The Surprising Weakness of Invincible Institutions

5 Replies to “The Surprising Weakness of Invincible Institutions”

1. Thanks, Kate. A very interesting read.

2. “A study by the Hoover Institution covering 97% of all state and local governments found that politicians have little or no ability to meet their pension promises.”
   Why should future Governments FUND any Pensions. The idea of a pension was a Union wet dream. Folks that work & earn salaries from a Civil authority don’t deserve to be paid by the Taxpayer for LIFE….They can fund their own retirement like everyone else….
   The only way to stop the self greed is Cap all pensions to the average of Social Security (CPP).. Tax all excessive benefits @ 99%…..The US SS has 37 trillion in IOU’s.. The recipients could get an increase of more than 10X existing rates….
   DUMP ALL UNION PENSION PLANS and pay out earned funds to participants.
   JMHO

3. I think unfunded pension liabilities will be the number 1 concern in the next decade, followed closely by healthcare costs and interest payments on government debt. The longer politicians ignore the obvious, the more painful the correction. Politicians can only use diversion tactics like “OMG….look….climate change” for so long before real, immediate economic catastrophes replace prophesies of future doom.
   A year or so ago I read that one of the reasons some provinces are pushing so hard for CPP expansion is that it lowers the cost of provincial employee’s defined pension plan – the CPP is subtracted dollar for dollar from the retiree’s pension payment. That might lower costs for younger workers a long way from retirement but not current and the soon-to-be retired. If politicians weren’t scared silly by unions they’d increase contributions, reduced benefits and put all new employees on defined contribution pensions rather than give taxpayer a BS story about the upper middle class class not saving enough for retirement.
   I’d expect taxpayers and consumers will feel the pain too. When spending on healthcare, pensions and debt repayment crowd out other services there will be calls for new user fees and taxes. A partial list: Carbon taxes, sugar taxes and other sin taxes, school fees, healthcare fees, higher care home fees, bigger fines and penalties for small infractions (The Ferguson, Mo. model), big inheritance taxes, business fees, licensing, water, sewer, property tax, sales tax, etc. All under the guise of “fairness” and given the stamp of approval from top economists on government appointed committees. Followed, of course, by “unexpected” drops in consumer spending/saving/investing and unsubsidized business activity but a thriving black market.

4. I think it should be criminal to have unfunded pension liabilities. Pensions should be based on a saved lump sum. Defined benefit plans should not be allowed.

5. I’ve been carrying on about this since 2003 when a defined benefit fund actuary leaked me a whole series of graphs and charts about the problem. I dutifully trotted them around parliament hill to members of all parties and was treated like a leper. This problem is not new, nor unanticipated. The financial tsunami coming down the pike is in my view the desired outcome. Anyone feeling smug in blue chip equities should check who owns half of all of them…that would be the soon to insolvent pension funds.