Government Spending

Rumors of War Between Private and Public Sectors

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Via Instapundit comes this Stephen B. Meister NY Post piece tallying up unfunded public-sector pension liabilities:

Funding of public pensions has been woefully short of what's needed to make good on those promises. The shortfalls are "off balance sheet" liabilities that run into the trillions of dollars.

Here's the bad news as reported by Professors Robert Novy-Marx (University of Rochester) and Joshua Rauh (Northwestern's Kellogg School of Management):

* Unfunded liabilities for public pensions run by the 50 states total $3.23 trillion—$21,500 per household.

* Underfunded pensions for municipal and local government employees add another $574 billion of hidden debt—$14,000 per household.

The data from federal sources is also grim:

* Unfunded US military-retirement obligations now amount to $30,000 per household.

* Unfunded federal civilian-employee pension obligations represent another $16,000 per household.

More here.

That's a lot of dough and, as Meister points out, the defined-benefit plans often taken for granted have become virtually unheard-of in the private sector. He also notes, 

Many current public workers have vested legal rights to their fixed pensions—but the feds can and should tie any bailouts of state and local governments to the public unions agreeing to reduced benefits and conversion to defined-contribution plans for younger and new workers.

Regardless of federal actions, this is in fact happening in various places where new workers are either given the option of switching into defined-contribution plans or made to. Such a shift not only will save taxpayers money but will allow states and municipalities to budget more squarely. Part of the reason for the chronic underfunding of public pensions comes from the fact that folks in charge always vote for lavish benefit increases whenever they can get away with it and part comes from the ability to invest pension funds in the stock market (meaning that in boom times, public entities seemingly only pay pennies on the dollar for future benefits). A turn to 403(b) pensions (the nonprofit sector's equivalent of 401[k]s) would alleviate that issue. The government would have to kick in its share every pay period, just like regular employers do.

Matt Mayer of Ohio's Buckeye Institute did a study suggesting that bringing public-sector compensation in line with private-sector compensation (a figure that includes pay, health benefits, and retirement) would trim Ohio's estimated $8 billion deficit by over $2 billion. I'm sure similar savings would accrue to any state that did so.

Past discussions about private-sector and public-sector compensation issues.

NEXT: New York's High Court Finally Gets Something Right

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  1. Man! I need to add a shitload of people to my household if mine is expected to cover all of that.

    1. I believe the pub-sec unions have already added someone to your household, financially-speaking.

      1. Ex-mayor Greg Nickels used to go through my trash every morning– does that count?

      2. C’mon, spell it right. It’s PUBE-sec, not pub-sec. If these guys worked in a pub I’d have some respect.

        1. They work at the pubic library.

  2. The pube-sec gravy train is running along faster than they can lay track for it.

  3. …and cue the trolls who claim the problem would go away if only the rich were taxed enough.

    1. Nah, the problem would go away if only the pube-sec pensions could be bailed out.

    2. I wonder if they’ll have the nerve to try to raid private pensions and 401(k)s to “solve” this problem (i.e. taking that “unused” money and replacing it with government IOUs; funny, how to them any money not in government hands is “unused”).

      I’d like to think that’s too crazy even for them. But given the ways things have been going I’m not willing to bet on it.

      1. Dude, they will try just about anything before they will tell the unions that they’re fucked. So don’t bet on it.

        1. Smells like the time for a 10% excise tax on “excess” retirement savings.

        2. That’s my concern. I’ve thought about how I might try to rescue at least part of my 401(k) in that event, but the thieving bastards will undoubtedly think of that and slam that door shut (maybe a retroactive 100% tax on withdrawals–plus penalties and interest!).

          1. Such is the danger of “tax-exempt” retirement accounts; if you try to get it out now before they can steal it from you…they will steal it from you in penalties.

          2. That prospect makes the 10% early withdrawal penalty look like peanuts. I’m seriously considering cashing mine out. It’s all in short-term cash equivalents right now anyway. Do a cash-in refi, cut that PITI so I could work as a fucking shortorder cook and still live like a king. Five years ago these thoughts would not be entertained.

            1. One of my biggest concerns with Roth IRAs is that you get no tax benefit when you deposit your money, and that the tax code can change and you won’t benefit from the tax free distribution as planned when you withdraw the money.

              Who’s to say that 30 years from now distributions from Roth IRAs won’t have a mandatory 15% tax rate?

