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Finance Allah shmoop What are unfunded pension liabilities What their

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liabilities owed by the employer like a big corporation or

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the government which were promises to employees for dough to

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be around when they retired so that the employees could

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you know like live live in a decent condo not

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in their old SUV Parked down by the river pension

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is just another word for retirement savings And clever union

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negotiators somehow got the government and or corporate America Tio

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Guaranty Stock market minimum investment returns so that employees under

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this system would retire relatively wealthy with seemingly almost no

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risk This problem is worth some explaining here Best example

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California A state which you'd I think would be one

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of the wealthier in the nation but in fact is

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one of the closest toh bankruptcy currently in silver medal

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position Teo Gold medal favorite Illinois in California For decades

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politicians wanted to coddle police and firemen because they wanted

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to look good to their constituents and get re elected

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And other than burglars and arsonists Well who doesn't like

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cops and fireman But politicians negotiated and their advisors presumed

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that California's economy would always remain strong over time as

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taxes crept upward in California businesses and wealthy individuals began

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leaving and the Internet made telecommuting and other things dramatically

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easier to manage So the tax dollars started to decline

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as the wealthy and don't just a lot of businesses

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began to leave the state and suddenly cities inside the

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state no longer needed to grow their police and fire

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forces In fact they couldn't afford the ones that they

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already had And it was one piece of very bad

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legislation that harmed things financially for the cities they created

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a structure which most cities blindly followed in any given

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city with say a hundred thousand people there likely dozens

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and dozens of cops who are retired taking home today

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Fifty to one hundred fifty thousand dollars a year in

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pension winnings which the taxpayers will pay until those cops

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die Huge liability of many millions of dollars per year

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for small cities and for cities finding financial life tougher

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Well they're now changing things The cry from the local

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population was that cutbacks would have to be made to

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the police force and that this was dangerous for the

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locals When a local dentist asked about cutting back the

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ludicrously high pension grants to retired cops and fireman Well

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you can imagine that the retired cops weren't too happy

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about the suggestion And for good reason They did nothing

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wrong They just cut the best deal they could It

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was the government of those local cities who sold out

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the people who sold out their future in these commitments

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that the state eventually wouldn't be ableto pay Our city's

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wouldn't be ableto pay well Cities have begun to simply

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fire their entire police and fire departments and outsource them

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to essentially a rent a cop or rent a fireman

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organisation And those aren't subject to the onerous state managed

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pension systems The Rent A cop Organizations pay fair wages

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but don't suffer huge pension liabilities Well the jury is

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out as it were in determining whether this will save

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cities balance sheets or whether it's too late Well because

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the pension liabilities have become such a large line item

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in so many cities budgets like ten fifteen twenty thirty

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percent of the city's budget now allocated the pensions They'll

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garner a lot more scrutiny Going forward with the key

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concept When you think about a pension liability is that

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when an employee has hired the cost to the people

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Hiring them isn't just their base salary In the case

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of a normal school teacher or cop or fireman or

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other analogous worker well they might make sixty two grand

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a year in base salary and hope to get another

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five grand for working overtime But the cost of the

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employer is five grand a year for health care benefits

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Just add that on top of the sixty seven add

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on another five grand a year for dental vision and

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other add ons at another five grand a year for

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other benefits like free access to national parks and a

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free Yahoo email account You know stuff like that Then

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Additionally the employer has to kick in some ten grand

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a year in pension contribution and then guarantee with makeup

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money that that ten grand contributed each year will compound

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at some negotiated minimum rate like six seven eight nine

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ten percent a year So when you think about that

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prototypical government worker working for the state for twenty five

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years then retiring at half salary but full benefits will

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the state is on the hook for not just one

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hundred grand or so it cost to employ them while

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they worked But for the expected next two to three

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decades of their life the state is on the hook

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to pay twenty five grand a year or so in

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benefits and then on top of that pension make goods

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along with a meaningful percentage of their salary So the

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next time a government worker quotes to you that when

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they only make sixty five grand a year you can

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laugh in their face and suggests that they run for 00:04:41.108 --> [endTime] office as a politician

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