The Millionaire Cop Next Door

Keep in mind that the politicians who put these bargains in place are long gone. And the politicians who later didn't fund the pension funds adequately are also long gone. None of them have to deal with the aftermath of their choices (and indeed one of the side-effects of the push for term limits over the last 30 years is that it's now guaranteed that politicians will not have to deal with the long-term consequences of their actions).

It's been my observation that many voters have strong opinions on what government expenditures should cost. Opinions that are driven by their gut, and not by any sort of market-based reality. But politicians have to satisfy both the market and the voters. If the market demands that the salary for a position be X, while voters think it should be X*0.85, then one way for politicians to deal with it is to defer the remaining 15%. They may convince themselves that it will work, or they may not care, but regardless, it's no longer their problem.

If you go to http://www.immediateannuities.com/ and say you're a 50-year old man (the age at which at least in some CA cities a police/fire municipal worker can retire with 90% pension), with a 40-year old wife, and you invest $2 million, you'll get an immediate income annuity of $88,560 a year.

That's in the ballpark of what the Forbes article was saying ($80,000 a year). The numbers don't change that much if the age of the wife approaches 50.

So has the better of the argument, I think: There's no evidence you can buy an $80K annuity for $1M. And I suspect it would cost even more if it were indexed for inflation, as many municipal pension benefits are.

For example, http://en.wikipedia.org/wiki/File:Life_Expectancy_at_Birth_b... shows a pretty linear growth.

Assuming retirement at about age 60, http://www.infoplease.com/ipa/A0005140.html says white males in the 1950s had 16 years of life expectancy, and it's 22 years now. Not only is the trend increasing at a relatively constant rate, but living "longer post retirement than you spent working in these kind of jobs" appears to be relatively uncommon. Most people spend about 40-45 years working, and about 1/2 that more on pension.

Unless you can point to some really firm numbers, I think you are incorrectly underestimating the expertise of the actuaries of decades ago.

That's how capitalism works (under ideal conditions). Everyone tries to make the best possible deal for themselves, not just politicians.

> For that matter, why is the city in the business of trying to make a profit out of peoples' pensions?

For a multitude of possible reasons. Because the profit there can be used to reduce the tax rates. Because the profit can be used to pay for something that the city couldn't otherwise afford. Because the benefits plan allows them to more accurately plan future liabilities (compared to paying employees a market rate salary (that's not otherwise lowered by a pension) that floats up and down with inflation and the economy).

> And even then there was no accountability or repercussions for politicians that decided to dip their fingers into the pension investment pools.

Are you talking about embezzlement or about the city borrowing money from the pension fund? The first is illegal and an enforcement problem that's pretty unrelated to where the money was embezzled from. The second may or may not actually be a problem depending on the terms at which the city borrows the money. Regardless, that's also not related to pensions specifically, since the city can borrow money at stupid terms from anyone, not just the pension fund.

> I think the reason why most people are shocked at this article, is because they've been conditioned and drilled with the thought that public servants are under-paid.

That's because the public workers actually were underpaid compared to private industry workers when the deals were originally negotiated (even including the expected value of the pension). Over the years since then, private corporations have lowered the salaries they pay (usually by not keeping up with inflation as opposed to actual pay cuts, though that happens, too) most of their workers, so public sector jobs have become much more competitive.

> If [the public servants did this on "purpose" as a risk-mitigating process]'s the case, then they need to stop yapping incessantly in the public sphere about how they're paid less in comparison to their private counterparts.

I have a few problems with many of the implicit assumptions in this statement; specifically that there is an agreed upon way to value a pension, that there is an agreed upon way to value the value of the risk-mitigation of a pension plan, that there is little variation in the ratio of the total compensation public workers earn to a market rate salary across all government workers, that all government workers are yapping incessantly about being paid less than market rate when using total compensation instead of just salary (combined with the previous assumption: as opposed to just the ones that are currently underpaid), and that only the workers are benefiting (or that they benefit much more than the city) from such a deal.

On a side note, it's disappointing to see people want to drag the public sector workers down to a their (possibly only just perceived) lower level instead of wanting to drag themselves up to the public sector workers' level.

"The second may or may not actually be a problem depending on the terms at which the city borrows the money. Regardless, that's also not related to pensions specifically, since the city can borrow money at stupid terms from anyone, not just the pension fund." Well, I'm not sure about borrowing as such. But I was referring to politicians/finance committees using up the capital in pension funds, and then having to pay pensioners their pension yearly from new tax-money that comes in. So in essence, they destroy the buffer and end up just siphoning new funds into pensions that start maturing.

"Over the years since then, private corporations have lowered the salaries they pay (usually by not keeping up with inflation as opposed to actual pay cuts, though that happens, too) most of their workers, so public sector jobs have become much more competitive." That may be the case, I haven't looked at the raw data to refute that. But I'd add that perhaps the corporations lowered the salaries because of a slouching/badly performing market. In which case it's the rest of society that is subsidizing the now-cushy jobs of the public sector. On top of having to deal with their (possibly) under-paid jobs in the private sector.

"I have a few problems with many of the implicit assumptions in this statement; specifically that there is an agreed upon way to value a pension, that there is an agreed upon way to value the value of the risk-mitigation of a pension plan, that there is little variation in the ratio of the total compensation public workers earn to a market rate salary across all government workers, that all government workers are yapping incessantly about being paid less than market rate when using total compensation instead of just salary (combined with the previous assumption: as opposed to just the ones that are currently underpaid), and that only the workers are benefiting (or that they benefit much more than the city) from such a deal."

I agree with you to an extent on this point. We are making a lot of assumptions in this discussion, and we're clumping together disparate values to attempt a comparison. I'm probably not the person to debate with on the finer details because I will interpret most of these things from my anarcho-capitalist viewpoint of the state. So to me, generalizing things to what they actually are is much more meaningful than endlessly comparing apples and oranges within the complicated framework of the state.

"On a side note, it's disappointing to see people want to drag the public sector workers down to a their (possibly only just perceived) lower level instead of wanting to drag themselves up to the public sector workers' level." There are probably multiple things at play here regarding peoples' opinion of public sector workers. To me, at least, I see them as leeches of the state. They represent a class of individuals that are permanently dependent on leeching the benefits given to them by the state. They will fight tooth and nail for the benefits that they get from the state, to the detriment of society by preventing a possibly different form of governance from emerging. Now, don't get me wrong, these are probably good people that don't deserve to have their livelihood yanked from underneath them. But I am forced to acknowledge the fact that change is very very difficult because we have so many people reliant on (what I would view) very unnecessary benefits.