I understand that the recipients of taxpayer-funded pension plans are very happy to have them. But if I could make one change to public policy in the United States, at the state and local level at least, it would be to outlaw public pensions. If 401(k) and Social Security is good enough for everyone else, it's good enough for state employees as well.
Public sector unions and taxpayer-funded pensions--and yes, despite paycheck contributions, these pensions are heavily subsidized by taxpayer money--have a lot of pernicious effects. First, it leads to a very unseemly quid pro quo between public sector unions that deliver votes to the politicians who in return deliver ever-more generous pensions or contribution terms. Second, the pensions are almost always "gameable" such that people can artificially inflate their pensions with shady end-of-career antics. Third, as a union that is literally organized against the taxpayers and the public interest, it places a substantial minority in direct conflict with the rest of the citizenry, and leads to an "entitlement mindset" among the unions. Fourth, the pensions are NEVER fully funded, despite what any politician or union rep says.
Ranting aside, for Mustachians who are geographically flexible and looking to settle down somewhere long-term, I would definitely consider the financial health of a state when choosing where to live. The pensions will be paid out--the public sector unions are far more organized and politically connected than the dispersed general public, and so they will win. This means taxes of all sorts will go up. Valuable services may be reduced as well. If you don't believe me, take a look at this link and see how enthusiastic you are about moving to Illinois: https://www.illinoispolicy.org/reports/pensions-101-understanding-illinois-massive-government-worker-pension-crisis/
Illinois is probably the worst state in this regard, but there are plenty that are not far behind it.
Yeah, let's all race to the bottom! Woo-hoo! Team America, fuck yeah!
How would reforming one of the primary causes of the fiscal crises going in the states and localities be a "race to the bottom"?
Teacher here chiming in. I see both points, but would like to defend the pensions. Michigan is a good example of a properly run pension.
With regards to your claim that it is heavily taxpayer subsidized - Well, yes, my whole paycheck is subsidized by taxpayers, that's how public employees get paid? I'm sorry to inconvenience everyone on that regard. However, I don't see why it's so different than the private sector. In the private sector, businesses often give bonuses, and matches into 401K accounts. Instead of this, in public education, that money is put into a fund for my pension (which we also contribute to). Here's the part that I think many don't realize...once we quit working, the school is off the hook for us. So, just like companies only provide matches to the 401K's and bonuses while employed, so do the schools, and in turn, the taxpayers. So, if we choose to set up a system where our yearly bonuses get put into a pension account as opposed to a bonus check and 401K match, I don't see an inherent problem there?
With regards to comments that we shouldn't do them because they are ALL underfunded - That would like me saying "we should abolish 401K's because most companies rip us off with fees that are too high". No, what we should do is work to improve the system so that fees are appropriate. And some are properly funded. Mine is currently being managed responsibly. If some are underfunded, which is the case, that doesn't mean we should discard the idea, rather we need to make sure they are managed properly.
Your claim that in any properly funded pension, taxes of all sorts will go up: Again, no. The fact that they are funded properly means that the schools annual contributions are such that the fund will self-sustain itself after we retire, at which point the schools, and thus you, are off the hook for the contributions. The union in Michigan is working to make sure that these funds are not being stolen from, and thus protecting teachers, and taxpayers from a crisis down the road. That is good for teachers, and also taxpayers, because if your teachers are getting ripped off, your quality of your children's education will follow suit.
I know not all states and systems work properly, and that I am in a fortunate position to be in a state with a well run pension, but to say that they are all mismanaged, or that unions are inherently bad, is incorrect.
Also, I'd like to add that I'm a super conservative person fiscally and am saving over 50% of my paycheck in index funds. So, it's not like I need this pension because I'm a flaming liberal or that I suck at saving. I just think it gets a bad rap, that's all.
Take care!
