Taxpayers on the hook for $3 trillion in pensions | Hacker News Reader

Taxpayers on the hook for $3 trillion in pensions

money.cnn.com

13 pointsstartuprules7 comments

I think that number is a little sensationalist. What's the net present value of the obligations? My simplified calculation makes these assumptions:

    1. Discount rate of 0.04.
    2. Uniform payments of the entire $2 trillion over the next twenty years.

Under those assumptions the present value is only about $1.4 trillion over twenty years, or about $70 billion per year. A substantial sum, to be sure, but not compared to a number of other things we do. A higher discount rate around 6% decreases the yearly cost about 20%.

I think there's a very real chance the younger generation says, "Look, you guys voted goodies for yourself and then didn't fund the programs. We're not paying" - and work to have these programs nixed. I wouldn't count on any pensions or benefits as part of my retirement strategy.

Except politicians also like their pensions so they will never vote them away.

That's like expecting congress not to vote itself a pay raise or put themselves on regular health care like average people - it will never happen.

From what I have read, all sorts of games are played with pensions to make sure they are as high as possible, like giving people high salaries for their last few months, etc.

Why are pensions anything more than a minimum survival payout I would like to know? They should set a maximum cap of $10k per year per person if taxpayers have to pay it.

I think it's more about politicians liking to be in office—and knowing that trying to sunset pension policies would amount to political suicide.

I suppose it could be done but you'd have the challenge of trying to convince and rally a young generation while taking on huge unions/lobbies. Not good odds.

I think it's also important to note that these are state issues. My guess is people will simply move out of some of these irresponsible states once tax rates hit a tipping point.

> Except politicians also like their pensions so they will never vote them away.

They'll switch to defined contribution with lots of contribution.

Note that the typical career path for politicians involves other govt jobs, not "in office forever". (State universities are a favorite place to end up. CA has lots of boards and commissions.)

> Why are pensions anything more than a minimum survival payout I would like to know? They should set a maximum cap of $10k per year per person if taxpayers have to pay it.

That's unreasonable, but defined contribution isn't. That's pay-as-you go, so there's no liability.

The federal government is going to have to get involved here at some point. When states go broke due to these exploding pension costs, the yound productive people will just move to one of the few remaining states that doesn't have this burden.

See: http://nasra.org/resources/RauhResponse.pdf for a contrary analysis.

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