You owe $14,165 to pay for your city’s employees pensions

October 12, 2010

A new study about the precarious nature of pension shortfalls is likely to take the debate up a few notches. [Business Insider]

Researchers are warning that thanks to unrealistic expectations, cities and states have much bigger pension shortfalls than they’re willing to let on. All told, the gap could hit $3 trillion.

The authors calculated that each household in the 50 cities and counties they studied owes an average of $14,165 to current and past government employees for their pensions.

“The ability of local governments, particularly cities, to provide the levels of service they do now is threatened by this liability,” said Joshua Rauh, a Northwestern University business professor who co-authored the report with Robert Novy-Marx, a University of Rochester professor.

The report is based on an analysis of pension funds in 50 major cities and counties that together account for two-thirds of the nation’s 3 million local government employees. It argues that cities routinely cling to unrealistic projected investment earnings to understate their pension liabilities, a strategy that has been exposed by the financial crisis and recession, which severely diminished investment returns.

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These are questions everyone should be asking our local candidates… I know where THEY think the money will come from… do you?

Here’s something to chew on…

As ugly as it sounds, bankruptcy may be the only way to break the unfunded liability portion of the public employee pensions. Then CalPERS will sue the state…..let them. There’s no money!

Most of the rest of us (not public employees) live in the world of the defined contribution when it comes to pensions. Your employer must contribute a certain amount to an employees retirement acct. or a 401 K. The money is invested on behalf of the employee, if the investment does well, so does the retirement account. If it doesn’t, well that’s the way it goes. This is America.

The public employee gets a defined benefit, no matter what happens along the way he/she will get a stipulated amount. Sweet! Along comes CalPERS or CalTERS with a gazillion taxpayer dollars to invest. When the economy is good, we don’t hear a thing. When the economy goes south, the taxpayer gets to make up the difference. Kinda like double taxation but not really. My take on it is that if they want to play the market and assume risk, then suffer the consequences either way. If they want the defined benefit, then put the gazillions in the bank or bonds or something secure. Seems like the public employee unions have a fiduciary responsibility to the taxpayer also if we’re going to be asked to clean up their mess.

Anyone heard from the public employees or their union reps with any ideas on all of this? Their silence speaks volumes. Once again, we’ve all been had by poor leadership.

There is no short term solution!

There has only been plecebo solutions AKA “Kicking the can down the road”

Remember Mama Cass Elliot singing “There’s a new World Coming”? And it is…our government both federal and state has a change coming and “it’s right around the bend”…11-2-10. Vote responsibly. Don’t text and drive. Wear clean underwear (that’s for my mom). LOL!

I see a way to fix this. Either the unions can renegotiate or do what the city of Vallejo is considering. FILE BANKRUPTCY!! Clean slate and nobody wins.

This is going to get a whole lot uglier before it ever gets better. Hard decisions are upon us.