              1. Don’t Roth IRAs also have a maximum of $4000 or something retardedly small like that?

                1. The same annual contribution limits apply to both traditional IRAs and Roth IRAs; currently that amount is $5,000. At age 50 or older you can add another $1,000 in contributions annually.

                  The point of the Roth is that the income accrues tax free, and as the law is currently written, you get to withdraw the earnings and contributions tax free. I just don’t see it ending up that way decades from now when all the depositors start taking distributions (and there are mandatory minimum distributions at age 70 1/2 I believe).

                  1. Absolutely right. There was a time when all household interest payments were deductions from gross earnings, and it’s been whittled down to mortgage interest only – and that may be on the way out. Today’s tax-free fund is tomorrow’s untapped wealth.

                2. It’s $5000 if you’re under 50, and $6000 if you’re 50 or older.

              2. I had not considered that possibility certainty.

  4. “”but the feds can and should tie any bailouts of state and local governments””

    Barking up the wrong tree. The feds shouldn’t bailout states and local government. Let them suffer the concequences of their own actions.

  5. What we need is for a lame duck Congress to give the President the ability to rule by decree, to nullify their losses in the most recent election. Just like Venezuela.

    Chavez to rule by decree

    1. Headlines like that make me miss joe.

    2. Agencies like the FCC can create regulations with the power of law, while being answerable to nobody but the president.

      Same diff.

      1. Sometimes it takes a while but our courts have done a decent job of shutting them up. The new supreme court in Venezuela will bless Chavez’s latest move.

        1. That’s a joke, right?

          1. I’m referring to that federal appeals court ruling back in April that sided with Comcast over the FCC. All other FCC matters before the courts were washed from my brain after Stern moved to Sirius.

  6. Part of the reason for the chronic underfunding of public pensions comes from the fact that folks in charge always vote for lavish benefit increases whenever they can get away with it and part comes from the ability to invest pension funds in the stock market[…]

    To say it in few words: The public sector can game the system and it does.

  7. BTW, you Sugarfree’d the Post links

  8. Now hopefully some people will realize why politicians love “public transportation” and want everyone on it. It becomes the single-point-of-failure for an entire constituency. Roll back, cut, freeze, or otherwise dick with pensions or benefits for public employees, transit workers go on strike, paralyzing the private sectors and BAM! we’ll give in to anything.

    In a car-centric society, a public transportation strike wouldn’t add a single minute to my morning commute.

    1. About 10 years ago there was a BART strike, and the SF MUNI began running extra busses between the SF stations to relieve some of the chaos. Mayor Willie Brown quickly put a stop to that: can’t have one public sector union alleviating the pain another public sector union is creating.

  9. Part of the reason for the chronic underfunding of public pensions comes from the fact that folks in charge always vote for lavish benefit increases whenever they can get away with it

    Then fuck them; they can pay for it. Oh wait, they can’t? Oops: too bad.

    If people start getting drained of blood to pay for the public sector union vampires, there is going to be a severe backlash.

    1. If people start getting drained of blood to pay for the public sector union vampires, there is going to be a severe backlash.

      Funny, that’s exactly what the public sector is saying… that if they don’t get their blood from the private sector, there’s going to be a severe backlash.

      1. Let them. They’ll only become more hated.

  10. In decreasing order of probability:

    (1) Fed bailout with cosmetic concessions/reforms. Rinse and repeat periodically.

    (2) Fed bailout with real concessions/reforms, defined as reforms that will put the pensions on a sustainable basis (defined contribution for many, reduced benefits for defined benefit plans, etc.).

    (3) No fed bailout, with a bankruptcy code amendment to allow the states to cram down reforms in bankruptcy court.

    1. (4) Print more money. Enough to simply pay the federal liability and bailout the states.

      Or maybe that was implicit in your (1).

    2. And the bailout is the same as taxing private sector retirement funds anyway. Great.

    3. Ummm…what, exactly, is the federal government going to bailout these clowns with? DC is just as broke, no?

      1. what, exactly, is the federal government going to bailout these clowns with?

        Freshly printed/borrowed cash, that’s what.

  11. Instapundit .. the website to go to if you like your links to articles about public pensions tucked in between links to Amazon and calls for Genocide.

    “I say nuke ’em. And not with just a few bombs. They’ve caused enough trouble ? and it would be a useful lesson for Iran, too.”

    /Jay

    1. Don’t forget the torture, Jay! He’s always going on about how torture is a Good Thing.

      I count 30 posts today. Just scanning, it looks like two Amazon links.

