Promises, Promises

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The Chicago Tribune recently published “A federal solution to Chicago’s public pension mess”. According to that article, Chicago’s pension debts promised to retired government employees, can’t be paid based on current funding. Therefore, the city’s government will raise taxes, cut benefits and force Chicagoans into an era of “austerity” similar to that which has been inflicted on the people of bankrupt Greece.

But even after an era of austerity, the pension debt still can’t and won’t be paid in full.

Chicago is a microcosm of the US and world economies. Pension plans throughout the U.S. and global economies are going to fail. Many retirees are heading for poverty.

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• I’m not against unions, but I have no sympathy for the Chicago teachers and police officers’ unions. It may seem sad that they’re about retire without fat pensions, but they’re not innocent victims. They bribed crooked politicians to rob future generations (children, grandchildren, even the unborn) to provide pensions to government employees that were not only “overly-generous” but unearned.

• A primary reason for widespread pension default is the Federal Reserve. Why? Because most pension plans have been based on the assumption that funds deposited into pensions would receive a 7% to 8% return on investment (ROI).

However, thanks to the past 8 years of the Fed’s “near-zero interest rate policy,” pensions have only been earning a 2% ROI. That means that for the past 7 or 8 years, many pension funds have only generated about 25% of the ROI that they’d expected to pay the promised pensions.

Now, by wrecking city, state and federal pension plans with near-zero interest rates, the Fed is forcing Chicago to increase taxes and reduce governmental services.

After Chicago is impaired by a mix of unpayable debt and low interest rates, the pension/debt problem will wreck the State of Illinois, and then the mid-west, South-west, East coast, West coast and Gulf coast. And then, the U.S. and even the global economy.

Across the globe, pensions are being wrecked by the Fed’s low-interest rate idiocy.

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• “According to the latest annual financial reports of Chicago’s five major pension plans, we’re looking at $35 billion in unfunded pensions. But that assumes receiving an expected return on investment of over 7%.

“However, this year, the municipal workers’ fund complied with new accounting standards that require it to use a much more realistic percentage of assumed return on investment of roughly 3.5%—about half of the 7% ROI that was previously assumed. If all five funds used this lower earning percentage, Chicago’s pension debt would be $68 billion. Let that sink in.”

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$68 billion? That’s a lot, but they’re still probably understating the problem.

The original return on investment (ROI) on pension funds was presumed to be 7 to 8%. The real current ROI on pension fund capital is not 3.5% but is more like 2%. That’s not a reduction by half. That’s a reduced ROI of nearly 75%. This implies that the real magnitude of unfunded Chicago pension promises will not simply be greater than $35 billion or even $68 billion—but could be closer to $100 billion.

Now, let that number sink in.

Chicago’s population is 2.7 million. That means that each Chicagoan’s “fair share” of the government pension debt is about $37,000. Each. That means a family of four’s fair share is about $150,000.

Government will have to persuade Chicago families to agree that only after they have paid the $150,000 needed to fund government retiree pensions, then the taxpayers can start saving for their own retirement.  But, that’s not going to happen. The public will not agree to accept that burden

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• The insatiable greed of Chicago’s government-employee unions is killing the geese (taxpayers) who laid the golden eggs. In the end, the taxpayers can’t and therefore won’t pay the pension debt.

Government workers voted to support unions and politicians who promised them fantastic, unearned wealth. Those promises were irrational (even extortionistic) from day one. They can’t be kept. The retirees are going to suffer a big cut in their pension expectations. And rightfully so.

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“Unfortunately, all of the recent tax increases and added fees fall way short of what is needed to catch up the funds, even within a generation’s time. . . . But shouldn’t retirees be entitled to all of their promised benefits?”

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If the original pension promises were reasonable, fair, well-managed and possible to keep, they should be kept. But, what if those promises were unconscionable in that they sacrificed future generations of innocent and ignorant children to fund a generation of greedy, covetous adults?

Should the cost of making good on these pension promises be left to future generations who’ve also been “promised” the right to work hard and become prosperous based on their personal effort? Haven’t they also been “promised” the opportunity of receiving a fair return on their labor? Won’t the obligation to make good on some previous generation’s pension promises break society’s implied promise to let the youth prosper from their own work?

We’ve all received promises, express or implied, from society and government. Unfortunately, there are so many promises that they can’t all be kept. How do we justify keeping some promises to government retirees but ignoring promises to children and grandchildren? How do we justify forcing people who were children when the pension promises were made, and who did not personally or implicitly make or agree to those pension promises, into making good on some previous generation’s pensions—especially, when the only ones who made those “promises” were stupid, ignorant and/or corrupt politicians?

