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Comment by neffy | Hacker News Reader

It's much worse than that. Commitments have been made that could never have been met - and not just in California.

Hard equations are coming home to roost.

Facts. The baby boomer generation set up public commitments on the back of the taxpayer, from municipal to federal, that simply cannot be met. On top of that, after inheriting a system that allowed them to get a post-secondary education doing unskilled labor, they sloppily set up incentives that caused their children to inherit mortgage-level debt with horrible employment prospects for a comparable education in their era. Thing is, they are reliant on the people they saddled with this piss-poor situation for continued retirement payments.

Speaking for the municipal aspect: the municipal voters voted for these measures and certainly voted for the mayors and city councilmen who brought these measures into place. Then the cities, under the same politicians, failed to fully fund the pensions they had set up (they are normally required to fund pensions, each year, to a significant level, but the cities postponed the funding).

Years pass and then the cities lament, crying that these pension funds are now undue "public commitments on the back of the taxpayer", such as aswanson says above. IOW cities are trying to screw retirees out of their pensions.

For example, at this very moment Houston, in the name of "Pension Reform", is trying to coax the state to pass a law that would cut the pension of widows and widowers in half!

And that's just part of the cutbacks Houston is asking.

The municipal and state governments that brought the measures into place generally operated in an ethically-compromised environment and mathematical fairy land.

The people that voted in the fundamentally-flawed plans are also the ones that are standing to benefit from them as the legislative fixes are rolling in. I sympathize that they have built plans around the expectations of the money being there, but at the same time I think it's pretty unrealistic to expect current taxpayers to pay for unrealistic and underfunded plans.

I remember, back in the 90's, going to one of those retirement planning/sales sessions, where they explained how much you would need to invest at what rates to have a good retirement. With the little I knew then about economics/investment, I knew there was no way they were going to be able to deliver the 8-12% annual return they assumed would be required to meet their projections.

So yes, I sympathise with people who allowed themselves to be lied to, i really do, because ultimately this is white collar crime we're talking about - but caveat emptor also applies.

Guaranteed 8% rate of return, let alone %12, violates historical data/mathematics. Anyone other than Renaissance Technologies advertising as much needs to be sued.

The average rate of inflation through the 80s was 5.6%

Given that, an expected 8% rate of return isn't unreasonable.

Historic data is not good enough to base a long term policy on. Not without precise risk valuation at least.

No, but it generally makes sense to talk about expected investment return over the rate of inflation. Hence, the raw number is meaningless - a 12% return rate in an environment with inflation of 9% is almost as reasonable as a 3% return rate in an environment with inflation of 0%.

That's one of several things to bear in mind - but it's not a straightforward one - the various causes of high inflation tend to mitigate against matching investment rates.

Leaving that aside - even at the time it seemed ridiculous - so learning 20 years later that the "professionals" involved have essentially bet everybody's future, on projecting those kinds of returns for 40 years...

... because we all understand I hope. When this thing blows up - its not going to be pretty.

That implies a 2.4 percent rate of real growth in a hyperinflationary era, so assume a 4.4 real rate of return in normal circumstances. That is the number we should be basing projections on, as it correlates more closely to real dollars in the retirement age years. 8-12 percent estimates are bs, and red herrings because they don't relate real returns.

Most pension systems assume 7% rates of return.

We educate individual investors to believe that they should achieve similar yields in their 401k accounts, why is only "white collar crime" when you need to fulfill the promise?

A pension plan is a contract between the municipality and its employees. Like most contracts, you either hold to it or you can be sued, at the least. Expecting to be able to weasel out of paying years later, after employees have retired is certainly a violation of civil law, if not criminal.

The retired employees completed their part of the contract and payment is due in full. They gave up higher levels of income to work at jobs where the pension is guaranteed (cities pay less than private firms, on average). To change the rules once employees have retired and without compensation will result in lawsuits and criminal prosecution, as it should.

WkndTriathlete says: "...it's pretty unrealistic to expect current taxpayers to pay for unrealistic and underfunded plans."

Sorry, that's what taxes are for. And what’s the problem with paying taxes anyway? To live in a city you pay city rates. Paying taxes on a well-managed city budget is one of the best ways to maintain and ensure that your property values increase. But for God’s sake, pay attention to politics and hold leaders accountable!

If you don’t want to pay taxes, then become a “Mountain Man” and move to Montana. Live on a mountaintop w/o roads, sewer, water, hospitals, stores, and cellphones. Or maybe you want your city to go the way of Detroit? You can

– kill your property values,

– call 911 and get nothing, not even a dial tone,

– Burn your own trash,

– Run your own septic system,

– Run your own electric generator,

– Buy a satellite cellphone (no other option – no other service available),

– Drive to another city once a month to stock up on flour, sugar, beans and batteries.

That's bullshit. States with more responsible governance where pensions were funded are fine.

The problem is that government failed to govern itself. I'm a person with a public pension that is largely funded. By offering that pension, my employer saved significant sums of money compared to paying someone like me a market rate.

The real devil here is the dumb, inflationary fiscal policy where debt is virtually free and nobody can actually save anything.

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