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Old 01-04-2013, 15:50   #1
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Report has public pension short fall at $4.6 trillion

http://www.bloomberg.com/news/2012-0...roup-says.html

Moody's has it at about $2 trillion; the report states that the average pension is 41% funded--Yipes!

Apparently, one of the major culprits was the optimistic expected return on the pension fund investments--typically pegged at 8%. CALPERS earned just 1% in the past year indicating how far off even the major pension funds can be.

Naturally, the tax payers will have to make up the difference.
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Old 01-04-2013, 16:18   #2
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Can nobody in government do math ? .....

.
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Old 01-04-2013, 16:20   #3
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Can nobody in government do math ? .....

.
Sure! We just don't understand the math they are doing though.
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Old 01-04-2013, 17:54   #4
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Can nobody in government do math ? .....

.
Damn the torpedoes! It's that fuzzy math!
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Old 01-04-2013, 16:23   #5
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pensions are a Ponzi scheme

There are not sustainable, so the people that get in early enough get paid, everybody else is just a payer.
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Old 01-04-2013, 16:52   #6
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Kind of depends upon the retirement system.

The one I'm in only has more than 10K members.

It's funded ratio is over 70%. It's been as high as almost 80%, and as low as the middle 60's.

In 2009-10 it earned 14%.

In 2010-11 it earned 24%.

For 2011-12, when the recovery stalled, it went to essentially zero. For the first 3 months of 2012-13 fiscal year it rose to over 5%, and for the 12 months ending in Sep 2012 it had earned over 18%.

I don't believe the fund can be "borrowed from", either.

Things fluctuate, but it appears that some retirement systems and funds can be managed well.

I'm just lucky that I ended up in what's seemingly a good retirement system. This wasn't known to me as a young man, nor was I really thinking about it back then when I took the job.
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Old 01-06-2013, 08:16   #7
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pensions are a Ponzi scheme

There are not sustainable, so the people that get in early enough get paid, everybody else is just a payer.
Not true. A true Defined Benefit Pension plan can be a sound way to design retirement benefits and has been used for many many decades by companies to pay retirement benefits to employees. Most are economically sound.

PUBLIC Pensions (ie Government Pensions promised to Government Employees--teachers, firemen, police, Postal Workers etc) are not subject to the funding rules surrounding privately sponsored defined benefit plans. The polticians simply write a new law promising more benefits to get more public sector workers to vote for them but they have no intention of ever funding those promises. They also deliberately underfund those programs as in the CALPERS example above by making unrealistic returns assumptions. This allows them to spend more tax dollars now than they would otherwise be required to set aside to fund all those pensions. FWIW many Unions also have successfully lobbied for different funding rules for Union Pensions and guess what--many Union sponsored pension plans are going broke as well.

The reason Pension Plans and Social Security is going broke is because people are living too long. 30 years ago the average life expectancy for a man was age 68 and 73 for a woman. So it was no big deal to fund a pension that would last no more than 5-10 years. But today, people are living 20 and 30 years into retirement and that makes funding a sound pension for these folks VERY expensive. Which is why only 15% of the Fortune 500 companies still offer Defined Benefit Pension plans when 20 years ago 85% of those companies offered pensions.

The real problem is if you add up all the unfunded liabilities for this nation--between state, local and federal governments--including Social Security, Medicare and Medicaid. Federal pensions, State Pensions, Military Pensions etc etc...we have over $160 TRILLION in unfunded liabilities...$80 Trillion is SS and Medicare/Medicaid alone This was published in the Wall Street Journal about a month ago.


Quite literally, there is not that much wealth on the entire planet. We couldn't tax everyone on the face of the earth 100% of all their income and assets and pay for it. Historically what has happened when governments get into this kind of pickle? They default on their debt and don't pay their obligations. Think that's BS? Who in Washington is seriously making proposals for paying off our $16 Trillion National Debt?

NOBODY... Not a single politician
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Old 01-06-2013, 08:21   #8
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Not true. A true Defined Benefit Pension plan can be a sound way to design retirement benefits and has been used for many many decades by companies to pay retirement benefits to employees. Most are economically sound.

PUBLIC Pensions (ie Government Pensions promised to Government Employees--teachers, firemen, police, Postal Workers etc) are not subject to the funding rules surrounding privately sponsored defined benefit plans. The polticians simply write a new law promising more benefits to get more public sector workers to vote for them but they have no intention of ever funding those promises. They also deliberately underfund those programs as in the CALPERS example above by making unrealistic returns assumptions. This allows them to spend more tax dollars now than they would otherwise be required to set aside to fund all those pensions. FWIW many Unions also have successfully lobbied for different funding rules for Union Pensions and guess what--many Union sponsored pension plans are going broke as well.

