Soren K. is wrong about pension reform. He suggests that pension reform (and idea which caught fire, in San Diego, in 2012) is theft. Pension reform should be called "pension preservation" because it recognizes that the current promised retirement contracts are unsustainable under the current pension system. Let's start here:
-- Defined benefit pension plans, like the ones offered to most military retirees, federal, state and municipal employees, offer a set contract for the retiree for life (and sometimes for the reminder of his/her spouse, too). To produce that income stream, a lump sum of money is needed. That lump sum is the aggregate of money contributed to the retirement plan from the employee and the employer (government). That lump sum however, is pooled with all other employees and managed by an investment adviser. State and municipal retirement agencies really act as insurance companies do. They collect "premiums", invest the money, and issue "annuity contracts" at a later date.-- The problem is that state retirement agencies are really crappy insurance companies. They aren't analyzed and rated by anyone other than political hacks appointed by elected officials. When the overseeing hacks mess up, and fail to audit and report the state retirement fund's performance properly, they run to the elected officials who appointed them for a taxpayer bailout.-- Elected officials from the 1980s (in both parties) offered more generous pensions rather than higher pay, to public sector unions, in exchange for reelection support. In the 1980s and 1990s, , those enhanced retirement benefits weren't being paid to the current municipal retirees. Thus, the promises offered were checks which didn't have to be cashed until the 21st century. It was a great deal for elected officials; they promised IOUs and were given reelection votes. Both the 1987 politicians and the 1987 municipal employees would be retired in 30 years so the problem they created wouldn't require their solution.
-- The states and municipalities are broke. Some cities have filed for bankruptcy, to avoid the fraudulent retirement contracts promised while others have chosen to address the problem (like San Diego and San Jose have).
-- The Reason Foundation proposal Soren K cites, is much like the work it did with former San Diego City Councilman Carl DeMaio (when he worked at the Reason Foundation). It addresses the unsustainability problem with two things in mind: (1) try to honor the promises made the the 1987 municipal employees (by 1987 politicians) and (2) try to set up a system which protects the taxpayers from the "cost overruns" produced (by falling investment returns and poor forecasting).
-- Most pension reform proposals shift from the current defined benefit plans to defined contribution plans (like a 401k) for (and this is important to note) new municipal employees hired. It leaves the current defined benefit plan in place for all retirees and currently employed municipal employees but offers the new plan to new workers.
--There are some benefits to the defined contribution plans: employees have segregated (rather than pooled) accounts, more flexibility to choose their investment options, and control of their retirement assets.The current municipal retirement plans are fiscally insolvent. When you add in the unfunded, future pension liabilities, they result in bounced checks to 2030 retirees--that is unacceptable. If you don't want future retirees' checks to bounce, states and municipalities would have to literally double income taxes to meet those obligation--that is unacceptable.Millennials are already getting a raw deal with high student loan debt and high home prices (shutting them out of the housing market), poor job prospects, and an unsustainable federal pension program (aka social security). Confiscating over 60% of their income, right when they start to hit their peak earning years, to support retirement contracts promised before they were born, is the ultimate example of "taxation without representation".Two plus Two really does equal Four. No matter how politically unprofitable that statement is, it's true. If pension reform doesn't happen today...and happen quickly, future retirees will receive bounced pension checks and/o their children will be (quite literally) locked into indentured servitude. All of this is a result of legalized graft and corruption in state and municipal government. There is no bailout for these states either. Unlike the federal government, states and municipalities can't issue fiat currency.
Anthony Randazzo and The Reason Foundation are offering common-sense solutions, which preserve current promises while protecting taxpayers from future tax hikes. They should be applauded rather than demagogued. Soren K usually gets things right but he is flat out wrong about pension reform. Don't listen to him. Don't listen to me. Do your own research before you join the protests at the State Capitols.
DISCLOSURE: The author is a donor to The Reason Foundation and was active in the political process for the 2012 San Diego Comprehensive Pension reform ballot initiative
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