Public Pensions: An Economic Time Bomb

Public Pensions: An Economic Time Bomb


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. They lie by saying they can pay for more and more generous pensions—not by collecting
more taxes, but by making investments at a “guaranteed” 7.5% return.
But this is nonsense. It’s less and less likely they’ll meet their 7.5% goal over
time, and their investment behavior—pouring ever more funds into ever riskier investments—suggests
they know it. But if they were to use a more realistic assessment, they’d need to raise
taxes dramatically. And they love their jobs too much for that. We can, however, turn the odds in our favor—with public pressure, discipline, and common sense.
Here’s what needs to happen: First, we need state and local governments
to report unfunded liabilities honestly: the real numbers—using the 2-3% yields that
sound financial reporting would require. No more pie-in-the-sky stuff. The truth should
shock voters into demanding action. Second, we must phase out the guaranteed pension
programs as quickly as possible and introduce 401K plans. 401K plans, if designed properly,
can provide excellent retirement benefits. These plans also have the advantage
of being portable. If you leave the public sector and go work in the private sector,
you get to take your money with you. In other words, you don’t have to be locked-in to
a lifetime government job to receive retirement benefits. Win-win.
Let’s end the current structure of public sector pensions and move to a sustainable
way of compensating our public workforce. Save your city.
Save your state. Save your money.
I’m Joshua Rauh, professor of finance at Stanford and Senior Fellow at the Hoover Institution,
for Prager University.

100 Comments on "Public Pensions: An Economic Time Bomb"


  1. it would be a non-issue if the agenda based investment schemes were eliminated. Calpers fired their investment managers because of poor returns. The new manager achieved 30% gains in 3 months. If it maintains the s&p average of 13% over the next 10 years, the public liability will be 0.

    Reply

  2. Declare all public pensions illegal and bankrupt. No public employee should get anything except social security. What happened to public servants? Government is a mafia and public servants are their made men and women. A criminal enterprise run by criminals and their minions.

    Reply

  3. Pensions were popular and were very sustainable. But as the owners of the wealth, banks and Wall Street, worked to satisfy their greed, they wanted more and they took it. In the 1980's 100K in special bank fund would render $1000 a month for the investor. Now, my $50K will get me .01% or about .38 cents a month. Remember the early nineties when the new buzz word was 401-k? That started out great until the providers made deals with the companies to use their 'funds'. The companies took the bait and their employees took it in the shorts. We now know about Bernie Madoff and billions he and his cohorts consumed, I lost several hundred K myself. Now the only investors that have any security are the bankers who can, now, loan 9 times the dollars they have on the books. Why do think interest rates are so low? 4% on an auto loan times 9 is 36%. That's better than the double digit inflation of Jimmy Carter. I remember paying 21% on some of my loans in the 70's. Do the banks share any of this 36%. Oh yeah they do, .01% of 36%. If the pensions were able to make half of the money the bank make, there wouldn't be an issue. BTW if anyone thinks that Wall Street is not controlled and fair and unbiased, you probably think that the FBI, CIA and all other U.S. bureaus support our constitution and uphold the laws of this nation with integrity.

    Reply

  4. THIS IS PROPAGANDA, PRAGERU IS LACKING VALIDITY IN IT"S MOST BASIC ASSERTIONS. WAKE UP PEOPLE. DISGUSTING.

    Reply

  5. My relative worked for a city in California and she retired once her pension was larger than her salary…

    Reply

  6. The Federal Reserve is behind this. More pensions means more money has to be borrowed from the Fed, and the Fed profits.

    Reply

  7. This guy LOVES government workers? That's insane! We could do just fine with 90% less government employees.

    Reply

  8. this should also apply to military. a kid who puts 4 years into military shouldn't get a payout for life.

