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Well I’d say general under funding of plans forever is probably the biggest issue and second that monetary policy decisions don’t need to and should not be made with pension funds in mind
Yup. Standard operating procedure for politicians... promise more than reality can provide. If the guilty parties are still in office when the brown stuff hits the fan, they will starting looking for all manner of scapegoats including the Federal Reserve.
The biggest issue is the number of baby boomers who are retiring and the general life expectancy of people once they reach retirement. There are a lot of baby boomers and many of them are taking a pension at 55. Even at a normal life expectancy now to about 79, that is almost 25 years with a pension.
I'm a boomer and so very few people I know work for "the man" in a system that awards pensions.....I don't know the exact numbers, but it's hard to imagine more than 30% of so of my peers that have pensions funded by "a fund" (as opposed to their own IRA's, etc.).
Well, you can't say my seat of the pants economic guesses are't close!
"A mere 31 percent of today’s retirees have retirement income from a pension, a 6% drop over recent years. This number is trending further downward."
In a few years it will be 25%, then 20% then even less. That still leaves most people.....NOT involved in any sort of a scheme that involves draining pension funds.
Yup. Standard operating procedure for politicians... promise more than reality can provide. If the guilty parties are still in office when the brown stuff hits the fan, they will starting looking for all manner of scapegoats including the Federal Reserve.
The same issue with underfunding exist with private/publicly traded companies so it’s not a political/party issue
When public pensions were originally designed in the early 20th Century, the average lifespan was much lower. For example, when Social Security came into being the average lifespan for an American was around 59. Now it's around 79. For anyone with even a passing understanding of basic math, this should be obvious.
When public pensions were originally designed in the early 20th Century, the average lifespan was much lower. For example, when Social Security came into being the average lifespan for an American was around 59. Now it's around 79. For anyone with even a passing understanding of basic math, this should be obvious.
Does that math include productivity increasing 600% or more?
Or per capita GDP growth of 1000%
Why or why not?
If I produce and/or am worth 6 to 10X as much, it would seem easy to cover a couple more years. Moreover, most of the lower lifespans were due to infant and child mortality and the mortality of the younger set (in general)
Since those people never built up much pension money, they would not drag on the system.
Math is more complicated than one number, right?
The biggest numbers which have changed is the distribution of wealth as well as difference in wages between the top tiers and the lower tiers. This would all seem to figure in much more than increased life spans.
Lowenstein extensively documents the history of pensions in both the private and public sector, together with their financial difficulties.
In the private sector, beginning in the late 1950s and early 1960s, escalating labor costs resulting in union contracts where both union management and corporate management "bet the company." The typical form was a union agreeing to less in the way of near-term cash raises in paychecks (which the company couldn't pay) in exchange for larger far-away-pension-benefit-increases (which the company *might be able* to pay). Both union management and corporate management knew that the company's long term financial viability was at stake, although rank & file employees typically did not. It was a "bet the company" strategy. Either the company would thrive with its new products & business strategy, in which case it would be around to pay those far-off pension obligations... or its new products & business strategy would not pan out, in which case everyone lost.
Several of those didn't work, resulting in large corporate bankruptcies in the 1960s and early 1970s, prompting Congress to act. The result was the ERISA Act of 1974 - the Employee Retirement Income Security Act. Its purpose was to require actuarially sound pension accounting and funding, to set standards for financial viability, to set requirements of fiduciaries, and of course to create the Pension Benefit Guaranty Corporation (PBGC).
Originally, ERISA was intended to apply to Public Sector pensions. However, Public Sector Unions launched a massive lobbying campaign against this, arguing to exempt public sector pensions from actuarially sound accounting.
So, ERISA of 1974's requirement for actuarially sound accounting does not apply to public sector pensions.
The motivation of Public Sector Unions was obvious, of course.
Yes, the article mentioned life expectancy. However, life expectancy in the U.S. has stalled the past few years, so I would think that would have a slightly positive effect on pension finances. Of course, the people getting the pensions might not be the ones suffering from decreased life expectancy.
Life Expectancy is irrelevant, and no pension, annuity, life insurance or social security scheme was ever based on Life Expectancy.
They have, since their inception, been based on Life Expectancy from Age 65.
There is a huge difference between Life Expectancy and Life Expectancy from Age 65.
At a time in the US when Life Expectancy for everyone ranged from 35 to 45 years, Life Expectancy at Age 65 was 12 yeas for men and 13 years for women.
Upon reaching age 65, men lived to age 77 and women to age 78 on average.
Insurance companies developed that data to market life insurance in the late 1800s.
Social Security and the pension plans that arose in the 1930s and 1940s were based entirely on Life Expectancy from Age 65 and never on Life Expectancy. Life Expectancy was never even part of the equation.
Since the 1940s Life Expectancy from Age 65 has increased 6 years for men and 7 years for women. Men typically live to age 83 and women to age 85.
While that more or less represents a 50% increase, and you would be hard-pressed to say it isn't statistically significant, it has absolutely nothing to do with Social Security or pensions.
The single sole factor affecting pensions and Social Security is not Life Expectancy, it's the ratio of workers-to-beneficiaries.
Both pension plans and Security Security began with very high worker-to-beneficiary ratios. In the case of Social Security, it was 46 workers for every 1 beneficiary.
For pension plans it varied but generally 20 to 50 workers for each retiree receiving a pension.
Over time, the ratio has dwindled drastically.
For Social Security now, there are just 2.8 workers for each beneficiary, and for some pension plans, there 0.2 workers for each retiree.
You are never, meaning at no time ever, going to have enough workers to subsidize the beneficiaries now or in the future. That leaves you with only two possible resolutions:
1) for Social Security, increase the FICA tax to offset for the lower number of workers and for private pensions increase the employee contribution to offset the lower number of workers
2) reduce the benefits for Social Security or the pension plans.
Those are your only options available.
In the case of private and government pension plans, I would have a forensic accountant analyze the schemes, and if they are Ponzi or Ponzi-related schemes, have a judge annul the agreement and create a new agreement with a scheme that is inherently viable on its face.
Life expectancy as it applies to retirement is a very misunderstood statistic..... in fact just being a couple can alter that statistic greatly ....you see uninformed people referencing life expectancy from birth ..that is meaningless when looking at those who made it to age 65 ....
When public pensions were originally designed in the early 20th Century...
It goes back a bit farther. The first of the public sector pensions were in the late 1800s in NYC - subway workers. But back then the Union provided the pension to retired workers, and it was paid for by contributions from then-currently working union members. Many of those subway workers didn't make it to retirement - it was a very dangerous job.
Last edited by RationalExpectations; 04-22-2019 at 08:08 AM..
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