The reason Pension Plans and Social Security is going broke is because people are living too long. 30 years ago the average life expectancy for a man was age 68 and 73 for a woman. So it was no big deal for fund a pension that would no last more than 10 years, But today, people are living 20 and 30 years into retirement and that makes funding a sound pension for these folks VERY expensive. WHich is why only 15% of the Fortune 500 companies still offer Defined Benefit Pension plans when 20 years ago 85% of those companies offered pensions.

The real problem is if you add up all the unfunded liabilities for this nations between state, local and federal governments--including Social Security, Medicare and Medicaid. Federal pensions, State Pensions, Military Pensions etc etc...we have over $160 TRILLION IN unfunded liabilities...$80 Trillion is SS and Medicare/Medicaid alone..

There quite literally is not that much wealth on the entire planet. We couldn't tax everyone 100% of all income and assets and pay for it. Historically what has happened when governments get into this kind of pickle? They default on their debt and don't pay their obligations. Think that's BS? Who in Washington is seriously making proposals for paying off our $16 Trillion National Debt?

NOBODY... Not a single politician
Great post.

As far as the debt and threat of default, I believe it's a part of a intentional push towards world government. Globalization is coming.
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Old 01-06-2013, 08:25   #9
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Great post.

As far as the debt and threat of default, I believe it's a part of a intentional push towards world government. Globalization is coming.
+1 on both. Great initial post. Globalization of currency. Will add devaluation of everybody's savings. The exchange will not be 1:1. You dollar, your savings, you pension, your 401K will be instantly worth 1/10 of current value.

I would expect nothing less from a President and political party that made a mantra out of how unfair America has been to the world in the past.
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Old 01-06-2013, 09:07   #10
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Great initial post. Globalization of currency.
Not gonna happen.

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Will add devaluation of everybody's savings.
Every currency on the face of the planet already faces inflation; you don't need a single currency to devalue everyone's savings.

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The exchange will not be 1:1. You dollar, your savings, you pension, your 401K will be instantly worth 1/10 of current value.
Again, not going to happen. That's not how currency devaluation works. In countries where this does/has happened (I was in Romania when they launched the new lei) prices are also adjusted by the same factor.
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Old 01-06-2013, 09:04   #11
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As far as the debt and threat of default, I believe it's a part of a intentional push towards world government. Globalization is coming.
No, it's not.

Europe has a single currency, and even they can't put together a supra-national government. When the cracks started to appear in the single currency people were talking about bailing out, not combining governments. We're a long way from it.
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Old 01-07-2013, 00:25   #12
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pensions are a Ponzi scheme

There are not sustainable, so the people that get in early enough get paid, everybody else is just a payer.
You are basically correct. A person may only put in fifty grand and believe that they lost a lot when they still have their original amount in the plan. Since the economy tanked the values have gone down quite a bit. Most companies and even governments will have to adjust pensions as people live longer and we keep allowing more and more foreigners illegally into the country. We just can't afford the new people and our math does not work.
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Old 01-04-2013, 16:40   #13
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NV PERS had a return for 2012 of 16%. Since 1984 they have a net return of 9.3%, also greater than the 8% expected. So does that mean I should get a refund of my contributions since they did better than their expected rate of return? If there was a shortfall you would expect that I would have to contribute more, right?

The problem with a lot of pension plans (CALPERS included) is that the money wasn't put into the plan to be invested as required. Instead the lawmakers wrote an IOU and spent the money elsewhere. Since that money wasn't invested, there's no way for it to achieve the rate of return required to sustain the system.

This kind of misappropriation committed by politicians across the country would land everyone involved in prison if it were done in private business. If the systems are underfunded and going broke it's because of mismanagement at the highest level, not because they're unsustainable.
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Old 01-04-2013, 16:50   #14
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NV PERS had a return for 2012 of 16%. Since 1984 they have a net return of 9.3%, also greater than the 8% expected. So does that mean I should get a refund of my contributions since they did better than their expected rate of return? If there was a shortfall you would expect that I would have to contribute more, right?

The problem with a lot of pension plans (CALPERS included) is that the money wasn't put into the plan to be invested as required. Instead the lawmakers wrote an IOU and spent the money elsewhere. Since that money wasn't invested, there's no way for it to achieve the rate of return required to sustain the system.