    Reply

  9. I work at a public university in illinois. I essentially make grilled cheese sandwiches and fry french fries. I make almost $25.00/hr with Cadillac health, dental,vision,and life insurance. My co pay for my health insurance is $100.00 a month. The university's is $1,100. My dental is basically free dental work, I had 2 root canals with 2 crowns and I paid $80. The delta dental insurance paid over $5,500. Oh yeah, when I retire I get my same take home pay along with the same Cadillac health dental vision and life insurance until i die. With the months of sick leave and vacation time they throw at us. I can work all the overtime i want at $37.00/hr.If I don't get married, I will recieve a "survivors" check for over $100,000 or I can give it to my 6 year old nephew to recieve my same take home pay until HE dies. Our SEIU union still goes on strike every 2 years if we don't get a dollar an hour raise and we still hold signs that say "OVERWORKED AND UNDERPAID" Did I mention that we work in foodservice and basically pull stuff out of boxes and heat it up and serve it. My employer recieves almost $1 billion every year from taxpayers because we care so much about "education". It called the "gravy train" for a reason.

    Reply

  10. If you take pensions away from cops and fire fighters, no one will do those jobs. Good luck living in your city with no cops or fire fighters.

    Reply

  11. You missed one very big abuse of government pension benefits, Stacking!

    There are many public sector jobs that allow FULL BENEFIT payouts after 15 to 20 years of service.

    So what's happening is, for example, a US postal worker will "retire" after 15 to 20 years (start at 20 and leave at 30+) and then get a different "government" job and work another 15+ years.

    And yes, retire with TWO FULL BENEFITS! Hence, they make more in retirement, then they ever made while working.

    I know of a school superintendent that put in for retirement, collecting 300,000 a year, and then hired HERSELF as her own replacement at 400, 000 a year!

    I know the former governor of Ca, Gray Davis is collecting 5 different government pensions, from various government positions he held.

    This stacking is abusive, corrupt and immoral. It needs to stop!

    Reply

  12. Get voters to actually do their homework on how unfunded liabilities and pensions work? You have a better chance of everyone in America becoming a rocket scientist. Just point out that Democrats are crooks who benefit their friends who give them money. It's the simple truth. Public unions should be banned across the country. And public pensions should be illegal. You should only be able to be paid for the work you do if you work for the government.

    Reply

  13. I like and support PragerU…..this guy is obviously a very educated, informed man. This video has several flaws and shortcomings but let's just play devils advocate. Our military gets a public retirement right???…..give them a 401K instead also? 🤔

    Reply

  14. Hi, former CalPERS employee here.
    More than 3000 agencies contract with CalPERS for pension and health benefits. State employees get a bad rap for the little work they do for how much they’re paid. In reality, these public agencies get away with a lot more crap. One water district in the Central Valley, the top 15 people were raking in more than $2M in salaries. CENTRAL VALLEY!!! It’s a college/farming town. You telling me nobody would do those jobs for less? Who pays the tab? Water customers. Nobody goes to the board meetings where the salary increases are discussed, because who cares and who has the time for that? Even if you went to protest, it wouldn’t do any good. Their pay goes up, public is on the hook for decades.
    This is just one example.

    Reply

  15. There are several good points here….but there is a big difference between a corrupt/rigged and legitimate pension. Like almost every issue, the solution seems to be throw the baby out with the bathwater? 👶👶👶

    Reply

  16. The 'let's pay people less' to help the economy is one of the ludicrous ideas Prager U puts forward.

    Nice to see they've not changed

    Reply

  17. Pensions are bad for public employees, because they were promised something that they will not be able to receive.

    Reply

  18. Pension in my country was limited 1/4 active worker salary. We chipped our salary every month for pension benefits such as health insurance etc. But the money can't get more than that. 400k/year for retired person that's just ridiculous.

    Reply

  19. Cut public pensions and give Israel 3.8 billion I mean 6 billion a year.. hey preger U can you just admit that your a wing of aipac

    Reply

  20. There is an antidote.
    The ability to move.
    From California, Indiana, and New York to Texas, Florida, and South Carolina.

    Reply

  21. Aren't pensions supposed to help them live out their lives? I don't really understand why they are bad because otherwise how would they live?

    Reply

  22. Nothing is “public”. All “public” are bureaucratic. Truly public things are privately owned by many people.

    Reply

  23. His point sounds logical. Politicians are not logical or practical, so this will never fly. Sad though

    Reply

  24. Pensions can't earn enough of a return. Could it be the fed manipulating interest to unnaturally low rates?

    Reply

  25. Ah. That's why american medical system is complete trash. We are solving pension issue!
    PS: to be honest, video is another political bs. Show me historical example and finely tuned system, when pension did not depend on current economy state. New generations always pay for elders. No one found and implemented anything else.
    I agree, btw, with idea that govt pension should not be too much different with others, and 401 will be the best solution from many perspectives. However, issues like this are negative sign a out economy.

