Josh Gotbaum explains that we’re unlikely to see sharp curtailing of public pensions through basic considerations of fairness:
Of course, the world changes and sometimes commitments cannot be kept. That’s why we have bankruptcy. Bankruptcy is a process by which people and organizations who cannot afford to keep their commitments can be relieved of some of them. But bankruptcy is not a ‘get out of jail free’ card. It’s a process under which people, businesses and local governments first show they really cannot keep their commitments and then work out a fair way to reduce them. That means that changes in bankruptcy must be both necessary and fair. (State government pensions are in a different situation, because the US Congress hasn’t chosen to legislate a bankruptcy process for states.)
IMO there is some level of public pension—pick a number, $200,000 per year, $300,000 per year—at which the commitment is itself unfair.
To give readers a sense for what Dave is saying you can do a little calculation. (You can believe me or I can show you, but I would recommend doing it yourself just so you understand the concept. A little spreadsheet would then only take you 5 minutes to do.)
The assumptions and results follow. The objective is to show what a 401K saver would have to do to receive the same annual benefit as the public pensioner (any pensioner)
Assume a 40 year working career. Assume you die at 85, collecting for 20 years after retirement. Assume an age appropriate portfolio return of 4%. 5% doesn’t change this analysis all that much! and if you assume more you are either delusional or just gambling.
The results.
To ensure a $200,000 per year payment of investment return on your capital base plus a payment from your dwindling capital to zero when you die you need to amass in your working life $2.73MM. To ensure the $300,000 per year payment, you must amass $4.1MM. That corresponds to saving $50 – $75K per year.
Show of hands. How many people in the private sector do you think can save that much and pile up those savings accounts by age 65 ??
The line for public sector employment starts ———————->
Once you have the algorithm you can assume any level of annual pension payment and calculate what a private sector employee must do to save the equivalent. And I haven’t even dealt with pension double dips, or salaries that escalate the last few years of a public workers career.
Now, want to talk fairness? You all are paying for this.
My four hundred dollars a year in property taxes aren’t paying for this, Drew!