Friday, November 04, 2016

Government Pension Plans
Are Headed For A "Tsunami" Disaster
"Politics & Pensions Just Don't Mix"
"The combined debt held by U.S. public pension plans will top $1.7 trillion next year, according to a just-released report from Moody’s Investors Services .. This 'pension tsunami' has already forced towns like Stockton, California and Detroit, Michigan into bankruptcy. Perhaps no government mismanaged their pension as badly as Puerto Rico, where a $43 billion pension debt forced the commonwealth to seek protection from the federal government after having defaulted on its obligations to bondholders — a default which is expected to spread to retirees in the form of benefit cuts. While the disastrous outcome of Puerto Rico’s pension plan — which is projected to completely run out of assets by 2019 — represents the worst-case scenario, the same series of events that led to its demise can be found in most public pension plans nationwide. There are three primary culprits that can be found in nearly every state suffering from a public pension crisis:
1. The use of accounting gimmicks that are designed to shift costs onto future generations — an approach outlawed for private pension plans and rejected by both public and private plans in Canada and Europe.
2. Lawmakers, acting in their political self-interest, who have catered to the past demands of government unions to enrich their members’ benefits while passing the costs onto future generations.
3. A broken governance structure where public pension board members are actually penalized in tangible ways for acting responsibly, and are rewarded by choosing to delay the day of reckoning.
Perhaps the most concise assessment of public pensions came from the former chief actuary for the nation’s largest public pension fund — CalPERS — who noted simply that: 'Politics and pensions just don’t mix.'"
LINK HERE to the essay

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