    Reply

  26. Police, Fire, Teachers.

    6-figure pensions for these people who drain their cities dry. Btw, police were the first to leave when Detroit when bankrupt.

    You are also right about the high-up administrators. They're even worse than the 3 groups above. Tell me what they do in those jobs? Answer: Nothing. And a lot of these aren't elected. They're patronage.

    Reply

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

    Reply

  28. "100 000 $/ year is too much for a pension" Yeah we'll talk about that when YOU will be retired, mister fancy pants.

    Reply

  29. 401k have always been the worst investment, but I guess I have to listen to prageru for investment advice.

    Reply

  30. If I hold up government and state with my taxes my whole life, the government MUST give me something back finally. And the tendencies are MOST people die before the pension or just few years after starting to get it…

    Reply

  31. If anyone but a government official had stolen that much money, they'd be spending the rest of their thieving lives in jail.

    Reply

  32. You just shrunk government, because they' won't be able to fill the trash of job openings when people retire. Yay!

    Reply

  33. It's all good until the government changes their minds and screws the people out of their pensions

    Reply

  34. They'll be riots if fixed income pensioners have to pay more taxes to cover the cost of living adjusted public sector pensions.

    Reply

  35. I suggest to read this article written by The Mises Institute:

    https://mises.org/wire/inevitable-failure-public-pensions

    Reply

  36. What does retired people do with their money? I am sure that they consume products also. Not keep in their houses or bank.

    Reply

  37. Public sector unions are a scam. Think about it, you cannot have a union without a counterparty, they are effectively negotiating with themselves.

    Reply

  38. Check out the small town of Takoma Park, MD. 50 percent of the budget is for the police. And a good percentage of that is for pension liabilities.

    Reply

  39. " When government fears the people, there is liberty. When the people fear the government, there is tyranny. " — Thomas Jefferson

    Reply

  40. I currently pay 13% of my pre-tax income to my retirement system. The municipality I work for matches that. I am all for a transition to a 401(k) system but what do you do with those who have paid in to a retirement system for 10 to 15 years? What does phasing out of the pension system look like? If you are simply talking about phasing out anybody who is not vested after five years of service that’s a ground ball and very easy. If you are talking about phasing out people with 10 or 20 years of service I believe that will be a harder sell and will need some sort of adjustment. I would love to hear your thoughts

    Reply

  41. This is why the infrastructure is falling into disrepair, most of the tax money is going into paying off ridiculous high pensions.

    Reply

  42. I'm one of those people with a public pension. When it's managed correctly, pensions do work. As it was pointed out in the video, forecasting should be on the conservative side. Another problem is municipalities putting off payments to the fund. Once you start that practice you pay the piper later on, which is never a good thing. The pension fund in NY is one of the best in the country. Unfortunately most public pension plans are not stable or in good shape.

    Reply

  43. The promise that you´ll have insured income from leaving a government job is a 100% assurance that people choose to become career politicians, instead of becoming politicians in supplement of their actual career. Its the same problem here in Denmark; the government promises and promises to improve the public benefits for the average citizen, but recieve titanic paychecks and pensions themselves. No politicians has EVER argued to cut these

    Reply

  44. I’m more for bringing the whole system crashing down. It’s the only way to stop this insanity and not just draw out the inevitable even farther.

    Reply

  45. It’s quite ironic that Trump is trying to save the very idiotic parasites and their pensions they use to donate to the treasonous Democrats by making America great again; and being the parasitic pestilences they are, they try to destroy the very success that would keep their pensions going. It’s utter insanity. Liberalism really is a mental illness. We are dominated by mentally ill parasites.

    Reply

  46. Egan,Eugene 285,047 Dept of Sanatation NYC.
    That's not the norm but they do get a lot. Go to seethruny.com and you will be floored how much money State employees make and retire on. I can't wait to get out of NY in 2 years.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *