Public Pensions: An Economic Time Bomb | 5 Minute Video

Who cares about public pension liability? Well, you should – after all, it’s the reason entire cities and even states are facing bankruptcy. Joshua Rauh, professor of finance at Stanford and Senior Fellow at the Hoover Institution, paints a startling picture of just how broken the public pension system really is, and what will happen if we continue to ignore it.

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Script:

I want to talk to you about three words that should scare the heck out of you, especially if you’re young: public pension liabilities.

Okay, I know you probably have about a hundred things you’re worried about, and public pension liabilities likely aren’t one of them.

But that’s the reason this is so scary—because almost no one is paying attention.

Unless you’re okay with your city going full Detroit and giving more of your hard-earned money to pay off someone else’s debts, stay with me.

So what is a public pension liability?

A pension is a guaranteed, lifetime payment to someone after they retire. Pensions used to be a big deal in the private sector. Every major American company had them. But they became too expensive, and companies have taken steps to phase them out.

However, pensions still live on in the public sector—among employees of the government—and they’re eating city and states’ budgets alive. More and more money that could go to tax cuts or better services is instead being shoveled aside to pay for these benefits.

Why is this happening? Over decades, politicians have promised trillions of dollars in pensions to government workers. That includes police, firefighters, teachers, and city and state officials. You name a government job, and there’s a pension associated with it. 

Now, you may be wondering, “How big are these payments?” Many pensions are quite large. In California, more than 62,000 retired public employees are receiving pensions of over $100,000 per year. Sometimes, it’s even crazier. A retired New York City sanitation worker is getting $285,000 per year. A retired county administrator in California receives over $400,000 per year.

Remember, these are guaranteed lifetime yearly payouts.

Now, we love our public employees. They do vital work for our local communities and the wider society. They deserve competitive pay and retirement benefits. But currently, many cities are, in effect, paying for multiple public departments at the same time: the department that’s working now and, because people are living longer, a generation or two of retirees.

The system amounts to a self-perpetuating, corrupt merry-go-round. Public-sector unions give large donations to candidates, who are then responsible for negotiating how much of your money goes to public sector workers. These arrangements not only promise high salaries in the short-term, but they also hide the payments that will be due down the road when it will be much too late.

The results are predictable.

State and local governments across the U.S. openly admit to 1.4 trillion dollars of unfunded pension liabilities, or $11,000 per household. “Unfunded” means dollars that have been promised, but there’s no actual money in the bank. And that’s just the amount they admit to. The real number, according to the Federal Reserve, is much larger—around 4 trillion dollars, or $32,000 per household.

Pensions have already thrown California cities like San Bernardino and Vallejo into bankruptcy. And the entire state of Illinois is teetering on the edge. 

So how do politicians get away with this? They use a time-tested political strategy: they lie.  

[bassmaster]

It's easy to be generous with other people's money

[temistogen]

That is happening in Europe right now.All is good until more people are in pension than working.Our generations are paying off the people born in 40s, 50s.There is no way of stoping this.

[rafamatavelli]

In the state of Minas Gerais, in Brazil, 90% of all the state's annual income goes to pension and public workers salary.
Then those same pensioners and workers complain that our schools see horrible, our services don't work and etc, etc.

[dinkmartini]

The benefit for government work used to be job security. They didn't pay well but once in, you'd pretty much be guaranteed a job for life. Now they have that AND everything else. Healthcare, High Wages, Guaranteed Pensions. All this from a system that is NOT goal driven. Yep...that's another disaster headed our way.

[abolutzero]

Good Lord- a retired NYC trash collector makes more than a retired US Army general.

[dgriffin]

Notice that States in the worst fiscal shape are, and have been, Democratic strongholds. $285, 000 per year for a retired sanitation worker? That's garbage!

[thomasmorrisjr]

How do Politicians get away witht this? They use a time tested political line, they Lie.