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• If society has to keep the pension promises made to government retirees, what about the promises that the government retirees made to society? Do the retirees also have to keep their promises?

For example, didn’t the retirees from the teachers’ union once promise to educate Chicago’s children? Did the teachers keep their promise and deliver a high-quality education? Or did they deliver an inferior education that left those children ill-equipped to get a good job and earn a decent living when they became adults?

There’s irony, karma and even profound justice in the fact that today’s retired teachers are demanding that the very children that they they failed to educate are now expected to somehow pay the teachers’ pensions. But, how can children without an adequate education earn enough money to be able to not only support themselves but also afford to pay their former, incompetent teacher’s pensions? More, why should children who did not receive the education they were promised be held liable for paying their former “teachers’” pensions?

Fair is fair.

Many of today’s young people will never know the satisfaction of merely living in the middle-class because they’re being called to pay the costs of keeping irrational, fraudulent and even wicked pension promises made by idiotic or corrupt politicians. Many of today’s youth can’t afford to get married, buy a new house, have children or raise a family, in part, because they’re burdened with the obligation of paying debts that are unjust, irrational and based on the fraud of previous generations.

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• What should be done?

If a pension fund is bankrupt, it’s bankrupt. If it’s been mismanaged, find out who’s responsible and sue or imprison them. If it’s built on false premises (8% ROI instead of 2%), well, that’s just too damned bad. The government workers themselves should’ve known better; they shouldn’t have allowed themselves to be seduced by the promise of unearned wealth. Pension funds are not “too big to fail”. Screw ‘em. Let ‘em die. Let their deaths be a lesson to every other American to stop being stupid enough to believe every idiotic promise made by every corrupt politician. Let everyone who embraced the pension funds’ false promises of unearned wealth, go broke. Screw ‘em. They’re nothing but greedy con-artists. They don’t deserve to live off the sweat of the younger generations’ brows.

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• The harsh lesson in all of this is that if you want a pension for your retirement, it’s up to you to provide for your retirement. If you’re dumb enough to trust in someone else’s promises for 30 to 40 years, your interests will almost certainly be betrayed.

If the City of Chicago wants to make good on the previous pension promises, let the current city workers take a pay cut. Reduce the number of city employees. Sell off some of the city’s buildings and properties to fund the government pensions.

But no. Government insists that the government doesn’t have to make good on the pension promises—but the fool taxpayers do—especially people who were too young to vote or understand when the city first entered into unconscionable pension agreements with city employees.

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“With the plans the city is putting forth, taxpayers will be paying these debts off for another 40 years, two entire generations.”

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The city of Chicago proposes that two whole generations of young people (who were too young to understand, make or be bound by the original pension promises made to government employees) should nevertheless live in, or closer to, poverty so that pension promises to a bunch of greedy union crooks can be kept. It’s unconscionable.

Look—somebody’s gonna get screwed. That’s a fact. It should be the politicians and union leaders who negotiated the pension promises.  If not them, it should be the government employees who coveted unearned wealth and didn’t mind robbing the taxpayers.  If not them, it should be the older taxpayers who are adults and therefore responsible for the pension promises made by their politicians.  But, it should not be their children and grandchildren who made no promises to impoverish themselves in order to provide unearned wealth to government employees.

Suppose I get a “tip” from a jockey I know that Seattle Slew is guaranteed (“promised”) to win the 7^th race at Belmont. Suppose I rely on that guarantee/promise to bet every dime I have on that horse. Suppose Seattle Slew loses. Should I be able to demand that the public not only refund the money I bet on that promise, but also all the money I expected to win with my bet?

How are government retirees who “bet” on pensions that promised to provide unearned wealth any different from a gambler who bets the farm on a horse race? Why should the retirees’ stupid bet be guaranteed by future taxpayers—because the retirees worked for the government? What’s so special about government employment that they shouldn’t have to pay for their own retirement?

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• “The Center for Pension Integrity has a proposed solution for a comprehensive settlement to rectify this mess, and it’s a federal one. The relief would not be a bailout. Instead, it would legally allow state and local governments with plans that have funding levels below 50 percent to modify [cut] plan provisions and benefits, and ultimately freeze and terminate the troubled plans.

“The plans would be restructured so that pension benefits would commence at age 65 no matter when an employee retires—no more automatic cost-of-living adjustments.”

