NYC pension timebomb

this comment is from another thread, but related. This is a study of how unfunded pensions are at the state level:

http://www.pewcenteronthestates.org/report_detail.aspx?id=57264

If states stop providing health care benefits to public retirees from now on (which are not guaranteed by any constitution) the unfunded problem gets solved almost right away.

This is not just NY, other states are even worse, Cali comes to mind. But there are more problems aside from the deficits themselves. Just like the banks hid their problem loans, it seems according to some researchers, pension funds are doing Wall St. like accounting to prop up their balance sheets. Could be scary for someone already retired. But the Federal Gov't will step in and fill in the gaps if need be. After all, it's election year.

"California Pensions Are $500 Billion Short, Stanford Study Says"

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aL0e5WpaHgzQ

This is at the crux of NY budget issues.

"But the Federal Gov't will step in and fill in the gaps if need be."

And do the same with the structural deficits of SS, Medicare and unfunded federal public pensions? Also the PBGC will need its own bailout. This is an aging tsunami hitting, who will pay for it?

If by definition part of the problem is the high dependency ratios, there's no way the labor mkt will be able to support the elderly by itself imho. My gut feeling is that this is going to put elderly with assets (after all they own 80% of the assets in USA) on the hook for paying basic benefits to those elderly without them.

"If states stop providing health care benefits to public retirees from now on (which are not guaranteed by any constitution) the unfunded problem gets solved almost right away."

No, but they are guaranteed by something called a CONTRACT.

"And do the same with the structural deficits of SS, Medicare and unfunded federal public pensions? Also the PBGC will need its own bailout."

Yes, of course. Printing more $$$s, will solve everything, bailout the entire country if we have to. That's what our gov't is doing and most likely will keep doing until we are a 3rd or a 4th world country. If we don't get our sh*t together quick, Greece will look like a pimple compared to what we're heading for. But hey, we got Benny and Feds right? No worries, we'll just keep on printing....

"This is an aging tsunami hitting, who will pay for it?"

Sadly, our kids, their kids, and so on, and so on....

But there's always hope, the US has gone through many tough times and came out ok. Financially, we're in a pickle for sure. Time will tell where this one goes.

"This is an aging tsunami hitting, who will pay for it?"

Sadly, our kids, their kids, and so on, and so on....

------------

don't buy it, as that assumes that those structural deficits will be able to be financed. imho deep cuts to current and near retirees are coming fast.

President, even i don't think the solution is to pull their health benefits - but you know what happens to CONTRACTS during insolvency?? geez.

Contracts are contracts, not a law. This is one more negative issue for RE in NYC, if they honor contract they would have to spike NYC tax or NYC RE taxes.

right on target rangersfan. we are talking about the already biggest ticket item (at the fed and local level) that will keep on creating structural deficits from now till most baby boomers are dead...

so all the talking about "their votes count" and "it's a contract" disregard that the only things that matter in these cases are simply: ability to pay AND ability to finance. when those are not there, immediate cuts in entitlements/pensions follow. whether old people are told by politicians "only your kids and grand kids will suffer" is totally irrelevant.

what do you want politicians to say? "old guy, adjust your spending cause that pension might not really be there?" what for? nobody will vote for them after hearing that. so for the typical old retiree, the bitterness will not only come from having to live worse than expected but also by the lack of anticipation. those old guys that can crunch the numbers on their own should be expecting it by now.

higher taxes? sure! they will try that first. but it doesn't take a rocket scientist to anticipate that not a whole lot of extra revenue will come from that, given that taxes are above 20% of GDP, the crucial point at which higher rates don't imply higher revenue anymore (but do imply less econ activity).

"if they honor contract they would have to spike NYC tax or NYC RE taxes."

Or they could stop spending so much money on welfare.

Rangersfan, i aggree with you but look at what happened to AIG bonuses... It's easy to put the blame on the retirees, while in fact, the people to flame are the ones who allowed such benefits without anticipating at some point the numbers wouldn't work. It really seems to be a repeted pattern of denial with Americans...Always make decision on the moment, persuade everyone that everything is fine ( skewed optimism) and to be unable to make valid predictions on more than 2 or 3 years ahead of time!
While it may be harder to anticipate a global financial collapse, in the case of pension it's a matter of demographic really: What % of active population represent baby boomers and can the active population afford to support their pension. The only positive point i see here is that once most baby boomers have retired, un-employement in the US should be very low...

