Broken Promises—Unfunded pension liabilities & looming crisis—Ashes Ashes #10
Channel: Stop Fossil Fuels
Date: 2019-01-24

Pensions have long been considered to be the gold standard of retirement, the treasured benefit of public service and big company jobs. But because of changing demographics, evolving financial environments, and poor accounting practices, these once sure things may soon become a liability. With a reckoning soon approaching, will retirement, the markets, and all of us as a whole be able to survive this ticking time bomb? 

Podcast by Ashes Ashes, reposted under CC License. Browse episode resources & read full transcript at https://ashesashes.org/blog/episode-10-broken-promises

Stop Fossil Fuels researches and disseminates effective strategies and tactics to halt fossil fuel combustion as fast as possible. Learn more at https://stopfossilfuels.org

CHAPTERS
0:00 Preshow
1:52 The Idea of Retirement is Centuries Old
2:26 History of Pensions in the US
4:46 Decline of Pensions
6:13 Crisis Looming; Dallas Case Study
8:58 Short Term Promises With No Long-Term Sustainability
11:10 Musuem Tower
14:40 What is a Pension Anyway?
17:24 Risky Investments
18:32 CalPERS
21:36 Public Pensions vs Risk Free Investing
23:35 The Individuals
25:23 Wall Street
28:14 Private Pensions Foreshadow Doom
31:07 Where Will the Money Come From?
36:22 Inequality and Discrimination
39:43 A Better Future
40:38 Wrap Up

TRANSCRIPT EXCERPT

Daniel: A number of factors have contributed to the decline of these traditional pensions. Fewer companies have offered them, more people are relying on individual investment account and savings for retirement, and it's become more and more apparent that these pension systems are just unsustainable. Maybe they always were but a number of factors have brought that reality to life.

David: That huge population boom that caused that surplus of workers, well those workers suddenly started retiring when they got to the end of their life. Now instead of maybe seven workers to one retiree, eventually as time went on and more and more people retired and the worker explosion wasn't happening anymore, now every two workers would have to support one retiree which isn't sustainable.

Daniel: In addition we've had stock market crashes and recessions which have undermined returns and the ability for pensions to grow funds in the first place. And life expectancy has gone up. In the 1950s when we started to see the proliferation of pension systems, retirement age in the United States was 65 years old, and average life expectancy between 65 and 70. Many pensions only had to pay out benefits for a couple years on average. But now life expectancies are much higher so instead of 2 or 3 years to pay off pensions, companies face 20 or 30 years.

David: A crisis is looming in this. Lots of private corporations are already getting out of this, but pensions have stuck around in the public sector. As you can imagine, these problems that we've mentioned are just as pertinent for these public pension programs. We're already starting to see some of them explode. For example, Dallas, which in 1993 added a benefit to the police and firefighter pension system which offered an individual savings account with indefinite guaranteed 8.5% interest rate.

Daniel: Fund managers, because high rates of return in their investments are the only way they can pay these benefits in the future, increasingly have to look to riskier investments to make up the difference in the risk-free rate and the return they need to get. So less money is going towards safe bonds and more money is going towards alternative risky investments, like the real estate deals Dallas was making. And this is not just a problem in Dallas, this is a worldwide systemic problem. 12 years ago the average portion of pension dollars going to these risky investments like real estate has tripled, going from 7% of the pensions' total assets to 22% today.

Daniel: Ultimately, this unfunded liability means people have nothing to fall back on when they retire, if they even get to retire at this point. People like Jackie Harrison, 62 years old. When she retired she thought she'd be set with the pension she was promised for all the years she worked. But that pension system failed her and ultimately she had to sell her family home and move to a different city where living standards were cheaper, and she left behind a daughter, a grandchild, and her aging eighty-year-old parents. She had to leave that behind because she couldn't afford it.

And that's what we're looking at, people who cannot afford to live the lives that they were promised. And because a lot of these people won't be able to afford just their basic necessities: their rent, their health care costs—it means a higher burden as well for younger generations who won't be able to save for their own retirement because they're spending all their money maintaining their parents' lives.

David: Yeah and who knows even about the social security system? I know I'm not counting on getting a check from that.