Saturday, June 23, 2012

Let's Not Cheat Future Americans ... Paying Our Own Way

We have ~$16 trillion in national debt. We have annual federal budget deficits exceeding $1 trillion.

Still, these numbers are on the whole insignificant when compared to the underfunded pension and retirement health care promised benefits we've "given" ourselves.

In my opinion, it's a selfish, shameful and even stupid situation we're in today. We can blame it on our politicians, but it's a Pogo thing in reality.

And I say what we've done is not only selfish but stupid, because future generations can, should and will elect to reverse the choices we've made for them unless we take action now to clean up our act, admit our mistakes and make every effort to mitigate the damage we've done and are continuing to do. The worldwide financial train wreck, including ours, is real and the damage will be lasting.

I say that what we've done is stupid because we've decided to try to force future taxpayers to pay exponentially more than we've paid in taxes to fund our benefits.

In other words, they will be asked to deliver a double whammy: (1) fund the promises we've made to ourselves as well as (2) fund the retirement benefits for themselves at the same time.

We can label the retirement promises made "on their behalf" an unfunded mandate. That's because we've told them this is what you too can expect upon retirement, but first you'll have to pay enough to fulfill our needs. Only then will your taxpayer contributions of money be used to fulfill those unfunded mandates we've chosen to promise you. The exact opposite of double dipping, in other words.

States Face Pressure on Pension Shortfalls is a too little, too late attempt to bring accounting clarity to the enormous problem of states and how they acknowledge and report on their various pension underfunding issues.  {Of course, no such reporting will be forthcoming from the federal government on Social Security funding, because there is no funding. But that's another story.}

The article says this in part:

"New accounting rules are likely to show that public pension plans could face hundreds of billions of dollars in additional liabilities, putting new pressure on state and local governments to act.

The revamped rules expected to be approved Monday by an accounting-standards group will force governments to record pension costs sooner than they did before and disclose shortfalls more prominently. The changes also will force some public pension funds to calculate retirement benefits using more conservative assumptions.


The new rules could hit pension plans in states like Illinois and New Jersey particularly hard, and even raise borrowing costs for certain municipalities, analysts say. "This could be the event that incites a bigger policy response than what we've seen so far," says Matt Fabian, managing director at Municipal Market Advisors, a research firm.

The exact impact of the new rules by the Governmental Accounting Standards Board isn't clear. According to researchers at Boston College, pension liabilities at 126 state and municipal pension plans would jump by roughly $600 billion, or about 18%. . . .

The new rules won't in themselves force cities and states to refill their pension coffers or slash benefits, but they will underline the widening funding gap many of the nation's largest public plans face.

More than 40 states have already moved to trim pension costs since the financial crisis by raising contributions from employees or cutting back benefits for new workers, often after wrenching political debates.

Some officials expect renewed political pressure to end the guaranteed pension benefits that are now received by about eight million retired public workers across the U.S. . . .

"It's an accounting change; that is all it is,'' says Andrew Pratt, a spokesman for New Jersey Treasurer's office. "New Jersey still has complete control over how the assumptions in its pension plans are set." . . .

"Are there going to be renewed discussions about contribution levels? That's very likely," said David Kausch, chief actuary at Gabriel Roeder Smith & Co., a benefits-consulting firm.

Last December, Mr. Kausch warned trustees overseeing the Illinois University system pension plan that the GASB changes could create "sticker shock.". . .

The Center for Retirement Research at Boston College estimated that the changes would cause the group of 126 pension plans it analyzed to fall to 57% funded—that is, their assets would cover 57% of their obligations—from 76% in 2010.

In Illinois, the funding level of pensions for university employees would slip to 40% from 46%, according to the Boston College analysis. . . ."

My Take

This is a good example of either (1) too little, too late or (2) better late than never, depending on what happens as a result of the inevitable debates that are taking place throughout the U.S.

And while we're having that state and local debate, let's have a national one, too. Let's not omit from the conversation the biggest elephant in the room --- the lack of trillions of dollars in Social Security and Medicare funds to pay those promised benefits. Throw in the trillion dollar deficits to "save the middle class" and it's a pretty big discussion we need to have. All of us.

The Illinois Example

For example, assume I'm an Illinois taxpayer. At the same time, of course, I'm a U.S. taxpayer as well. And from time to time I'll need medical attention as I get older, too.

And how are things in Illinois? Not well, thank you. In fact, Illinois is in dire straits and needs to get its underfunded public employee pension and related retirement plans in line with the promises made.

See State's total pension debt tops $200B for a brief description of the problem facing Illinois.

Now think of all the Illinois (or any other state) taxpayers who are working but will be receiving Social Security and Medicare benefits in the future. Their contributions today are going to pay the benefits of those already retired and not to fund their own retirement benefits.

Governor Perry of Texas was chastised for calling Social Security a "Ponzi Scheme." Well, that's in effect what it has become, even if that's not what was intended. And so is much of the Illinois pension and health plan for retirees. And the national Medicare program as well. And so on.

Throw in the federal deficit and ongoing overspending national debt increasing "save the middle class" programs to pay for "stimulus and related investments," Pell Grants, student loan guarantees, food stamps, cash for clunkers, home loan guarantees, post office losses and such, and as a nation we are confronted with a completely untenable situation.

It's as simple as 1-2-3. (1) Too much national debt, (2) annual deficits due to too much government knows best "middle class" aid, and by far the biggest of all, (3) too many retirement promises without having set aside enough funds to satisfy them.

Put it all on the tab and send the bill to the kids and grandkids for payment, in other words.

Summing Up

We don't have an accounting problem. We have an accountability problem.

And it's generational in nature.

Today's taxpayers can't afford to pay for all the promises we've made in an effort to "save the middle class."

Neither can we totally fund those promises we've made without killing the economic growth we so desperately need to grow our way out of this mess and get people back to work.

And we certainly can't depend on future generations being "stupid" enough to pay the whole bill for our generation's excessive spending and out-of-control government. Future Americans should, and I believe will, simply refuse to accept that verdict about their future freedom, well-being and prosperity.

So we urgently need to have a serious national conversation about spending money that we don't have, as well as the add-on debilitating effects of borrowing from China to support our internal and misguided "save the middle class" spending programs.

And we need to clearly recognize that making promises to ourselves and expecting future generations to suffer so they can fulfill the commitments we've made "on their behalf" would be a stupid and wrong thing for them to do. Immoral, too.

And we need to acknowledge and accept the simple fact that making promises about the future must necessarily entail setting aside sufficient funding in the present to be able to meet those future promises.

Finally, There's Reason for Hope ....

In my view, while it's a sad, sickening, shameful situation that we've put ourselves in as a nation, it's very much a correctable one as well.

It simply isn't right for us to attempt to burden future generations with fulfilling the promises we've made to ourselves. And that's especially true because we'd be doing so at a cost to those future generations of living in economic conditions far inferior to those we've enjoyed.

And even if we were to be so irresponsible as to want to pass on those obligations to our kids and grandkids, they're not going to be that "stupid" or willing to accept those burdens.

Taxation without representation simply doesn't work in America.

We have a lot of clean up work to do. So let's get going while there's still plenty of time to set things right and keep the faith with future Americans.

Thanks. Bob.

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