Just see: Unfunded Pension Liabilities.
This very bad situation happens when companies and governments aren't thoughtful about budgets. A school teacher works for 30 years at what she feels is "below market wages," i.e., below the market of what she thought her talents would bring, so that she could do good things for smart, curious brains. She works for $42,000 a year for a long time, with the mitigating financial event being that the state for whom she works is contributing $6,000 a year in pension money for her, so that when she retires, she has well over half a million bucks in an index fund sitting around for her.
But, in fact, many states won't have nearly enough money to pay out the dough she is due. So...what then happens? If the state goes bankrupt, does the federal government bail them out? That would be highly unfair to states who were responsible with their money, right? Like...if you gave each kid $50 a week to put away for a college fund and 3 of your 4 kids dutifully did so...but the 4th just spent it all on candy and meth...why would it be fair, when that 4th kid is ready to go to college, for you to then just give her the dough she spent? How would kids 1, 2, and 3 feel then?
Tough political issue. Bad moon a-risin'.
Related or Semi-related Video
Finance: What is a Pension?31 Views
finance a la shmoop. what is a pension? well it rhymes with tension, and likely
for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]
another state employees pension that's backed up by a state that's going
bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people
well a pension is another term for a retirement fund. but what's special about
a pension is that the employer essentially forces you to put away money
for your retirement and then they invested for you.
how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]
employed ditch-digger might get a contribution of say 10 grand a year into
her pension, and that's each year 10 grand of forced savings for as long as
she you know digs ditches for the state. and in some states where the unions are
strong in the governing financial knowledge is weak the government
guarantees a minimum financial return on the pension investment made on behalf of
the employees. that is in California for example the state guarantees a 10% per
year return on their invested pension savings. if the invested return like [equation]
investing it in Wall Street and stocks and bonds and private equity funds and
all that stuff well if that invested return is less than that number less
than that 10%, then the state rights to the pinch and a check to cover the
incremental difference. yeah it's a huge Delta and it's well pretty much why you
a Californian Illinois you're going bankrupt remember. Jesus Saves
but Moses invests. [ Moses, holding stone tablets glares and demands interest]
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