Saturday, December 8, 2012

Municipal and state pension hemorrhage accelerating

KEEGAN: Note to Morningstar: Municipal and state pension hemorrhage accelerating « Watchdog News: "As a leading provider of investment research, Morningstar is taking an interest in government pensions because there is an intense legal debate about who gets paid first, pensioners or bondholders, when a municipality defaults or a state simply runs out of money even though it cannot declare bankruptcy. Numerous recent studies by a wide array of economists calculated that as presently operated, all defined benefit public pension funds will run out of money, some sooner, some later, but all eventually. Reforms 33 years ago intended to put government pensions on an actuarially sound basis failed. The Government Accountability Office warned in a1979 report, Funding of State and Local Government Pension Plans: A National Problem, “To protect the pension benefits earned by public employees and to avert fiscal disaster, State and local governments should fund on an annual basis the normal or current cost of their pension plans and amortize the plans’ unfunded liabilities.” State and local politicians did not, and they are proving now they never will. The defined benefit pension system is fundamentally, systemically flawed and prey to what actuaries call “moral hazard.” Politicians can make promises they know they won’t have to keep and pile up debts they won’t have to pay. To one degree or another, that is what is happening in every state and municipality, and there is nothing under the existing system to stop it. The only solution is to freeze defined benefit plans now, amortize the existing debt and shift to defined contribution or hybrid cash balance plans. . . . "

Answer: abolish all public pensions. Replace with self-funded tax-sheltered retirement accounts for everyone, including government workers.


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