How to solve the pension debt crisis (Chicago, Oregon: sales, bankruptcy)

[MongooseHugger]

Granted, I fear that the pension system is a sort of Ponzi scheme. I fear that, like social security, it is currently being paid for, not by the money that the people getting it now paid into it, but by the money that people are paying into it now paid into it. Hence, if you make it into a 401K, poof, no money left for those getting it now.

States cannot declare bankruptcy, but apparently, with the precedent of Detroit, cities can. So why not shift as much of the pension debt down to the municipal level and have them all declare bankruptcy?

[dtcbnd03]

All pensions are basically legalized ponzi schemes. Given enough time the majority will eventually fail. As for the solutions to the pension crisis I've posted this in other threads but they are (in order):

1. Tax Illinois public pensions only at say 5%...then roll 100% of the tax proceeds into future pension benefits. This creates a compounding reduction effect and sidesteps the need for a constitutional amendment or passing the IL supreme court. For outta staters call it an "administrative fee". Leave private pensions and 401ks alone.

2. Pass a constitutional amendment to reduce pensions. This will never pass unless you pair it with a constitutional amendment for a progressive state income tax. It's just how politics works...you have to give the democrats something cause they run this state.

3. Declare bankruptcy. States are not allowed but then again neither was Puerto Rico. If you don't have the cash you don't have the cash. Just declare it and let the courts figure it out.

States will be forced to figure out a solution soon because interest rates will skyrocket and the market will fall in the next 2-3 years putting more pressure on the actuarial problems. Luckily (and somewhat amazingly) Illinois will not be the first state to run out of cash according to this article...so we can wait to see what happens in Michigan, Pennsylvania, Florida, Ohio, Oregon Colorado, Kentucky or Rhode Island.....or maybe New Jersey first and follow suit.

https://www.msn.com/en-us/money/mark...ars/ar-AAw2CYH

[Liledgy]

Originally Posted by MongooseHugger

Granted, I fear that the pension system is a sort of Ponzi scheme. I fear that, like social security, it is currently being paid for, not by the money that the people getting it now paid into it, but by the money that people are paying into it now paid into it. Hence, if you make it into a 401K, poof, no money left for those getting it now.

States cannot declare bankruptcy, but apparently, with the precedent of Detroit, cities can. So why not shift as much of the pension debt down to the municipal level and have them all declare bankruptcy?

To Republicans, it doesn’t even matter if it’s fully funded. Take Indiana, it’s fully funded and they still want to get rid of it.

[jasperhobbs]

Legalize recreational marijuana and use the tax revenue to solve pension debt crisis.

[lepoisson]

There are several problems:

1) Unions and pensions are the bread and butter of Illinois. Pensioners aren't going to support amending the constitution because they don't want to face cuts to their pensions.

2) There's no way to tax ourselves out of this mess. Even if we doubled the sales tax, doubled the income tax, and introduced a bunch of other nickel and dime taxes, the pensions would still be a problem.

3) People who are currently paying taxes are paying for pensioners to receive their pensions. Why wasn't the pensioners tax money saved up and used towards their own pensions? Like OP, it's a big scam. If I pay into Social Security, I expect to receive that money when I retire. Instead, someone along the way misused funds.

4) As more people leave Illinois, the pool of taxpayers decreases. This makes matters even worse.

I suspect that as interest rates continue to increase on the pension debt, Illinois and Chicago will get junk bond status. When no one lends us money, our politicians will be forced to take action. They need to cut all pension payouts by 10-20%, tax retirement income, and eliminate pensions for new employees (get a 401K instead). This will all happen in the next 5 years.

[MSchemist80]

The trouble with taxing pensions is a lot of the pensioners have moved out of state and we can't tax them. They don't want to pay the outrageous taxes that pay for their pensions.

[dtcbnd03]

Originally Posted by MSchemist80

The trouble with taxing pensions is a lot of the pensioners have moved out of state and we can't tax them. They don't want to pay the outrageous taxes that pay for their pensions.

Hence why I said for outta staters you call it an "administrative fee". It's all about wording and our best solution to reduce pensions. I know people will be scared off by the "tax" word but effectively it's just reducing them without calling it a reduction so it'll pass the IL supreme court. We need to get politicians on board with this...

[lepoisson]

Originally Posted by MSchemist80

The trouble with taxing pensions is a lot of the pensioners have moved out of state and we can't tax them. They don't want to pay the outrageous taxes that pay for their pensions.

If you work in Illinois, but live in Indiana, aren't you required to file taxes in both states?

Couldn't they make it the same for retirement if it's Illinois based retirement?

[dtcbnd03]

Originally Posted by lepoisson

I suspect that as interest rates continue to increase on the pension debt, Illinois and Chicago will get junk bond status. When no one lends us money, our politicians will be forced to take action. They need to cut all pension payouts by 10-20%, tax retirement income, and eliminate pensions for new employees (get a 401K instead). This will all happen in the next 5 years.

100% agree. Interest rates will be around 7-8% in a couple years and for Illinois junk status it will be like 12% which is unsustainable and will cause the collapse. I'm just amazed that lawmakers haven't been forced to take action sooner.

[Liledgy]

Originally Posted by dtcbnd03

100% agree. Interest rates will be around 7-8% in a couple years and for Illinois junk status it will be like 12% which is unsustainable and will cause the collapse. I'm just amazed that lawmakers haven't been forced to take action sooner.

And that’s the republican mantra, cut taxes, create deficits, claim we can’t pay for programs, etc. just wait till Paul Ryan goes after your social security, Your tune will change.