> The only positive point i see here is that once most baby boomers have retired, un-employement in the US should be very low...

i actually see a lot of positives. one of which is lower labor force participation if the AARP tries to "extend and pretend" by increasing FICA taxes on the young (many of whom already don't expect to receive benefits).

a comeback to single income households versus double income households might increase quality of life for those young families with kids. this would be positive also in terms of not depressing real wages (as higher labor participation has done during the last 30 years), having less stressful lives and the over bidding for houses on nice school districts will diminish.

http://www.boomerdeathcounter.com/

cool tool, after half the baby boomers are dead, USA could flourish imho (kind of morbid, i know!)

"President, even i don't think the solution is to pull their health benefits - but you know what happens to CONTRACTS during insolvency?? geez."

The insolvency of who? The state of NY? It is illegal for a state to decalre bankruptcy, hence they cannot discharge union contracts in bankruptcy court like a company can.

If unions paid a fraction of their health insurance benefits New York's fiscal problem is largely solved.

really...have you done the math? or did you (gasp) just make that up?

hey---if i'm wrong...i apologize....please post math....this could be big for all of us.

cc, check out the budgets for the city and the state, they are both online as well as the numbers on pension/health care costs. the math is simple, the data is public.

"It is illegal for a state to decalre bankruptcy, hence they cannot discharge union contracts in bankruptcy court like a company can. "

true, it's called receivership, semantics, as for practical purposes it's exactly the same thing. every type of creditor's claim is renegotiated (retirees, bond holders ...) even contracts with current workers.

And the fraction is implied to be 1/1.

> And the fraction is implied to be 1/1.

or for example, just don't give health care benefits to those that have medicare

dc2172, I'm totally with you on that -- and give EVERY US citizen Medicare. That would solve many problems not only for states and municipalities, but also all unions and private and not-for-profit employers.

How employers ever got stuck with the responsibility to provide healthcare for the citizens of the US is mind-boggling ... why they stand for it, rather than push for single-payer National Health, is absolutely beyond comprehension.

But it's just a waiting game ...

"How employers ever got stuck with the responsibility to provide healthcare for the citizens of the US is mind-boggling ... why they stand for it, rather than push for single-payer National Health, is absolutely beyond comprehension."

Because employers are STUPID. The US Chamber of Commerce, the #1 corporate prostitute in America, fought Obama'a health care reform every step of the way.

"How employers ever got stuck with the responsibility to provide healthcare for the citizens of the US is mind-boggling"

Actually, it's not that "mind-boggling" once you understand the history behind it.

First of all, employers don't, and haven't ever, provided "health care" for their employees -- they provide health INSURANCE. Doctors and hospitals provide health CARE. This is an important distinction that seems to be lost on just about everyone these days.

Second, when they started providing group health INSURANCE for employees during the postwar era, it was considered a "fringe benefit" to attract good employees. At the time, it was a cheap extra they were able to slip into the compensation portfolio as an enticement.

Third, during this era, health CARE costs hadn't yet been artificially inflated by the cancer that has become the health INSURANCE industry. Believe it or not, only about half of Americans in the 1950s and 1960s had health insurance, mostly because barring a catastrophe, for most routine health care -- even including routine hospital visits for childbirth and broken bones -- most American families could easily pay the entire cost out-of-pocket.

By the 1970s, however, most Americans were carrying at least some kind of catastrophic insurance as well as a very basic insurance. For the majority, that included "Blue Cross/Blue Shield" -- Blue Cross covered routine medical care, while Blue Shield covered catastrophic care. Still, at this time, the Blue Cross/Blue Shield coverage was cheap enough that most families could afford the premiums on their own, but still expensive enough that it was a welcome "fringe benefit" offered by employers.

It wasn't until the creation of the HMO and its runaway effect on health care costs that health insurance became an expense that was nearly impossible for individual families to shoulder on their own.