This kind of misappropriation committed by politicians across the country would land everyone involved in prison if it were done in private business. If the systems are underfunded and going broke it's because of mismanagement at the highest level, not because they're unsustainable.
The politicians spent your contributions or the taxpayers' contributions?

If it is taxpayers contributions how is it misspent? Did they break the law?
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Old 01-04-2013, 17:27   #15
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The politicians spent your contributions or the taxpayers' contributions?

If it is taxpayers contributions how is it misspent? Did they break the law?
It's misspent because the money was budgeted to be paid into the retirement system, not to be spent on operating expenses. Just like when a company budgets to build a new factory but instead gives a raise to the ceo. It isn't illegal to spend the money in that manner, but it doesn't negate the fact that the factory still needs to be built.
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Old 01-04-2013, 20:38   #16
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NV PERS had a return for 2012 of 16%. Since 1984 they have a net return of 9.3%, also greater than the 8% expected. So does that mean I should get a refund of my contributions since they did better than their expected rate of return? If there was a shortfall you would expect that I would have to contribute more, right?

The problem with a lot of pension plans (CALPERS included) is that the money wasn't put into the plan to be invested as required. Instead the lawmakers wrote an IOU and spent the money elsewhere. Since that money wasn't invested, there's no way for it to achieve the rate of return required to sustain the system.

This kind of misappropriation committed by politicians across the country would land everyone involved in prison if it were done in private business. If the systems are underfunded and going broke it's because of mismanagement at the highest level, not because they're unsustainable.
In other words see Stockton for what not to do with a city. They built stadiums and convention centers when nobody wants to go there. Trust me, I grew up there, if you find yourself on I-5 or 99 driving through Stockton, don't bother getting off the freeway unles you need gas or food. And if you get off dont get off any exit other than Ben Holt or Hammer.

It's getting so bad in Stockton they are loosing so many officers they will have to pay the Feds back money they took for funding officer positions. The only people who apply can't meet the minimum standards.
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Old 01-04-2013, 22:15   #17
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NV PERS had a return for 2012 of 16%. Since 1984 they have a net return of 9.3%, also greater than the 8% expected. So does that mean I should get a refund of my contributions since they did better than their expected rate of return? If there was a shortfall you would expect that I would have to contribute more, right?

The problem with a lot of pension plans (CALPERS included) is that the money wasn't put into the plan to be invested as required. Instead the lawmakers wrote an IOU and spent the money elsewhere. Since that money wasn't invested, there's no way for it to achieve the rate of return required to sustain the system.

This kind of misappropriation committed by politicians across the country would land everyone involved in prison if it were done in private business. If the systems are underfunded and going broke it's because of mismanagement at the highest level, not because they're unsustainable.
Do you have proof the CALPERS money was not put into the plan? My roommate says all the money was only used for CALPERS.

I had a discussion with him that his pension could become insolvent if California became bankrupt, that promises were made that CA maybe could not keep. He was fairly convinced that was impossible.
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Old 01-04-2013, 23:18   #18
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Do you have proof the CALPERS money was not put into the plan? My roommate says all the money was only used for CALPERS.

I had a discussion with him that his pension could become insolvent if California became bankrupt, that promises were made that CA maybe could not keep. He was fairly convinced that was impossible.
To understand CalPERS you have to understand how they pay out. There are three streams.

1. Intrest off their holdings. This runs 70-90% depending on the economy. I haven't checked the current rate in awhile but it is out there if you want to find it.

2. Employee contributions. For public safety it is default 9% of each working employee's pay. Non public safety is 7%.

3. Employer contributions. This varies. During much of the 90s and 2000s most cities paid 0-5% assuming they did not pay their employees' share. I looked up my city and they got 2% back one quarter. Also factored into this is disability retirements CalPERS has to pay for people vs. the city paying for it. I won't even go there because I could write 10 pages on that alone.

Essentially for CalPERS to go bankrupt cities would have to stop paying into it yet demand their retirees get paid by CalPERS. Not going to happen. CalPERS would tell them to pay them or they are on their own.

CalPERS is essentially like the Mob. Once you are in there is only one way out, meanwhile you pay the vig.

