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Flashing back on Pensions



November 04, 2009 – Comments (6)

Mish has a post outlining the degree of trouble for a great many pensions. 

I've said it often, people are not going to get the pensions they think they are getting and the best way to salvage pension plans is to redesign them to pay out what is affordable.  I tend to think that is about half of what people are expecting, and much closer to what people have actually paid into them.

6 Comments – Post Your Own

#1) On November 04, 2009 at 7:13 PM, RVAspeculator (28.12) wrote:


You don't think that pensions (especially public ones) won't be just another bailout?

I think the first teacher that has to take a cut in their pension is when the first few billion comes from the government.  Pensions is going to be a HUGE bailout from the US gov.

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#2) On November 04, 2009 at 9:39 PM, dwot (29.67) wrote:

Where does this money for pension bailouts come from RVA?

I tend to think debt levels are already unsustainable.

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#3) On November 04, 2009 at 10:39 PM, AbstractMotion (< 20) wrote:

It's going to end up being a generational wealth transfer of some kind.  They'll either raise property taxes or force much higher contribution rates from employees working at the time.  The worst thing that could happen is a bailout of a state that's basically on the edge as is (California) and having it happen to a large number of states expecting a similar bailout.  There's still a chance to clean this up a bit in a messy but responsible manner, but I think it's pretty widely agreed that a national bailout of a few states would pretty much insure the whole hyperinflation/death of the dollar scenario.


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#4) On November 04, 2009 at 11:49 PM, dwot (29.67) wrote:

AbstractMotion, politically it is probably a lot easier to reduce the value of the pensions by reducing the value of the dollar...

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#5) On November 05, 2009 at 12:42 AM, AbstractMotion (< 20) wrote:

Probably dwot, but I think that leads to bit of a run away problem with the decrease of purchasing power those benefits have and a similar decay in the value of any savings retirees will be depending on.  Which stresses inflation pegged social safety net programs and ultimately leads to either additional debt or higher taxes to cover the existing shortfalls in these programs.

It's probably subtler from a policy stand point, but really as you've said that money has to come from somewhere effectively.  Politically retirees and those about to retire will have the voting numbers to make sure they aren't on the losing end of the equation.  I also have a very hard time believing our creditors would stick around such a scenario as well.  That really only leaves the taxpayer and perhaps some balance sheet magic on the part of the Fed to soften the blow a bit.




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#6) On November 07, 2009 at 11:27 PM, edbbear (< 20) wrote:

Why do we have pensions?  All they do is screw taxpayers by hiding the true amount employees get paid.  Why can't they put money in retirement funds or buy annuities with money from their own paychecks?  The whole thing has always been absurd to me.

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