The Public Pension Crisis | Short Clips

nothing will change if you've retired or near retirement - I do not believe we should raise payroll taxes to try to fix the system three I do believe younger workers ought to be allowed to take some of their own money some of their own payroll taxes and on a voluntary basis set up a personal savings account the crisis is now after a lifetime of hard work you should be able to retire with dignity and a sense of security and in today's economy that's gotten tougher most workers don't have a traditional pension a Social Security check often isn't enough on its own and while the stark stock market is doing well right now that doesn't help folks who don't have retirement accounts as a consequence too few Americans at or near retirement have saved enough to have peace of mind [Music] I want to talk to you about three words that should scare the heck out of you especially if you're young public pension liabilities okay I know you probably have about a hundred things you're worried about and public pension liabilities likely aren't one of them but that's the reason this is so scary because almost no one is paying attention unless you're okay with your city going full Detroit's and giving more of your hard-earned money to pay off someone else's debts stay with me so what is a public pension liability a pension is a guaranteed lifetime payment to someone after they retire pensions used to be a big deal in the private sector every major American company had them but they became too expensive and companies have taken steps to phase them out however pensions still live on in the public sector among employees of the government's and they're eating city and state's budgets alive more and more money that could go to tax cuts or better services is instead being shoveled aside to pay for these benefits why is this happening over decades politicians have promised trillions of dollars in pensions to government workers that includes police firefighters teachers and city and state officials you name a government job and there's a pension associated with it now you may be wondering how big are these payments many pensions are quite large in California more than 62,000 retired public employees are receiving pensions of over $100,000 per year sometimes it's even crazier a retired New York City sanitation worker is getting two hundred and eighty five thousand dollars per year a retired county administrator in California receives over four hundred thousand dollars per year remember these are guaranteed lifetime yearly payouts now we love our public employees they do vital work for our local communities and the wider society they deserve competitive pay and retirement benefits but currently many cities are in effect paying for multiple public apartments at the same time the department is working now and because people are living longer a generation or two of retirees the system amounts to a self-perpetuating corrupt merry-go-round public sector unions give large donations to candidates who are then responsible for negotiating how much of your money goes to public sector workers these Arrangements not only promise high salaries in the short term but they also hide the payments that will be due down the road when it will be much too late the results are predictable state and local governments across the u.s. openly admit to 1.4 trillion dollars of unfunded pension liabilities or eleven thousand dollars per household unfunded means dollars that have been promised but there's no actual money in the bank and that's just the amount they admit to the real number according to the Federal Reserve is much larger around four trillion dollars or thirty two thousand dollars per household pensions have already thrown California cities like San Bernardino and Vallejo into bankruptcy and the entire state of Illinois is teetering on the edge so how do politicians get away with this they use a time-tested political strategy they lie they lie by saying they can pay for more and more generous pensions not by collecting more taxes but by making investments at a guaranteed seven and a half percent return but this is nonsense it's less and less likely they'll meet their seven-and-a-half percent goal over time and their investment behavior pouring evermore funds into ever riskier investments suggests they know it but if they were to use a more realistic assessment they'd need to raise taxes dramatically and they love their jobs too much for that we can however turn the odds in our favor with public pressure discipline and common sense here is what needs to happen first we need state and local governments to report unfunded liabilities honestly the real numbers using the two to three percent yields that sound financial reporting would require no more pie in the sky stuff the truth should shock voters into demanding action second we must phase out the gare pension programs as quickly as possible and introduced 401k plans 401k plans if designed properly can provide excellent retirement benefits these plans also have the advantage of being portable if you leave the public sector and go work in the private sector you get to take your money with you in other words you don't have to be locked in to a lifetime government job to receive retirement benefits win-win let's end the current structure of public sector pensions and move to a sustainable way of compensating our public workforce save your city save your state save your money I'm Joshua Rao professor of finance at Stanford and senior fellow at the Hoover Institution for Prager University thank you for watching his video to keep Prager you videos free please consider making a tax-deductible donation you