Wednesday, May 21, 2008

The problem nobody's talking about

IT's been said by others, and I"ll echo it-- this story will make the Enron collapse (with its casualties, the workers who lost pensions) look like a Disney movie.

All across America, state and local governments are running pension funds. They are running benefits departments. For hundreds of thousands, in sum probably millions, of workers.

Their funding is done on the basis of actuarial data, the insurance company-style estimate of what will happen in the future based on what has happened. Factors like the average age of death, length of time spent with illness, average age of retirement, average performance of investments, etc., are used to calculate how much the government should put into the fund in year x so that when the retiree draws his pension in year z, there is sufficient money in the account to cover it.

Funds are invested, just as mutual funds and private company pension funds. And those investments haven't gone as well as the actuaries expected. Experts are now looking over these decisions, and more than one actuary has been fired. Actuarial firms are even being sued for state and local pension fund underperformance. This is not a case of being able to 'blame it on the evil Bush stock market'; these people are responsible for deciding how much to invest and for predicting how much that investment will yield. It is their area of expertise, it is what they sell when they sell themselves as consultants. Politicians enjoy nothing more than being told they have 'extra money'. And governments have used these rosy actuarial premises to remove monies from the annual pension fund set-asides and use those funds for other things... as all politicians can be counted on to do (see Social Security funds-- missing in action).

Bottom line? Millions of retirees may not get the retirement the government has promised them. That, or the government is going to have to jack taxes through the roof to cover the shortfalls. Many constitutional challenges await whatever decisions the governments might make, but it is certain that this is a nationwide financial catastrophe that nobody is talking about.

And without an Enron to blame for it, the Dems (who are nominally if not totally in charge of most of the governments with failing pension funds) are going to be swinging in the breeze.

As will the American taxpayer, the mighty beast of burden, the dumb ox who gets his cart loaded with more and more people every year, pulling harder and harder, soon to get the whip, and someday to stand still in spite of that whip, no longer willing to move for any reason.

Atlas will shrug, dear reader; it is only a matter of time. Government is not only not PERFECT, it is probably the MOST flawed organization of any kind anywhere in the country. Politicians should not be in charge of money.

1 comment:

Anonymous said...

couldn't agree more, especially the last thing you wrote.