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Blue Model Crisis
The Pension Vise Tightens

It’s been apparent for years that America’s underfunded public employee pension system, one of the backbones of blue model governance, will have to face a brutal reckoning at some time or another, but new data suggest that the date of that reckoning may be sooner than anticipated. Newsmax reports on sluggish growth in pension funds:

U.S. state and local-government pensions are coming off their weakest investment performance in three years, weighed down by losses in international stocks and weak bond returns, according to data from Wilshire Associates Inc.

The pensions logged median increases of about 3.4 percent for the 12 months ended June 30, according to data to be released Tuesday by the Santa Monica, California-based consulting firm…

For the public pensions, which typically target returns of 7 percent or greater, it was the slimmest gain since they earned about 1.5 percent in fiscal 2012.

This past year, in other words, pensions earned less than half the returns they would need to stay solvent over the long term. This will likely force program cuts on many state and local governments, shifting the burden of policymakers’ poor judgment onto the young and vulnerable. It is also likely to lead to escalating political battles between state and local officials and public employees, as even some Democratic politicians come to acknowledge that the existing pension regime is unaffordable.

The lackluster returns will also unfortunately lead many pension funds into riskier investments in the hope of bigger gains. But teacher and police pension funds don’t belong in the casino. Policymakers would be better suited to reform the pension system around the assumption that 7 percent growth is probably unsustainable, rather than trying to achieve it temporarily and ending up with an even bigger crisis on their hands.

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  • annieoakley

    Policymakers? Who are these guys? How do they arrive at these numbers? Who manages and invests the money? Policymakers?

    • FriendlyGoat

      Policymakers are the ones who must survive elections after making decisions on these and other issues.

      • M Snow

        Not really. Many of them become lobbyists or find as some other way to cash in on on their government service.

      • annieoakley

        Time for them to lose their ‘jobs’.

  • Suzyqpie

    When the Democrats are at the negotiating table with the public sector unions, no one is representing the taxpayers.

    • stan

      True. And in the long run, no one is looking out for the public workers. The union bosses and the politicians will cut a deal that helps both live very well in the short run. When the stuff hits the fan years later, the pols and union bosses will be hanging out together at the beach and the workers whose pension benefits are unsustainable will wonder why they are begging a bankruptcy court to keep the pain manageable.

      • Kevin

        True, this is why organized crime has always liked union pension funds. (Jimmy Hoffa and the Central States Pension Fund for example.)

  • Boritz

    This will likely force program cuts on many state and local governments, shifting the burden of policymakers’ poor judgment onto the young and vulnerable.

    The “young and vulnerable” have consistently supported the politicians and party most responsible for creating the situation. It is entirely appropriate to get what you voted for. If they counter that they didn’t really understand where this was leading, well, they are mature enough and important enough to vote without showing any kind of ID — kind of like Donald Trump cashing a check for $100 at his own bank. People who are that privileged and given that kind of VIP treatment should be held responsible for the way they vote, no excuses.

    • Tom

      Not all of us.

    • Thom Burnett

      Maybe the young would have supported these pensions but many of them didn’t because they weren’t born yet. Do people not yet born have an obligation to pay for their parent’s promises?

  • Pete

    Here’s the dilemma with public sector pensions.

    In a legalistic sense, the pension are owed to those retirees while on the other hand those retirees were never worth the compensation (salary, benefits) they received and includes police and firemen..

    • bannedforselfcensorship

      Tax incomes from pensions above a certain amount.

      This is legal, and way to clawback.

  • Nunya Business

    They should be required to PAYGO if you don’t have the dime you don’t get the time. Pension based on the future earnings or taxes should be illegal.

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