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Comment by rrrrreeeee | Hacker News Reader

Do the employees and employers not pay into a separate fund that cannot be touched? I fail to see how it's the fault of the pensioners. It's absolutely archaic if the future taxpayers have to pay for a retirees pension. In Canada we have pension funds that are separately funded entities that are payed into over an employee's career.

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In Illinois and Chicago, the government has been playing games like declaring pension holidays where the contributions shift to the future. The unions control a large base of voters and haven't objected, even though this basically endangers their retirements. There's going to be a point where the funds will literally run out of money, and I doubt that there will be enough things to tax in a year to make up the difference that should have been paid in over decades.

What boggles my mind is that bond rating agencies rate Illinois debt at any rating that allows continued borrowing when it is so obvious how bad and deep the financial hole is.

Disclaimer: actively seeking ways to short Illinois/Chicago.

They are rating the chances of default. The bond purchasers will be paid, one way or another. Privatize the parking meters (like Chicago already did), the roads, the water utilities, etc. It's the people who live there that will pay for the deficit via increased taxes and fewer services.

So why are property values not reflecting this? Irrational market?

They are. From all the data I can see, property values for almost all areas in the Northeast and Rust Belt in general are declining (in real terms), except for certain few rich areas in and around the big cities that the richer populace is “escaping to”. I’m writing from mobile, but compare the Fed’s analysis for home prices by state.

Even Buffett says he’s looking at state finances when deciding investment options, and if he’s saying it, surely other organizations are too. It will be a gradual accelerating decline though (barring effects of natural disasters), since people don’t just up and move.

Check out downtown Chicago and the western suburbs. Prices are not going down. If anything, they’re more inflated than ever.

I specifically conditioned out that situation:

>except for certain few rich areas in and around the big cities that the richer populace is “escaping to”

Sorry I didn't pick up on that. The areas I refer to in the Chicago western suburbs aren't particularly rich (Aurora, IL, for example).

All markets are irrational. It will take time

It's archaic and should be changed, but the way the system works in the U.S. is pretty well known to its citizens, which makes it at least partially the fault of the pensioners. I live in Chicago and every retired schoolteacher and police officer I meet knows full well that they're making an exceptional amount of money in retirement. It's usually part of why they took the job.

IMO, it's no more the pensioners' fault than any other voter. If they're a resident eligible to vote, it's partly their fault. It's not their fault for accepting a job offer with certain terms broadly available.

On the one hand, yes. On the other hand...

(1) Pension decisions play out potentially over ~30-40 years.

(2) If we accept that the cause is some official made a bad decision, it is almost certain that pension issues will be ongoing. There is potentially a 40 year window for idiots to get in and screw the whole system up.

So in a sense, some large group of people need to be responsible. Not because it is fair, but because if that isn't how we treat the situation it isn't likely to get fixed for the next round of pension crises. The pensioners were most invested in the success of the enterprise. They are most responsible for its failure.

This isn't a nice position to hold, but the alternatives are a very nebulous concepts of blame and lumping the cost of fixing all the mistakes on the one group of people who we know weren't responsible - people who are currently entering or in the workforce and can pay taxes.

So you're saying the pensioners are the reason for our failed system? I've never been more swayed by an argument in my life.

They’re saying it’s most reasonable to hold the pensioners responsible, but that’s a subtle difference and you weren’t reading closely anyhow.

Except that’s not how responsibility works. They may be the beneficiaries of a broken system, but they aren’t necessarily — and certainly not solely — the ones that broke it.

Just phase them out and switch to 401ks. It’s absurd that such a large portion of government budgets are retirement accounts.

The problem when you say “just phase them out” is what to do with the trillions in outstanding obligations. For example, pension benefits are protected by the Illinois state constitution. You can imagine the process you’d need to construct and execute to fix pensions in Illinois, Cook County, and Chicago’s cases.

The unwinding is the terribly difficult part because the can keeps getting kicked down the road due to a combination of greed and incompetence. You need back pressure from financial markets to inhibit borrowing for what can never be paid back. Then the hard conversations are forced.

There's a finite time that benefits are paid out. At most, it's the maximum lifetime of the retired worker or their spouse. At some point, the workers and their spouses will be dead. They're beneficiaries do not, nor have they ever gotten a pension.

You simply stop giving new workers pensions, and you offer buyouts to the existing workers. None of this is fast, nor did I say it was. Even if you did it today, we're talking probably at least another 50 years before the last pension is paid out. Meanwhile, You're still dealing with the problems of running a pension plan, but at least you're on a path to divest from them.

This strategy is basically what every old company with pensions is doing. The problem here, is that governments don't do it, in large part due to the unions. I don't blame the unions for insisting on pensions, they're a good deal if you've got one But the fact is they're unsustainable. Unlike a company, the government is never going to go out of business, it's just going to become a retirement plan with a police force.

I tend to agree, but there's a limit. Accepting a job where the payout promised requires an almost 50% property tax raise? You can't possibly claim surprise when those promises are reneged on.

The current pensioners didn’t recently accept their job. They accepted it decades ago and it’s on the municipality to manage the funding.

A lot of the people paying these taxes never agreed to the other end of the bargain either? I mean, you can argue that this is an integral part of the social contract, but if everyone leaves Chicago because property taxes increase astronomically there won't be any tax payers to lecture about how they have to hold up their end of the one-sided bargain. And then the whole thing collapses anyway?

When you move to or live in a city, you sign on to the things the city did/does. That you didn't personally agree to build a new library or hire Sally Jane as a Police Dispatcher is irrelevant.

I think people are leaving Chicago over solvency/funding outlook issues. I have two barely wealthy (single digit millions, almost surely) friends in Chicago who are moving to Arizona and Texas because they worry they're among the juiciest targets to be squeezed in the upcoming years.

this so-called pension crisis has been clear for well over a decade, bare minimum. It was heavily discussed circa 2000.

And apparently on the tax payer to eat it up.

I view it in the same terms as an elected official who willfully courts lobbyists or something else legal, but still distasteful. Members of those pension classes have known forever that their pension amounts would bleed the city dry, but they went along with it anyway. It's technically not their fault, but only in a dry legal sense. They knew they were leaving the rest of us in a bad state.

That's how socialism works: you spend someone's else money.

That's how any government works I think.

In the US a “pension” typically means a fixed benefit regardless of investment performance. Many pension sponsors reduced contributions to their plans when markets were up and have had large shortfalls when markets have gone down, which has contributed to the “pension funding crisis”.

In Canada, pensions contributions are never ever adjusted depending on market performance. Instead, payouts are typically indexed to inflation. When markets are down, funds usually have a shortfall, so they cut the inflation indexing. When markets are up and the pension fund is overfunded, they restore the inflation adjustment. This slightly harms the pensioners, but not by much to have a critical effect on their well-being.

This is a reasonable approach, but means you don’t really ever have any idea how much you’ll have when you retire. Honestly that’s probably the only approach that will ever work longer term, but it’s not an easy thing to sell or plan for.

The US Postal System has essentially this exact problem every year - they aren’t making enough to cover their pension obligations so they keep raising stamp prices (and let’s not get started on the absurdly short-term solution of “forever” stamps). Since they’re a government agency but independent and unable to accept funding from any other method it’s a great example of the problem.

You have an idea of the minimum you will get. Your pension will never go down, just that you don't know whether your pension will go up.

inflation means that your pension goes down by default.

They also are obligated to cover all future obligations today, which is pretty unrealistic.

The real issue for the postal service is that the law was changed so that the USPS would start funding their retirement health care costs since they are promised to the workers and the projected costs had exploded:

>...Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.

>Prior to 2006, the Service simply paid retirees’ health benefit premiums when they came due. The Service put aside no money when it promised the future benefits. Paying benefits when they come due rather than funding them in advance is known as the pay-as-you-go or unfunded approach.

>Early this century, Congress, the Administration, the U.S. General Accounting Office (GAO), and a bipartisan presidential commission expressed concern about the lack of funding. Although retiree health benefits are often unfunded or poorly funded, two considerations suggested the Service’s retiree health care obligations should be funded: they are as firm a commitment as the Service’s pensions, and they had become enormous (about $75 billion by 2006). In 2003, the presidential commission suggested establishing a reserve fund for these obligations, and the Postal Service itself sent Congress a proposal for creating such a fund.

