(04-23-2018 01:13 PM)BadgerMJ Wrote: Those pension costs are putting a squeeze on entire states, not just state universities.
It's a tricky situation. On one hand, it isn't the retirees fault crooked politicians stole from their fund.
The problem with the "politicians raided the pension fund" concept is that even if politicians never raided the fund, these plans would still be in deep trouble. That's because the fundamental problem is that the promised pensions did not bear any relation to the return on the contributions that the employee/employer made over the years. The promised benefit is simply much greater than the investment made by the employee via his/her contributions over the years can bear.
That's the basic problem with a "defined benefit" contribution plan: It seeks to do the impossible, guarantee something that by nature cannot be guaranteed, namely the future performance of the economy and market. But it is guaranteed anyway, so somebody has to pay.
E.g., if I work for the state, and the state says, "if you contribute $500 a month for 20 years, and your employer matches, when you retire, we will pay you a $3,000 a month pension, guaranteed", and it turns out that when i retire, the amount I contributed (and was matched by my employer) is only enough to pay out a $2,500 pension per month, because the stocks and bonds and funds the state plan invested in didn't grow as much as expected over those 20 years, then because my pension is "guaranteed", the taxpayer has to kick in enough to cover that $500 shortfall.
Now, one way to mitigate that is to not promise me so much. If 20 years ago i was promised a $2,500 pension on retirement, then the taxpayer wouldn't have to kick in, the pension plan would be self-supporting.
But, that's not often what happens, because the pension amount is often negotiated by a union, and the union of course wants the state to promise a lot, to be very generous. In the private sector, the union's desire for a high benefit is balanced by the company's desire to minimize its costs, so the bargain is usual a reasonable one (not always, see General Motors, but usually).
But in the public sector, the state negotiator has no such incentive, he's bargaining with taxpayer money not his own, AND, his boss is often a politician who wants the votes of union workers, and who may be receiving big campaign checks from the union, so the benefits promised tend to be generous, thus creating the problem described above.
This is why Franklin Roosevelt argued that public employees - including federal -should not be unionized. There is a basic conflict of interest there.
That's the real issue here. E.g., in California, there was a time that the state government tried to raid the state pension fund to pay for current spending, but the state courts quickly slapped that effort down and forced the state to repay the amount, plus interest. So in California, such raids have never effectively happened.
Nevertheless, the state plan currently has a $168 B unfunded obligation, and pension payments make up almost $7 Billion in this year's state budget, and growing, because the pension benefits promised were simply too much compared to what employees have paid in to it.