,000 with me and my “fund” (NASDAQ:MYB), I'll guarantee you 25% return in 2012. Don't ask what MYB stands for but if you need a hint:

__ake __ou __roke. Catchy, huh.

Now, can you report me to the SEC today? I want to get this going as with the Chosen One in office, with one strike of the pen, I'll lose my business. So, the sooner I can lock up my cot, hots and healthcare the better. BTW, are there minimum security prisons for my wife and 4 kids with the same benefits?

47 posted on 12/21/2008 9:04:21 AM PST by mek1959
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To: mek1959

LOL - the kids may be a problem...


48 posted on 12/21/2008 9:09:48 AM PST by patton (T)
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To: mek1959

I wonder if one can collect SS while in prison?


49 posted on 12/21/2008 9:14:18 AM PST by patton (T)
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To: reaganaut1

I thought those lavish “public pensions” were funded using the same kind of Ponzi scheme as social security - - taxes takn from today’s government “workers” pay the pensions of....

Oh. Nevermind.

Just bend over and grab your ankles again.


50 posted on 12/21/2008 9:22:14 AM PST by Lancey Howard
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