>In 2002-2003, it was discovered that the Service was contributing far more than necessary to fully fund its pensions, and Congress allowed the Service to contribute less. Congress decided the pension “savings” could help patch the retiree health benefit underfunding. In 2006, as part of the Postal Accountability and Enhancement Act (PAEA), the Postal Service Retirement Health Benefits Fund (RHBF) was established. Most of the Service’s contributions to the new fund could be paid using the pension “savings.” PAEA was bipartisan legislation with broad support.

https://taxfoundation.org/primer-postal-service-retiree-heal...

https://reason.com/2019/02/21/illinois-cops-pension-gimmick-...

https://www.illinoispolicy.org/illinois-senate-passes-bill-b...

I don't think the pensioners are free of fault here.

I don't understand how they ruled officers don't have to pay back that money. It was clearly stolen from taxpayers.

How do you ensure the funds are invested properly, and not in a nephew's real estate development project? How do you ensure the correct assumptions are used in calculating how much to contribute into the fund in the first place? You can adjust mortality tables and investment return assumptions to make the benefits seem cheaper than they are. The government can even choose to forego making their understated contribution if they vote themselves to forego it! (which many governments frequently have)

People's eyes glaze over when talking about their own 401k, what chance is there for voters to get into the nitty gritty about multiple government agencies' pension liabilities and investments at the city/county/state/federal level?

The employer isn't liable for the pension at all. Neither is the employee. All they do is pay into the fund. Instead, there is an entirely separate legal entity (the pension fund) that controls and distributes the assets. The fund releases reports regularly on the health of the fund. The contribution calculations are usually included in those reports. The investments by pension funds are usually in long term infrastructure assets like highway 407 in Ontario, or various property management companies such as Cadillac-Fairview. https://en.m.wikipedia.org/wiki/Ontario_Teachers%27_Pension_... the Ontario Teachers Pension Plan is probably one of the best examples of a well run pension fund. All public employees in Ontario, as well as federal employees are all part of a union, whether it be OMERS, PSAC, CUPE, caisse or otherwise. These unions protect the employees from the 4 year swings of governments and instead look after the long term health of employees.

I suggest you research the laws surrounding pensions in Canada. Answering the questions properly here is too lengthy, but they could probably be answered by 30 minutes of research. Pensions are incredibly powerful for looking after retirees. In fact, Canada has a federal pension plan called CPP which pays out to all Canadians based upon their contributions over their lifetime. Pensions are not the enemy my friend, it's elected representatives who look out for their short term interests instead of the health of their electorate.

That is not how taxpayer funded pensions in US work. What you describe is the equivalent of the employee purchasing an annuity from an insurance company. What the US has is a politician today offering benefits 30 years from now, which may or may not be funded with contributions and investment returns from a pension fund, but at the end of the day the employee always has a lien on the tax revenue if pension funds are short.

The same problem exists in Canada as well.

https://www.cfib-fcei.ca/en/research-economic-analysis/canad...

“How do you ensure the funds are invested properly”

Look up the Ontario public teachers pension plan, OTPP. It has its own quite extensive wiki page.

Spoiler: it has more assets than the entire state of PA public pension fund (by a factor of 6, if I recall)

Pension funds are a force on the stock market and have been for aeons.

Getting a fund to work is not hard, and given the massive economic growth that america has seen in the past 30 years alone, even the most conservative fund would be doing impressively well.

All of these things are easy.

The only thing which I have heard and seen which is a problem is people/politicians coming in and breaking the compact made with emoloyees 10, 15 years down the line.

At that point the fund gets drawn down and you can easily get a scenario like today.

The spenders are no longer in office and the obligations are coming Due.

i've noticed a lot of banks/hedge funds will invest in property tax certificates with a typical return of 18%, and then pay out a lower interest rate back to the customer... its alot safer to do it that way than to invest in randomly performing stocks or mutual funds.

> In Canada we have pension funds that are separately funded entities that are payed into over an employee's career.

Speaking for the UK, ‘national insurance’ is a direct transfer from young to old.

Pay-as-you-go versus fully funded makes little difference. If you fix retiree membership and consumption, it's the difference between workers paying an extra $X/month in student loan repayments etc versus an extra $X/month in taxes.

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