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It's their nature to be underfunded. It's difficult to explain why in simple terms (which is why they get away with it), but the shortest explanation is, you can't turn 5% of your salary going in, to 50% of your salary (in inflation adjusted dollars) going out. DB plans are a way of creating the illusion that you can do this, by promising, Ponzi style, high returns. Their pension plan, they claim, can produce a riskless 8% return (e.g. better than any other investment available)
Actually, it's more like "Madoff style". Instead of promising 20% a month or something that is obviously dishonest, they do something more subtle and promise a moderately high number that is not obviously fishy to the layman -- 8%. But that's still much higher than the risk free rate.
The honest thing to do would be buy out DB plan holders with lump sum payments and if they can't afford to do that, negotiate (as any bankrupt entity does).
What they're doing instead, like any compulsive gambler, is rolling the dice again, and hoping the stock market will let them meet their ponzi promise.
It's their nature to be underfunded. It's difficult to explain why in simple terms (which is why they get away with it), but the shortest explanation is, you can't turn 5% of your salary going in, to 50% of your salary (in inflation adjusted dollars) going out. DB plans are a way of creating the illusion that you can do this, by promising, Ponzi style, high returns. Their pension plan, they claim, can produce a riskless 8% return (e.g. better than any other investment available)
Actually, it's more like "Madoff style". Instead of promising 20% a month or something that is obviously dishonest, they do something more subtle and promise a moderately high number that is not obviously fishy to the layman -- 8%. But that's still much higher than the risk free rate.
The honest thing to do would be buy out DB plan holders with lump sum payments and if they can't afford to do that, negotiate (as any bankrupt entity does).
What they're doing instead, like any compulsive gambler, is rolling the dice again, and hoping the stock market will let them meet their ponzi promise.
Okay, sorry but finance is NOT my forte and I know you would have to go into greater detail for me to get it.
I do wonder the states colored white..the ones whose pension funds are solid..what exactly are they doing different?? have their pension funds ever been raided to balance the budget???
What I find interesting in this discussion (and not just in this thread, but in general) is how people merge municipal and state taxes in their mind. As if they're the same thing or as if the governor has any control over any of it.
What's also interesting is the attitude (that's quite prevalent) that teachers and cops are "leaching" off of everyone else because they work for the city (or the state). Having worked for a state government before (not NJ) most gov't workers are paid appallingly low compared to their private sector counterparts and the only thing remotely attractive about the jobs was the relative stability, time off and health and retirement benefits. The stability part has been gone for a while. I was laid off in a round of budget cuts a few years ago. My neighbor, who works for PA, spent 6 weeks at work without a paycheck. If he called out he would've been fired on the spot.
I refuse to go back to public service because of how i was treated. My neighbor is looking to get out too. If you want talent (people with graduate degrees) supervising the construction of the highways you drive on or inspecting the water that comes from your tap or teaching your kids to read and write you can't offer Mod cut pay [i]and[i/] Mod cut benefits.
Otherwise you wind up with slackers and lowlifes doing the work until every school district looks like Camden, every police unit is as corrupt as they are in Mexico, our highways look like they were built by Bechtel and you start getting State Department warning about drinking the water in certain counties.
But then i get the impression that it's part of the plan. Privatize everything so that government becomes nothing more than a few people who collect taxes and award contracts. Just give him a toga now and change his name to Caesar Christie.
Newsflash - when private companies run things, the costs don't go down. The company that gets awarded the contract might be able to hire people who will drive a bus for $12/hour with no benefits but that "savings" doesn't go back to the taxpayer (if they survive the bus ride). The money goes to the corporate execs and shareholders.
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Originally Posted by AnesthesiaMD
All this talk of raising the gas tax is fine, but one has to consider the consequences. Higher gas prices, whether nationally or state wide causes inflation of just about EVERYTHING. Bus fairs will have to be raised, and more importantly, the cost of food will go up. This all effects poor people more than rich people. So be careful what you wish for.
NJ has ridiculously low gas taxes. Especially when compared with any other state in the NE.
Transit operators don't pay gas taxes.
Given that all of NJ is within 70 miles of the PANYNJ or the Philadelphia Food Terminals - it will have little to no impact on food prices.
Last edited by Viralmd; 02-19-2010 at 08:32 AM..
Reason: language
While all of these problems have been festering for decades and had been repeatedly kicked down the road, they've only now just become too big to ignore because sales & use and income taxes have dried up b/c of the economy.
I agree that you should spend less when you have less.
OTOH, if you run a smart household, you save money during the flush times so that you have money for the downtimes. So, like now, having been recently laid off - I don't go out as much as i used to and I canceled the data plan on my cell phone but otherwise i still enjoy a pretty similar QOL.
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Originally Posted by elflord1973
Actually, it's more like "Madoff style". Instead of promising 20% a month or something that is obviously dishonest, they do something more subtle and promise a moderately high number that is not obviously fishy to the layman -- 8%. But that's still much higher than the risk free rate.
how is this any different than the stock market in general?
or pensions in general . . . or economic growth in general
they all require more and more people to be brought in at the bottom to hold the top up. As soon as population growth falters (or the ratio of workers to retirees falters) or people stop buying stock you have a crash.