Also CalPERS is a public/private organization. Somewhat similar to BART.
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Old 01-05-2013, 00:35   #19
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1. Intrest off their holdings. This runs 70-90% depending on the economy. I haven't checked the current rate in awhile but it is out there if you want to find it.
This is where I see the big problem if say a 7% rate of return is what was planned for. I don't think my roomy expects the tax payers to make up any difference in rate of return, but I'm assuming CalPERS has been supplemented out of the general fund. I have nothing to back that up though. Research on that has turned up nothing.

I think government pensions should operate like private 401k's where you get back what you have put in plus actual interest on holdings.
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Old 01-05-2013, 08:22   #20
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I'm intentionally being dense on this because it wasn't a valid analogy and I was using "density" to illustrate that. Instead of picking the above excerpt apart, lets just let it go and address the meat of the issue:



No. They don't. I wish they did but they don't. If they did have such a duty they most certainly would have been jailed for creating most of these public pensions in the first place because by creating them they would have been in violation of it.

Furthermore, if they had a fiduciary duty at the present they would likely be in violation of it for allowing the pension funds to continue, and for most public employee union contracts.

A fiduciary duty is a legal obligation:



The people who manage the funds within the pension plans DO have a fiduciary duty.



Well, it isn't. I agree. However, your point is based on a fallacy. There is no debt if the legislators legislate it away.

In other words, taxpayer funds in public pensions are only guaranteed so far as the last law written to protect them. It is taxpayer money. The lawmakers can simply pass a law and re-allocate it. The taxpayers have a right to have their interests represented. If they, via their legislators, decide to remove taxpayer money, stop depositing taxpayer money or dissolve the pension (assuming not contractually bound), they have a right to do that and can do it.

I'm not passing judgement on it one way or another. I'm just saying they can.

However, current taxpayers/current legislatures cannot be bound by previous legistures. In other words, just because some legislature 30 years ago promised you a pension package, the current legislature can change that obligation and they should be able to. The current taxpayers were not represented by the previous legislature.

Truth be told, this is generally the biggest problem with public union contracts and public pension systems. Some politician years ago made an agreement to spend some other person's money in the future for their own political benefit today.



Sure they can walk away from it. Courts may or may not rule against them. If they so choose, they can amend their respective constitution. Nothing with the government is iron-clad, and it shouldn't be. That's my basic point.

Remember that though we put judges in black robes and call them "your honor", they're still just lawyers and most of them are political hacks or politicians themselves. It is what it is.



I don't. Government has proven it is untrustworthy. It has proven it does not have a fiduciary duty or even a "fiduciary mindset". I truly feel sorry for honest hardworking NECESSARY government employees who are put in this compromising postion. The good news for you folks is that in reality, not paying you would be political suicide in MOST cases. However, as the fiscal crises grow public opinion seems to be changing a bit as well and should the taxpayers send politicians to the state house with a mandate to relieve them of pension obligations, rest assured it will happen. I think it is highly unlikely though because the government pretty much has a monopoly on force and will bring as much pressure to bear on the taxpayers to force them to pay in order to protect their political status.



I do too, if possible. But I don't believe I should have to bail it out at any cost, as a taxpayer. You have to be conscious of the possibility that it may not be feasible at some point. No matter the reason or the malfeasance involved, there is a limit, unless the federal government starts bailing them out with printed money. Even still, there is a limit, you just might realize that limit slowly.



I would vote for that in a heartbeat and put public employees on a 401k type plan with very conservative taxpayer contributions/matches, like the productive sector has.

I suspect that can't happen because it is mathematically impossible and would trigger collapse in any number of areas. So to that extent, we're all in it together.
I see where the disconnect is. Your jaded and cynical view of government is shading your view of government pensions. Since you don't expect the government to act with a fiduciary responsibility, you assume that they are all completely reckless and irresponsible with tax revenue. Even in light of information to the contrary and evidence showing that a pension system is completely sustainable you argue that "I don't get a pension so neither should you." Then you defend their years of failing to meet their obligations set by law when the system was established by saying they aren't obligated to honor commitments made by prior legislatures. If they have the opportunity to amend the law and fail to do so, doesn't that constitute a tacit acceptance of the obligation to follow that law?

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Do you have proof the CALPERS money was not put into the plan? My roommate says all the money was only used for CALPERS.

I had a discussion with him that his pension could become insolvent if California became bankrupt, that promises were made that CA maybe could not keep. He was fairly convinced that was impossible.
The problem is the cities and counties (employers) who didn't pay their contributions to the system that they were required to pay on behalf of their employees.