      Of the rest, most ranged from apolitical to critical of the State in some fashion, with much mockery of various statists.

      1. Jay’s just jealous that he can’t get some of that sweet, sweet insta-mockery for himself.

  12. Hey, they’re “servants”. They have selflessly dedicated their lives to slaving for YOU, you heartless bastards. Helping them pay off their mansion in Aruba after they retire at age 43 seems like the least you ingrates could do.

  13. Desperate straights call for creative solutions. I’m thinking penal colonies on Mars. Press gangs to round up the public sector parasites. Once they are economically quarantined off from the human race, we can run the presses to fulfill our contractual obligation to them by printing out trillions of New Greenbacks to be sent to Mars along with them.

    1. Thought you were going in a completely different direction: making sure they all die well before retirement age.

  14. I think that the general public really doesn’t know much about these issues. They see states and cities talking about cutting police and then agree to tax increases, when the real problem is these retirement programs.

    Once the shit hits the fan and they can’t keep kicking the can down the road I would like to believe that most people will be repulsed that they are paying extra in taxes for these leeches’ fat retirements. At that point maybe the cities and states can just tell unions to go fuck themselves?

    1. In my town, EVERY property owner knows about it now. It was right there on their latest tax bills, the first property tax enacted by the municipality (schools and parks and libraries were their own districts): PUBLIC PENSION TAX.

  15. Unfunded liabilities for public pensions run by the 50 states total $3.23 trillion — $21,500 per household…

    These “per household” figures are totally misleading.

    My household’s share of that is going to be more like $50k. Chad’s, maybe $50.

  16. Oh, damn. The Reason post that proves I’m a bad, bad bloodsucking leech upon the ass of humanity was sure to come around sooner or later. I have to guess so, as I’m sitting here with my ‘gold plated’ military retirement that I started collecting at age 43 after a mere 24 years of service.

    The only thing that eases my pain is that Epi, Warty, and Sugarfree all owe me 10 grand apiece. . .otherwise, I’d feel really bad. I just wish the fuckers would pay for dental, too.

    1. That’s the spirit! You should go to every blog you have time to visit and tell the private sector folk what a bunch of fools they are, and how bad you plan to fuck them over. Maybe it will help slap some people into reality.

    2. I’m a bad, bad bloodsucking leech upon the ass of humanity

      The first step to solving a problem is admitting you have one.

    3. Warty pays in rape, NutraSweet in slash fic, and I pay in $1 bills with so much cocaine residue in them that will get you tagged by a drug dog the instant you walk into the airport, so enjoy your payments. Also, some of those $1 bills will be infected with a random STD–whatever I have at the moment, usually.

      1. Well, as long as I don’t have to by gymnastic on a brass pole while wearing butt floss, it might work.

    4. I’m currently earning my way towards that sweet-sweet retirement earned on the backs of the unknowing proles.

      But, for the life of me, I’m trying to figure out how that number works. How on Earth are the pensions for state employees lower (and significantly lower) than for the military?

      Military base-pay isn’t that out-of-whack to your usual state employee pay (standard disclaimer about whether the pay is justified at all).I’m clearly missing how it is that a smaller population receiving a similar payment can result in the smaller population costing nearly $10,000 a household more.

      1. Who knows. That number looked wierd to me as well, but I couldn’t find the source to see what they were using to make their assumptions. Maybe it figures 30 year (75%)pensions for everybody as opposed to 20 year (50%) ones and it has to include some Tricare calculations. It might also include some VA benefits and stuff like PX and commisary access, Still, seemed like a lot more than you would have thought.

        I won’t get mine until I’m almost 60 because of the way that Guard pensions are figured and payed for, and it will be about $1200 a month in today’s dollars (I’m an E-8, BTW). Army Times has had stories about how they might change the pensions system to make retirees wait (though I have seem similar stories before and nothing ever came of it).

        1. Yeah, the Guard and Reserve pension systems seem to be geared towards the hope that those eligible will drop dead before the benefits kick in, or that they’ll only draw them for a couple of years before kicking it. They’ve done some ‘creative accounting’ tricks with the active duty arrangements playing around with the amount of time in grade and monkeying with the percentages – that started back in the 90’s some time.

          Any time anyone starts talking about the ‘stability’ or ‘guarantee’ of mil retirement benefits, I picture McArthur on a tank rolling through the ‘bonus marchers’ camps on the Mall in DC back in the 30’s, the epitome of the USG keeping its promises to vets.

