How Unions and Bankers Work Together to Protect Unsustainable Defined Benefits
by ED RING on NOVEMBER 26, 2013
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Greed is compounded with corruption and delusion, when in response for calls to bring public sector pensions into line with what is affordable and fair, unions and pension bankers claim 7.5% annual rates of return can be sustained forever. Their first mistake is suggesting that 7.5% rates of return is all they need. Current levels of underfunding mean either annual contributions go way up, or returns have to greatly exceed 7.5%. For example, CalSTRS is 67% funded, and to avoid becoming more underfunded, they must either earn 11.2% per year, or they must make a supplemental “unfunded contribution” of $4.1 billion per year – last year their unfunded contribution was only $1.1 billion. We are at the top of another bull market and in the terminal phases of a long-term credit cycle – anyone want to bet that CalSTRS is going to earn 11.2% a year for the next 30 years?
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If the private sector is abandoning them, what is the justification for the public sector?
And, please don’t tell me that the public sector earns less.
If the do happen to earn less, then that represents their “job security” premium.
However, most earn more than they could command in the private marketplace.
And, let’s not overlook the abuses: revolving door between regulator and regulated, “lobbying”, and (my particular favorites) “double dipping” / “part time pensions” / “multiple pensions”.
Time to move on!
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