While all of these problems have been festering for decades and had been repeatedly kicked down the road, they've only now just become too big to ignore because sales & use and income taxes have dried up b/c of the economy.
But that should be completely beside the point -- because pension beneficiaries are supposed to be getting funded out of the money that they have already put in. In a funded pension system (like the states, but unlike social security), your contributions (are supposed to) fund your benefits in the sense that you pay up front.
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how is this any different than the stock market in general?
or pensions in general . . . or economic growth in general
In general, you select investments in line with your risk preferences. You can choose low risk investments like inflation protected bonds, but you'd need to put in maybe 30% or so of your income up front to make a decent retirement fund. Or you can buy risky investments like stocks that historically make much better returns (but are not guaranteed to continue to do so).
What private citizens cannot do, is buy stocks, and then pick the tax payers pocket if the stock market doesn't contine to make its historical 6-8% or so return.
What defined benefit plans do essentially, is force future tax payers to provide free insurance (on the stock market) to future beneficiaries. It's a sneaky way of hiding a big liability, because most people don't understand stock market risk, or insurance for something way in the future.
If the government feels that this insurance is something that the tax payer should provide, that's fine -- but then they should provide it (by expensing it up front -- by docking the price of portfolio insurance from the paychecks of public employees and returning the money to tax payers OR by purchasing put options in the open market, or by only buying risk free investments) instead of rolling the dice and hoping that their gamble with tax payer dollars pays off.
What's also interesting is the attitude (that's quite prevalent) that teachers and cops are "leaching" off of everyone else because they work for the city (or the state). Having worked for a state government before (not NJ) most gov't workers are paid appallingly low compared to their private sector counterparts
This varies considerably from state to state.
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and the only thing remotely attractive about the jobs was the relative stability, time off and health and retirement benefits. The stability part has been gone for a while. I was laid off in a round of budget cuts a few years ago.
You're very much mistaken here. At least as far as NJ teachers are concerned, they have a hierarchy of seniority, which makes long serving employees almost impossible to fire. For example, senior employees often have the privilege of "bumping" junior employees when their position gets eliminated.
This means that what happens is that junior employees have very little job security, but long serving employees are completely unaccountable.
It also means that the only thing you are rewarded for is growing old.
I worked in a university, and it is quite similar in a number of ways -- hierarchy of seniority, tenured faculty that are unassailable, non-tenured faculty have absolutely no job security. It's possible to get rid of bad administrative employees, but the grievance procedure is very onerous.
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If you want talent (people with graduate degrees) supervising the construction of the highways you drive on or inspecting the water that comes from your tap or teaching your kids to read and write you can't offer pay Mod cut[i]and[i/] Mod cutbenefits.
Otherwise you wind up with slackers and lowlifes doing the work until every school district looks like Camden, every police unit is as corrupt as they are in Mexico, our highways look like they were built by Bechtel and you start getting State Department warning about drinking the water in certain counties.
Getting rid of accountability, and therefore making the jobs attractive to those who don't want to be accountable, is a good way to attract these "slackers" and "lowlifes".
Public service is not supposed to be a path to riches. Charity work is not supposed to be a path to riches.
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But then i get the impression that it's part of the plan. Privatize everything so that government becomes nothing more than a few people who collect taxes and award contracts.
For the most part, this would be a good thing. Keep the public sector as a small organization of humble people who are genuinely interested in doing public service. There aren't many such people, but if you keep it small, you will find enough people to fill all the slots.
Things like selling groceries, writing software, building computers, cars, and airplanes -- I'd rather that the private sector take care of this. The default should be that people consume and provide voluntarily. If you want to force someone to consume or provide a given "service", you need to make a compelling case for it.
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Newsflash - when private companies run things, the costs don't go down. The company that gets awarded the contract might be able to hire people who will drive a bus for $12/hour with no benefits but that "savings" doesn't go back to the taxpayer (if they survive the bus ride). The money goes to the corporate execs and shareholders.
If the company cannot provide a product or service to someone who is willing and able to pay for it, they go out of business. If you don't like that private bus service, you can stop paying any time. I'd be happy to send you a list of public "services" I'd like to stop paying for. Starting with the afore-mentioned Camden public schools (who would pay a dime for those ? Not even the users of this so-called "service" want it)
Press the "re-set" button. Fire the "professional" commissars(of both parties). Let them get real jobs. Keep government small. Term limits. Lower all taxes. Don't spend money we don't have. Let's become America again. The way our founding fathers foresaw it. Observe the constitution.
Press the "re-set" button. Fire the "professional" commissars(of both parties). Let them get real jobs. Keep government small. Term limits. Lower all taxes. Don't spend money we don't have. Let's become America again. The way our founding fathers foresaw it. Observe the constitution.
This single post makes more sense than the entire thread
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