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The future of not making pensions sustainable



December 24, 2010 – Comments (5)

Here's a story of a place that just stopped paying pensions they could no longer afford.


Between the workers and city 16% was paid in each year and people were allowed to retire between 50 and 60.  Retire at 50 and expect a pension to pay as many years of benefits as the person worked...  The numbers simply do not work and this pension was shown to be in trouble years before the breaking point.  That level of paying in means people needed to work into their late 60s, maybe even until 70 to have paid for a pension of about 50% of wages.  The math isn't that difficult to figure out the numbers were grossly out of line, but it seems to have evaded a lot of people.

5 Comments – Post Your Own

#1) On December 24, 2010 at 1:51 AM, awallejr (28.75) wrote:

It hasn't evaded people.  People know the problem.  They just don't want to deal with it at the moment.  But the day of reckoning is coming.  Allowing people to bump up their retirement wages through overtime, for example, must end. 

I do see public retirement givebacks happening down the road, otherwise municipal bankruptcy, for example,  really is in the cards. 

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#2) On December 24, 2010 at 2:25 AM, FleaBagger (27.54) wrote:

One of the most pronounced problems with politics is the propensity of everyone to grab what they can, and of many to improperly discount the future.

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#3) On December 24, 2010 at 7:27 AM, brizzlekizzle (37.98) wrote:

I was just reading on the wall street journal that some cities are raising property taxes to pay for pensions. I can see the additional pressure forcing more people to sell their homes, taking the revenue gains away. We all live in a house of cards these days.

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#4) On December 24, 2010 at 12:55 PM, chk999 (99.96) wrote:

This is why I'm not unhappy to have never worked for any entity that did defined pensions. There's always that subtle counter-party risk.

My mom's retirement is CALPERS (California teacher retirement) and there is a lot to worry about there. 

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#5) On December 26, 2010 at 9:58 PM, tomlongrpv (61.73) wrote:

chk999 Actually CALPERS may be a good model of how defined benefit pensions should be handled.  While it is "underfunded" right now because of investment losses, those losses are likely to be recouped.  And unlike the pension plans of individual cities, CALPERS is managed by professionals rather than politicians.  Participating entities like cities are simply told what contributions they must make to provide a benefit package from among the menu of packages offered.  When there are surpluses, the cities cannot raid them and when there are deficits, the cities must make them up over time.  And it is very hard to withdraw--as it should be.

While it may not be much comfort to you, CALPERS is probably as strong as Social Security (or even more so--and Social Security is not as weak as some think it is).  CALPERS is here for years to come and your mother's pension is safe. 

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