[jacksonpayne]

I live in Kentucky and everything he said was true. Our state is about to go belly up because of our pension system

[BalsamorhizaSagittat]

Let me see I started working for the state of WA in 1981. I was an entry level bookkeeper making about 800 a month. My private sector counter part was making about 1200 a month. I finished up my BA in Business Admin with a minor in econ and although some of my classmates went to work for the big 8 accounting firms for 100k a year, I stayed with the state. I had just gone through a divorce, had custody of my son and needed a stable home life for him. Please note that at least in the accounting area I was paid about 60% of private sector wages and not a lot different in health coverage and paid time off. In fact my younger brother received his BA in Business Admin with an econ minor and went to work for BOA as a financial analyst for 85k. I was making less than 25k. In 87 I promoted to driver license examiner. Not associated with accounting but a 10% raise. In 93 I learned Russian and got a 5% bi-lingual adjustment. So now I am making about 32k. In 03 I finished my MBA and in 06 I promoted to an accounting position but took a 7.5% cut in pay. So now I am making 36K a year. Still massively below the local rate for my expertise. In 07 I promoted to Accounting supervisor which put me up over 40k. In 2013 I retired after 31 years of state service my last salary was 54k a year. I had finished my course work for my PhD by that time. My older brother with a BA in Pol Sci and a MBA retired at 122k, my younger brother (16 years younger) is still working at 275k. So disagree with the idea that public pension some how are totally evil. I can tell you that my SSA and DRS net me about 3700 a month. In western WA that is poverty level. 2 adults one income living wage is nearly 5k a month (28.43 an hour).Did anyone force me to keep a low paying job when higher paying positions were available? NO!! I stayed for personal reasons mentioned above. Do I regret my choices? NO! but part of the reason I stayed was the pension. I knew I could survive on that income. Since we live in a mobile society I now live in an affordable area in southwest Missouri. Not complaining but this video is to simplistic. Are there positions at the state level that pay over the local wage? OH YES! Since the retirement is based upon salary then I have to ask why is the coach at UW making twice what the governor is making. Enough said.

[hariman]

Politicians promise the world today, because you won't be the person paying when the bill comes due.

It's taxpayers and the people in office decades later.

Guaranteed benefit pensions need to be banned. Heck, there are some places that have tried a private bid system where companies can bid on a percentage payout, and if they deliver more than that percentage they get to keep a part of the overage, but if they failed to deliver that percentage that have to pay anyway because they made a guarantee.

the places that went with this alternate form of retirement funding have retired on massively more than the public pension funds have.

[hoangkimviet]

Promises are always earned easier than money :-0

[nikkip]

No one should be able to “make” $400, 000 a year in retirement unless they’ve invested their own money prior to retirement.

[wheelie]

We fought this head on in Rhode Island. The politicians severely stonewalled us. They even sent hundreds of public workers into city hall as we were gaining steam. In the finance committee meetings they took up all the seats in the room then locked the door from taxpayers saying the room occupancy was full. The younger generation needs to help. And they need to get involved by the hundreds of thousands. Frankly I don’t see that happening unless they can get very creative.

[dinkmartini]

Government should 1. Keep me safe. 2. Provide an unbiased justice system. 3. Maintain an infrastructure that supports capitalism. After that, government should go screw because the rest will take care of itself.

[shackman]

We the tax payers didnt make these promises and contracts. These pension plans need to be restructured to reflect reality. No way should any of these people be receiveing six figure incomes. If theyve made a life style that can only be supported by these insane payouts oh well guess they better become really good investers or sell the yaht an mansion.

[michaelearlgrey]

Great video, but it will never happen. Our economy will collapse long before rational and honest decision making is a priority.

[francisaeb]

Florida state pension is 95% solvent, and as pension member I contribute to it every paycheck, shame on the pension management that aren't solvent.

[Yakko]

This is nothing compared to the unfunded liabilities of Social Security and Medicare among other "guaranteed" payments from the govt.

[anthonyemmm]

Don’t forget about retired police and and retired firefighters they’re killing it with their city pensions.

[Monopolist]

If Bernie of Warren are elected, the same thing that's happening in California will happen to the rest of the country. People will leave.