We tend to think of pensions as being certain, we'll get the money when we retire. This is especially true if you work for a governmental agency. But in the 21st century we've learned that getting your pension is not always a given, especially if you work for a governmental agency.
The bankruptcy of Detroit has brought to light a major reason why many cities have been or will be unable to pay their employees the pension that the employees expect. The actuaries calculating the pensions for governmental agencies have failed to take into account the fact that a dollar today is not the same as a dollar tomorrow when the pension must be paid; they fail to discount the future payments to today's dollars. Further, they assume fairly high rates of return (currently, 7-8%) which means the city has to contribute less. Then, they want to keep the pension contributions fairly steady from year to year, so they ignore big swings in the market.
The Pension Benefit Guaranty Commission (PBGC) was established by the federal government to step in when a company's pension is unable to meet the company's obligations. Unfortunately, PBGC has problems of its own.
Maybe, we should just put our money under the mattress.
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