      2. It may be related to when eligibility starts. My brother is looking to start collecting his (W-3) in about 4 yeas, when he’s 41. He’s likely to collect it for quite some time…

        And it may include other post-service benefits.

        1. Now that I’ve had some time to think about it, the problem w/ military pensions has to be the duration where people can collect. A pension which can reasonably be expected to be paid for, oh, 50 years, gets to be a pretty large price tag.

          I’d still like to see what is being counted as a “military retirement” expense.

          I’ve got about 10 years before I would seriously consider retiring. Given our budget woes I fully expect to be “offered” some sort of lump sum in exchange for losing a large portion of my retirement.

          I like to think I can maintain some sort of libertarian cred when it’s my ox getting gored.

  17. I’m in my early 20s and I have a 401k. Is it stupid to put money there, or smart? I don’t need the money and can save but have a dismal/nonextant employee match. If you doomsayers are right, then putting my money there is retarded. It is my money, right?

    Ah, for fucks sake. Can this really happen? Is a 401k really not safe?

    1. It is my money, right?

      Only the part the gov’t says is yours. Have you bought your health insurance yet?

    2. I would tell you to consult a professional and not be overly concerned about our speculation, except that but for one professional, they seem to all be thinking in terms of a generalized good for society concentrated on too big to fail (everyone is putting their money into Roth IRA’s and gummy bears, how can they miss!) than what is in one client’s specific interest. Now, you may find an exception to the rule, I did.

      Okay, now the grown up stuff is out of the way, my more frank, speculative and dire prescription. You are in your twenties. You will probably live a span of two hundred years, take a decade or two either way, lucky bastard. However, in that time you will have to deal with the collectivist disease of government likely in ways previous generations have never seen this side of an atom bomb in the face. Your best hope is to put your savings into a self sustained cybernetic body with a fusion battery source where it becomes impossible to ply wealth from you because its all inside you. Wing it out until Libertopia comes and you can afford to be human again.

      1. the scary thing is that you make just as much sense as the conventional wisdom. I should be like robot nixon by 2067. Ahem, “look at my shiny new body!”.

    3. Don’t worry waffles, they’re just pulling the whole Fox News-esque fearmonger bit. Why else would they call it a “war”? This is just some fluff piece to get you all idealogically charged up for whatever the kochtopus wants you to do next.

      Well played, Reason.
      But not really.

    4. Sutton’s law: Willie Sutton reportedly responded to a question of why he robbed banks by saying “because that’s where the money is.”

      also: http://online.wsj.com/article/…..62659.html

      1. that said I max out my 401k

    5. The government would have to kick in its share every pay period, just like regular employers do.

      My opinion, put no more than 7 or 8 percent in your 401K. You can do a maximum of 15, but the leeches in the 3 branches of government see 401k’s as one big class of accounts that can be regulated – whereas an investment account you open and control on your own can’t be classed as much of anything and are much more in your control than someone else’s.

  18. So,

    Public-Sector = Triangles
    Private-Sector = Square
    Ruling Class = Circles

    , right?

  19. I’m in my early 20s and I have a 401k. Is it stupid to put money there, or smart?

    Smart, I say. You get a tax break now, and earnings get sheltered.

    If things get so bad that the government seizes your 401k, then the entire economy is utterly fucked anyway.

    1. Yeah, I agree. On both counts.

      When you’re 40 and you’ve been putting away money and earning income on it, you’ll be pretty impressed with what those $2-5K a year can grow into in those 15 – 20 years. Another 30 years of contributions and compounding income and you can hit seven figures even with only decent returns.

    2. You can pay taxes now, or you can pay taxes later. When do you think the tax rates are going to be lowest, now or later?

      1. I agree with the devil. Taxes are as low now as they likely to ever be.

  20. I’m confused. If the per household cost of $3.23 trillion is $21,500 how can the per household cost for one sixth of that amount be $14,000? There is some information missing here but I don’t know what it is. Nick can you give us a clue?

  21. If we make public employees switch to defined-contribution plans, they might pour their retirement money into bad investments. They need to have professional pension managers choosing their bad investments.

    1. Hey!

      Rare coins are a sure bet!

  22. You can pay taxes now, or you can pay taxes later. When do you think the tax rates are going to be lowest, now or later?

    Taxes deferred are taxes denied, my friend. Never, ever pass up a chance to defer taxation.

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