How the Ballooning Pension Crisis Will Impact the Economy
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It’s not just the Dallas Police & Fire Pension Fund
By James Murray:
In the very simplest terms, the Dallas Police & Fire Pension Fund is going broke, and the police who are counting on it for their retirement are beginning to panic. Police involved are retiring as early as possible and taking cash payouts because they fear that the fund will run dry and future checks may not be forthcoming. The whole thing is beginning to look like a run on a bank and it is just making matters worse.
It’s not that the DPFP is all that different from most of the public and private retirement funds; it’s just that what is happening has been noticed and made the headlines.
When you consider the number of people involved and the amount of money involved, the Dallas Police Retirement Fund is pretty insignificant considering that retirement funds in places like Chicago and the State of Illinois are probably in as bad a shape. Then there is the big daddy of all retirement funds, the Social Security Trust Fund.
Exactly why these funds are in trouble varies but the general view is that not enough contributions were collected, expected investment gains failed to materialize, and benefits were overpromised. Many of these funds also have a retiree health care component, and health care costs have risen dramatically. The bottom line is that these funds are having to pay out more than expected and they are not going to be able to deliver what they have promised without major changes of some kind.
The social implications are interesting to contemplate.
Suppose that you are a police officer in the State of Texas and you are looking for a job. Would you even consider the Dallas Police knowing of their retirement problems? Would you demand substantially more now to work for the Dallas police to offset the risk of making retirement contributions with a chance of never getting a retirement check?
If you were working for the Dallas Police and had enough time in to retire and had a choice of working longer and getting a bigger pension or retiring early, what would you do?
There are about 22 million people who work for government at some level, federal, state, or local and almost 100% of those jobs have some form of retirement plan. Some of those plans are in pretty good shape, a majority aren’t. Then there are 47 million people collecting Social Security checks as of today and that number is growing daily.
There are also a lot of retirement plans in the private sector – union plans, company plans etc.
When you add it all up, at least 20% of the people in the US depend on retirement checks of some kind and the number may be as high as 30% and there will be a lot more in the future.