As an example, I work for the state of Nevada. With every pay check, I contribute 12.25% of my salary to PERS. In turn, my employer also is required to contribute the same for a total contribution of 24.5% of my salary. That money is meant to be invested and through the power of compounding the returns, will eventually be enough to pay me a pension as well as pay other expenses related to managing the pension system. When the state budgets for each position, they plan for this expense based on the salary set for the position.

The problem comes in when employers fail to plan for their expected contribution and spend that money elsewhere. The whole pension system suffers because that money doesn't have a chance to "grow" as an investment because it doesn't get invested when it should.

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This is where I see the big problem if say a 7% rate of return is what was planned for. I don't think my roomy expects the tax payers to make up any difference in rate of return, but I'm assuming CalPERS has been supplemented out of the general fund. I have nothing to back that up though. Research on that has turned up nothing.

I think government pensions should operate like private 401k's where you get back what you have put in plus actual interest on holdings.
I think government pensions would be just fine if the elected officials would stop stealing from them.
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Old 01-05-2013, 09:26   #21
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I think government pensions should operate like private 401k's where you get back what you have put in plus actual interest on holdings.
In some ways, a 401K is better than a pension because when you die unexpectly, the entire 401K goes to your estate. With a pension, if I die (say) one year after retirement, guess where all my unused contribution goes? (hint: not to my estate).

A 401K type plan is fine if all new employees are told this is what's going to happen. And of course, current salaries would have to be increased to match private industry's.

For someone who started 30-40 years ago, the pension was part of the employment package they agreed to. They also agreed to take a lower salary than employees in private industries, with the understanding that the pension is part of the "overall" compensation package.

Where I'm at, we contribute 7.5-percent of gross salary into my own pension, year after year, until retirement. So it's not true that we get a free pension.
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Old 01-05-2013, 09:58   #22
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This is where I see the big problem if say a 7% rate of return is what was planned for. I don't think my roomy expects the tax payers to make up any difference in rate of return, but I'm assuming CalPERS has been supplemented out of the general fund. I have nothing to back that up though. Research on that has turned up nothing.

I think government pensions should operate like private 401k's where you get back what you have put in plus actual interest on holdings.
CalPERS "supplements" by having either employers or employees kick down more money. Right now me and the city are paying in at about a 60/40 ratio of about 30-40% of my base pay.

If there is no money coming in there will be no money going out for that government entity. They don't care how you do it but they want their money or you set up your own pension plan. Good luck with that. See Orange County for a nightmare. Oh, and San Jose is about to join them in hell.
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Old 01-06-2013, 16:30   #23
moeman
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Quote:
Originally Posted by jpa View Post
NV PERS had a return for 2012 of 16%. Since 1984 they have a net return of 9.3%, also greater than the 8% expected. So does that mean I should get a refund of my contributions since they did better than their expected rate of return? If there was a shortfall you would expect that I would have to contribute more, right?

The problem with a lot of pension plans (CALPERS included) is that the money wasn't put into the plan to be invested as required. Instead the lawmakers wrote an IOU and spent the money elsewhere. Since that money wasn't invested, there's no way for it to achieve the rate of return required to sustain the system.

This kind of misappropriation committed by politicians across the country would land everyone involved in prison if it were done in private business. If the systems are underfunded and going broke it's because of mismanagement at the highest level, not because they're unsustainable.
Good post!
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Old 01-04-2013, 16:48   #24
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Quote:
Originally Posted by Mr981 View Post
http://www.bloomberg.com/news/2012-0...roup-says.html

Moody's has it at about $2 trillion; the report states that the average pension is 41% funded--Yipes!

Apparently, one of the major culprits was the optimistic expected return on the pension fund investments--typically pegged at 8%. CALPERS earned just 1% in the past year indicating how far off even the major pension funds can be.

Naturally, the tax payers will have to make up the difference.
CALPERS? Unpossible! Where's CACop?

Here's a rough tip: If your employer is promising you a pension that is much better than the productive sector receives, or, is something the productive sector has had to abandon because it is unaffordable -- you might be in for a surprise.
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Old 01-04-2013, 17:14   #25
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Florida's is 87% http://www.naplesnews.com/news/2012/...tions-healthy/ Or 101% in this report http://www.governing.com/topics/publ...paredness.html And has been well funded since 2000 http://www.santarosa.fl.gov/hr/docum...032309ver5.pdf

And the state has had retirement systems in place since 1945 for state and county employees and a system for state employees since 1927. Sort of a long time for a ponzi scheme to survive.



That said I think it was Illinois that was funded at ~54% which seems to me to be a potential for a problem.
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