Pension Dilemma

Pensions are underfunded and more tax dollars are being raised and applied to government employee pension plans.

A Pension plan is a Ponzi scheme that pays beneficiaries with current funds being raised from new entrants. Social Security is a Ponzi scheme.  Bernie Madoff ran a Ponzi scheme, but didn’t own a printing press to print more money, so he went to jail.  Pension plans continue to fail to earn enough to pay future liabilities, because they do not invest in assets that appreciate in value.  Pension plans invest in low return investments like government treasury bills earning 2.9% per year. 

Most Pension Plans today are government employee plans that are wide-spread and include federal, state and municipal employees, police, fire, teachers, bureaucrats, politicians and military personnel. There are 22 million government employees in the US.

In the 1950s, large corporations offered pension plans to employees to encourage low turnover, but they knew that technology would bring volatility and these pension obligations would never need to be paid.

High inflation in the 1960s to 1980s required employees to move to new jobs in different companies to stay ahead of the 7% inflation average.  Debt equity became a valuable investment because of high interest rates, so it was smart to invest in “fixed” income investments like mortgages and treasury bills that actually paid 13% in 1980. These rates subsided back to 7% by 1990 and lower to 3% after that.

Around 1985, investors were moving from “fixed” to “stocks” and the “index funds” were an easy pick with the trend toward 401K plans. Employees signed up for these plans in droves and the stock market began to rise. About the same time, excessive government spending required customers for treasury bills, so they somehow got government employee pension plans to buy these bills to join the money being parked in the US by foreign countries.

Now the government has high debt and face the danger of higher interest rates. There is also a government employee pension plan problem that continues to leave most plans underfunded.  Some municipalities have gone broke overinvesting in “economic development” and their city employees were left with no jobs and no pension benefits.

In the 1990s, most US companies terminated their pension plans and rolled the values over to 401k plans, but government employees didn’t do that. Now states and municipalities are forced to face the music on these underfunded plans.  Some have raised property taxes and increased state subsidies, but the pension problem is a bottomless pit.

Norb Leahy, Dunwoody GA Tea Party Leader