In fact, this problem of unfunded pensions has impacted municipal credit ratings and wound up costing taxpayers more in higher interest rates than they would have had to pay in higher taxes to stabilize the pension funds.
Thomas Jefferson's view of deficit finance was that one generation has no right to impose its debts on the next. He would have refused deficit spending that would not be completely paid back within 19 years (roughly, a generation).
I don't think many people listened to him on that. Here we are.
I think we do have the right to ask this question. We should have the option of denying that the previous generation ever had the right to impose this upon us.
At the very least, we should learn from this, recognize these types of short-sighted promises for what they are, and reject them when we see them. This is one big way we can be better than our forefathers.
This is way too absolute and simplistic. Past governments can make bad policy. Past governments can be corrupt or make decisions based on personal interest against the public or incomplete or bad information at the time. The obligation of future governments has to be balanced with whether the past government instituted good policy or not.
Second, old people vote. If you drive a political wedge between the young and old, I can't say what will happen, but it won't involve the young ending up on top.
Third, retirees are a huge consumer group, and also a non-obvious but important source of support for families.
In fact, telling young people that they will see nothing of social security is a propaganda position intended to drive that wedge.
You're falsely trying to paint the choice as only between driving retirees into poverty and paying the full pension.
I certainly won't be receiving 60-100% of my maximum salary forever after I retire, and I won't need nearly that much in order to not be in poverty. And IMO it borders on unjust to underfund a pension with tax dollars while those workers are working, then force younger workers that weren't even old enough to vote when those benefits were created to now shoulder the burden.
Why can't we cut pensions, without eliminating them? Why can't the state switch from defined benefit to defined contribution plans, like practically ever other non-government employee gets?
> If you drive a political wedge between the young and old, I can't say what will happen, but it won't involve the young ending up on top.
This is true only up to a point. The old aren't exactly going to be the ones who will win if the economy collapses or the country descends into chaos, are they?
I left the UK partly because between insane housing prices and paying for the triple-locked pensions of the elderly - the economy has little to offer young people and there are better opportunities elsewhere.
The other thing to keep in mind is that the problem is not merely that future pension obligations for new hires might not be funded. In some cases the problem is immediate or very near-term -- pension funds have become so depleted in some states and cities that retirees may not receive their checks, and in some cases people have been forced to accept less than they were promised (see the article for examples).
Well, yeah, because then 5 years down the road, when the city tries to shift pension contributions from the city to covered employees on the defined benefit plan, newer employees have no incentive to support the older employees and the employer can split the union. Which is why unions resist anything that gives different covered employees radically different contract interests.
Pensioners were given a promise and now we're changing the rules. It feels wrong even if the promise was unrealistic.
There is a slight difference between the two situations you describe. That being that the promises being made to the unions were not being done by disinterested parties. Public services unions are notorious for being some of the largest donors to state and local candidates. The negotiators on the management side of the table are deeply beholden to the unions and have no personal interest in paying the obligations they are agreeing to, it's all put on the tax payer.
Put simply, representatives need to be on a personal financial hook (or penalty) for laws, rules and policies, even after they've exited office.
Don't worry though. This exact same thing is also happening to Social Security, which will crash around the same time, or shortly after, so everyone working now will get the shaft.
Of course, the latest date I've seen (2038) is almost exactly when I should have been eligible to start drawing on it.
States cannot go bankrupt, without a change to federal law. Cities can and have, and pensions have already been addressed in that context. It's not a new question.
> and the people affected are going to sue. It will take at least a decade to work up to the Supreme Court, who will find (no matter WHAT the liberal/conservative makeup at the time) that, surprise, surprise, the government is NOT legally obligated to pay out the benefits they said they would.
It's already been established that pensions can be cut in bankruptcy, so, yeah, that's not even a question.
> Various governments will try to implement various forms of austerity to make it work,
They already are to prevent running into the major crises (e.g., recent pension funding requirements reforms in California.)
> Don't worry though. This exact same thing is also happening to Social Security, which will crash around the same time, or shortly after, so everyone working now will get the shaft.
Social Security won't crash; even with scenarios projecting Trust Fund exhaustion it still ends up paying at worst something like 2/3 of eligible benefits out or current revenues out to the limit of projections.
Minor nitpick, but it’s in Illinois’ state constitution that pensions cannot be reduced. Republicans want to change the constitution to remove this rule, but Illinois is an overwhelmingly Democratic state so that’s never going to happen. It will be interesting to see how all of this plays out.
Major nitpick, but in the event of municipal bankruptcy (the context of the store you responded too), federal bankruptcy law trumps state law—including the state constitution—because Supremacy Clause. The bankrupt entity doesn't cut pensions, the bankruptcy court does.
It's not just former employees that will suffer. Everyone suffers when states have to pay higher interest rates on their bonds because of poor credit ratings (that's what bankruptcy does to a state) or have to pay more for workers and contractors. Everyone will have to pay higher taxes and everyone will receive less from the government.
I cannot understand the logic of not making good on government obligations. You can take the position that the government should stop promising pensions, but how can anyone think it is a good idea for the government to fail to pay for the pensions it already promised people (or, frankly, any other promise the government made)?
It is going to be HUGE and do incredible damage. Retirees will be hurt catastrophically, costs of government borrowing will skyrocket, programs will be cut massively, workers will abandon government.
The issue is that the costs of meeting the prior obligations will be completely impossible. States, cities, and school districts will go bankrupt, massive numbers of people will be fired, and taxes will go up while service goes down.
Unfortunately the politics prevent a fix today and prevented a fix 10 or 20 years ago when it would have been much cheaper. The fix will happen in 10 to 20 years and it's going to be horrific.
As for Roth IRA. I don't trust the government to honor their end of the deal. I can see them taxing withdrawals for the top 10% in the future.
The union leaders and the politicians - typically in their 50 to 70s - who made the promises will be dead by the time the 25 year old new hires try to collect their pensions at 55 or 65. The incentives are all sorts of screwed up and it's very difficult to create a healthy set of constraints for this kind of bargaining.
They should simply put the burden of new obligations (debt or pension guarantees) on individuals rather than on the city. If you live in a municipality when they take on a bond for a stadium, or agree to pension payments, then you pay those debts regardless of where you have moved to. Or put the obligations on property, so people have an interest in not burdening themselves or their investments.
Why is there a fourth option for banks and not for pensions? Why is Quantitative Easing left out of this discussion?
The pensions don't have enough money so easy access to debt does nothing to help them solve that problem.
Any loan at an interest rate lower than the rate of return that can be earned by investing that money is essentially free money.
I agree with it but then again I'm not opposed to paying taxes. Why shouldn't we provide for the retirement of our workforce?
Given all of that, I'm not too excited about propping-up their pension shortfalls.