Pension Funds and the Tax Payer

Chasxy's picture
Rank: Baboon | banana points 140

I have heard some (particularly those on the left) who say that the market is does not affect most Americans, or that most Americans are not involved in the market. Of course, this idiotic on its face. However, how do civil servants like cops, firefighters, and teachers get their pensions funded exactly. Do the taxpayers shell it out once they retire? I thought the local and state governments hire pension fund managers who in turn invest in the market. And, in turn those returns then pay for the pensions. So, when we say that the taxpayer funds retirements then do we really mean that the taxpayer is funding the pension fun manager fees?

Thanks.

Comments (5)

Feb 6, 2018

Taxpayers end up having to fund the inevitable shortfall when returns aren't enough to fund retirements. Additionally, tax payers typically fund the initial investment base of the pension. This is the main reason defined benefit plans are dying.

Feb 6, 2018

Thanks. So, in a good market, ostensibly at least, tax payers should shoulder less of the burden of the pension pay outs, correct?

Best Response
Feb 6, 2018

That's ultimately correct. Ideally, a well-run public pension gets an adequate regular contribution from the govt budget so that it can easily weather a down market. The total pension assets may drop relative to its total long-term liabilities and hurt its funding ratio, but it shouldn't have difficulty meeting its current obligations. So even though the surplus or shortfall ultimately belongs to the taxpayer, swings in performance shouldn't impact the cash contributions to and distributions from the fund. That's when the system works.

Problems arise when a pension goes many years without proper contributions and/or overly rosy assumptions about future performance, resulting in a big shortfall that needs to be filled. Typically, it's the taxpayer who's on the hook, but the govt could also theoretically negotiate with public unions for relief. Neither are attractive politically, so the usual answer is to kick the can down the road and let the problems get worse. For more information on this scenario, move to Illinois.

Feb 6, 2018

All pensions should be converted to defined contribution plans. Pension math doesn't work when you have politicians incentivized to look the other way.

Pensions are like ass cancer for the government. Absolutely ruinous. We all have accepted SSI fucking us over. Sorry that pensioners get hurt as well.

Feb 6, 2018