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Regarding a fractional reserve banking system, the Rothschild brothers once said "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." I am that rare individual they didn't... More
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Josh Dowlut
  • Debunking a federal pension myth: it's not a self sustaining program funded only by members 6 comments
    Dec 11, 2009 5:57 PM
    It was argued to me that Fed gov pensions (response to #6 from previous post) are paid for by payroll deductions made throughout the employee's career. While that statement in and of itself is true, it is not the complete truth, it is not the whole truth, and it does not tell the full story. The full, and whole truth is the story of private sector employees subsidizing a benefit that 82% of them don't receive themselves. 

    Current Fed gov employees contribute 1.3% of their payroll into their pension plan (note I used the word plan, as opposed to fund, a detail I will explain in a bit). For reference Social Security taxes are 12.4%. How do you account for pension contributions being only 1/10th of what SS contributions are given that average pension benefits exceed average SS benefits? 

    The answer is private sector employees help to pay for public sector employees' retirement benefits. Does the phrase "unfunded liability" ring a bell? There are two types of pensions: 

    1. FUNDED: where there is an actual fund/pool of money invested. An actual lump sum, nest egg of principal that will draw interest and pay benefits. This is the type of pension plan used by the few private businesses that still offer a pension. 

    2. UNFUNDED: this is the plan used by the Federal government, most state governments, and Social Security itself. There is no nest egg. No lump sum pile of cash. Payments are made from current tax revenues and member contributions. 

    The gross underfunding/under contributing of Fed gov employees is what helps to account for the fact that the average Fed gov employee makes 59% more in wages alone, but a whopping 108% more in wages and benefits combined than the average private sector employee. 
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  • yellowhoard
    , contributor
    Comments (1507) | Send Message
     
    Which reminds me of an old joke.

     

    The slaves are rowing in the galley of an old slave ship, think Ben Hur, when the first mate announces that he has good news and bad news.

     

    The good news is there will be extra rations for all of the slaves today.

     

    The bad news is the captain wants to go water skiing later today.
    12 Dec 2009, 10:51 AM Reply Like
  • Dialectical Materialist
    , contributor
    Comments (4458) | Send Message
     
    What do you suppose will happen if the day comes when these pensions can not be funded? I'm sorry not "funded" but rather paid for by the current tax revenues which are funneled into them. If there comes a time when deficit spending is curtailed -- for whatever reason like impending collapse of the dollar -- it seems that these pensions may get cut, just like they have been at many private companies who find they don't have the money they thought they did. Millions of retired postal workers and HHS and IRS and Homeland Security workers will not have the retirement they were promised -- that they "entitled" to or at the very least were expecting. One could argue it is naive to believe something will be there just because the government says it will, but still, I think this group of career bureaucrats will have something to say if this happens. Ever piss off a postal worker? Now try pissing off a few hundred thousand at one time and see what happens. It could get interesting.
    12 Dec 2009, 02:49 PM Reply Like
  • Josh Dowlut
    , contributor
    Comments (110) | Send Message
     
    Author’s reply » From feedback I've received from government employees it is certainly a hot issue they feel they have an entitlement near birth right to. If any kind of end government pensions movement really did gain any kind of traction I'd expect the special interest fight of special interest fights. Fortunately for the time being at least we (the private sector) outnumber them (the public sector) and we still make most big decisions through a democratic process.

     

    A good way to test if spending public dollars on something is worthwhile or not is to test rather or not anyone outside the specific group the spending is aimed at benefits from it. For example schools, roads, trash collection and police clearly pass this test. However when apply this test to government employee pensions, it is hard to see how anyone benefits from outside of the government employees who receive them and on that alone it makes for bad public policy. Chris Edwards of Cato wrote a great paper explaining it which he as updated stats on every year since, but the 2006 original goes into the most detail cato.org/pubs/tbb/tbb-... and makes a compelling case that you could cut pay and benefits substantially without losing a willingness to work.
    12 Dec 2009, 10:59 PM Reply Like
  • yellowhoard
    , contributor
    Comments (1507) | Send Message
     
    In property management, a manager that boasts 100% occupancy will lose his job.

     

    The idea being that he's obviously not charging enough for rent and therefore not maximizing the return on investment.

     

    The same theory holds true in employee retention. If you have very low turnover, you're obviously paying more than is needed.

     

    Government turnover is minimal and should be more in line with private sector turnover.
    13 Dec 2009, 11:25 AM Reply Like
  • tripleblack
    , contributor
    Comments (13507) | Send Message
     
    Exactly. And anyone who reviews those cases where Government is renting space or, well, ANYTHING, would discover the same truism at work.

     

    They are not very good at managing their resources, including Human resources.

     

    On Dec 13 11:25 AM yellowhoard wrote:

     

    > In property management, a manager that boasts 100% occupancy will
    > lose his job.
    >
    > The idea being that he's obviously not charging enough for rent and
    > therefore not maximizing the return on investment.
    >
    > The same theory holds true in employee retention. If you have very
    > low turnover, you're obviously paying more than is needed.
    >
    > Government turnover is minimal and should be more in line with private
    > sector turnover.
    13 Dec 2009, 11:45 AM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6774) | Send Message
     
    Dear Josh:

     

    I linked your excellent article to my own piece: seekingalpha.com/insta...

     

    Thanks!
    26 Dec 2009, 04:03 PM Reply Like
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