“At the same time, local taxes would be raised to fund the restructured plans completely because beneficiaries shouldn’t give up benefits unless they get complete security for what is left. Because the plans would be terminated, taxpayers would be able to see their way out of this crushing problem.”

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That proposal sounds fairly reasonable—not good, mind you, but “reasonable”.

For example, they propose to restructure or terminate pension plans that are bankrupt and thereby reduce the pension burden on today’s taxpayers. They also plan to raise taxes to pay for whatever pensions remain. It sounds “reasonable”—assuming that you accept the premises that: 1) government pension plans should be funded by somebody other than government workers; and 2) most government pension plans are “too big to fail”.

But, like the already bankrupt pension plans, this “reasonable” proposal is all based on promises, promises.

For example the new-and-improved pension proposal promises taxpayers that: 1) there’ll be no bailout by federal government that’ll be paid by U.S. taxpayers (the entire burden will be placed on Chicago taxpayers); 2) bankrupt pension plans will “ultimately” be “terminated”; and 3) government will someday lower taxes on taxpayers.

There’s a promise to retirees that they’ll ultimately receive some “complete security” for whatever wealth remains in the “restructured” pension funds.

I don’t believe those new promises any more than the former government employees should’ve believed the original pension promises.

First, there is no such thing as “complete security” in anything. People who promise “complete security” are lying. It’s just another false promise designed to lull the people into believing that nobody will get screwed too badly. In fact, the government retirees are going to get screwed big time, and the current taxpayers will also get screwed.

Second, if Chicago taxpayers will accept a 10% increase in their taxes for 40 years, politicians will regard that acceptance as evidence that the idiot taxpayers will sit still for another 20% rise in taxes for another 40 years, and then, another after that. Politicians will not stop robbing taxpayers until taxpayers find the courage to actively resist being robbed.

And when was the last time that a government voluntarily reduced taxes? It’s happened, but not often. Any government’s promise to “someday” cut taxes is almost laughable

The proposed solution to the Chicago pension plan crisis, however reasonable it seems, is built with promises. I see no reason to believe these new-and-improved promises are any more trustworthy than the old-and-failed promises.

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• The real question is: Should today’s taxpayers be held liable for pension debts incurred by previous generations? Should government be allowed to operate on the basis of promises made today that that leave today’s irrational debts to future generations? Or should government be compelled to operate on a pay-as-you-go basis whereby each government employee is ultimately responsible for funding his own retirement?

If government’s pension plans are broke, that’s too bad—but they should be allowed to expire in bankruptcy. Why not? They’ve been mismanaged by the retirees who expected the pensions to provide fat, but unearned, benefits. They were greedy. They were stupid. They were corrupt. Why should they be rewarded by taxing their children’s and grandchildren’s generations into poverty?

If we let the elderly suffer the consequences of their own greed, ignorance and irresponsibility, it would be a good lesson to younger generations that they need to be personally responsible for managing their own retirement funds and not trusting to government or pension manager promises. (“You don’t want to end up like grandma, do you?”)

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“There is something in this [pension restructuring] proposal for everyone to hate, but solving big problems never makes everyone happy.”

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The Center for Pension Integrity is relying on Congress to pass laws that allow state and local pension plans to be “restructured”. “Restructuring” means that retirees must agree to accept significant cuts in their expected pension benefits. Retirees—who are avid voters—will not voluntarily accept a significant cut in their pensions.

So, the “reasonable” proposal presented by The Center for Pension Integrity relies on Congress passing pension restructuring laws that lots of retirees will hate and cause lots of Congressmen to be voted out of office.

Oh, sure–like that’ll happen.

In truth, there’ll be no new federal laws that people will hate until after many of the existing pension plans are admitted to be bankrupt—if ever. Insofar as the “reasonable” proposal relies on new Congressional legislation, the proposal, no matter how “reasonable” will fail.

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• There’ll be continuing attempts to postpone the inevitable. Government may succeed for a while. But the end is at least clear, and possibly near: Chicago’s government pension plans are going bust; Chicago government retirees will scream bloody-murder; the world will mostly ignore their screams. I promise.

The same can be expected to happen to most of the other local, state and federal pension plans for government retirees. In most cases, those retirees were promised more than they earned, more than they were worth, more than they deserved. Based on their greed for “more,” they’re going to receive less than they might’ve earned and less than they were worth.

Good. There’s still some semblance of justice in this world. In that slow but inevitable justice, Americans might learn why greed is bad, promises can’t be trusted and we must take personal responsibility for our own income, debts, savings and retirement.

In the end, if you don’t care enough about your retirement to personally fund it, why should anyone else?