Notes and thoughts from the “Pensions & Politics: Why your taxes will skyrocket” RE Harper Economic forum.
Some links to helpful articles
Notes:
Principles in Practice
“In any conflict between two groups who hold the same basic principles, it is the more consistent one who wins”
“In any collaboration between two groups who hold different basic principles, it is the more.. irrational one that wins”“When opposite basic principles are clearly and openly defined, it works to the advantage of the rational side; when they are not clearly defined, but are hidden or evaded, it works to the advantage of the irrational side.”
Poor Benchmarking
Comparing to other pension plans fosters economic relativity.
When it boils down the private sector always funds the public sector.
Hence if the private sector is operating in set terms the public should as well.
Markets call for 5-7% of payroll is needed for long term affordability.
Pensions are Political Capitol
You vote for who promises you the biggest pension without concern for your fellow citizen.
A built in bias to provide more benefits and pay for them in the future.
You need to calculate unfunded liabilities such as
- Experience gains
- benefit changes
- funding changes
Combined Estimated PSERS and SERS Employers Costs
- FY 2009-10 843M
- FY 2012-13 6.1B
- FY 2015-16 7.8B
(Assuming 8% investment returns and a 6% growth in wage earnings) lower returns = higher costs
True Pension Reform – Basic Principles
Benefit should be funded as they are earned
Achieve a 100% Funded ratio
Predictable costs
Costs must be affordable
5-7% of payroll (net employee contributions)
Steps Toward Reform
- United defined contribution plan for new members
- Prohibit pension obligation bonds or other post employment benefit bonds
- Mandate minimum funding reforms
- Consider modifying unearned pension benefits (if legal and feasible)
- Fund reforms after those are done
Ask your legislatures if they agree to this.
Thanks to the Commonwealth Foundation for putting on this event.
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