Another head-shaking comment by alan. And who would pay for Medicare for everyone?

Actually, everyone pays for health care for everyone, by definition, so if we can afford health care through the highly inefficient current system, in which nearly 1/3 of expenses are for administration (billing, denying bills, challenging bills, supervising those, cherry picking insureds, advertising to get the desired insureds, advertising to ensure that doctors use monopoly-priced drugs and techniques instead of cheaper ones, etc) and another huge percentage is monopoly profits from legally granted patent monopolies (perhaps the least efficient system of paying for innovation one could imagines) and finance skims (shuffling companies around to create local monopolies and appropriate the resulting rents, redirecting r&d into patentable monopolies), then we would have no problem affording the same health care with a rational system that also had some semblance of justice and decency. And by taking primary care out of the emergency rooms, it would improve life expectancy as well.

Medicare for all, or one of the various variants used in every other civilized country, has the unusual attribute of being fairer, cheaper and more effective than our current private insurance and monopoly profit driven market system.

"then we would have no problem affording the same health care with a rational system that also had some semblance of justice and decency. And by taking primary care out of the emergency rooms, it would improve life expectancy as well.

Medicare for all, or one of the various variants used in every other civilized country, has the unusual attribute of being fairer, cheaper and more effective than our current private insurance and monopoly profit driven market system. "

financeguy, just fall in love with your brain!

"And who would pay for Medicare for everyone?"

YOU would, LICComm.

"then we would have no problem affording the same health care with a rational system that also had some semblance of justice and decency. "

problems with your logic...

1) it would be more health care.... more services (many unnecessary), maybe even more money for lawsuits etc.

2) I'm all for a rational system, but I don't think the proposed one is it either, might be even less rational.

"Medicare for all, or one of the various variants used in every other civilized country, has the unusual attribute of being fairer, cheaper and more effective than our current private insurance and monopoly profit driven market system. "

Of course, you leave out that noone with money wants it..... and its running us out of money!

"It wasn't until the creation of the HMO and its runaway effect on health care costs that health insurance became an expense that was nearly impossible for individual families to shoulder on their own."

Actually, health care costs did a fine job of getting much more expensive without HMOs. Look at all the non-HMO plans, they've gotten even worse!

You have it backward. HMO might have its problems, but its been able to contain costs better than the other systems.

"Actually, health care costs did a fine job of getting much more expensive without HMOs. Look at all the non-HMO plans, they've gotten even worse! You have it backward. HMO might have its problems, but its been able to contain costs better than the other systems."

Wrong.

You're confusing health care costs with health INSURANCE costs.

No, I'm not... you're just mistaken. I'm not confusing anything.

Your statement was simply wrong.

btw, as for the initial assessment...

this is going to be HUGE for re in this town.... this may very well be the other shoe to drop.

"Your statement was simply wrong."

It was not.

Matt -- you're wrong again. (collective gasp!)

Corporate healthcare or health "insurance" isnt insurance at all -- it's almost all self-insured. Your employer just pays the claims as they come in and pays the "insurance" company a fee to administer the plan. That fee is tiny in the grand scheme of things. Insurance funding can be used by smaller employers to smooth costs over time, but in the long run, your employers pays YOUR claim costs!

ALL the cost increases in the health care system over time derive from the providers (doctors, hospitals and drug companies)and healthcare "trend" (inflation) derives from:

- service unit cost increases
- increased utilization of services (each person consumes more)
- new services (the "market basket" changes over time - how many CAT scans or MRIs done in 1960?)
- new technologies/drugs/etc
- aging population
- change in morbidity (populations get sicker -- e.g. the diabetes rate in Harlem)
- leveraging against fixed deductibles, coinsurance, etc

And HMOs have in fact contained costs (temporarily)

Regards, your resident corporate Employee Benefits Director

;-)

> It was not.

Now, thats quite an argument! Nice to see that matt doesn't have any use for facts or logic...

> Regards, your resident corporate Employee Benefits Director

Shh... no truth here! You'll scare matt!

"Employee Benefits Director" = bean counter who couldn't get a REAL job inside the company.

look, I made Matt angry

Well, I think the case is closed... he gave up on the "argument" and is now just lashing out...