Re: The Anchor Rising Pension Simulation: The Walshian Assumptions
Commenter George Elbow is back and once again requesting that Andrew revisit his post about Bob Walsh’s public pension investment scenario.
Yes, we all understand the concept of compound interest. Rather, what we’d like discussed is the sustainability and FAIRNESS of the Walshian demands, particularly in this economic enviromnent.
Please help us understand why Public Employees should receive Guaranteed benefits that grow by 3% automatically every year regardless of the fact that there are NO guarantees with respect to economic conditions and irrespective of the minimal amount that the Employee contributed.
My commentary here is in no way intended to preempt a potential response by Andrew or even to imply that a response is needed.
In fact, going back, I see that Andrew’s post is pretty narrow and self-explanatory, focusing as it does on the question of the viability of the Walshian Assumptions were they all to become reality. He makes no reference, positive or negative, to the qualities of sustainability or fairness.
Neither does Andrew purport to address the feasibility of the individual Walshian Assumptions. Let us take this opportunity to look at them now, shall we?
13.5% of salary contributed to the fund each year
The current contribution level, less than that proposed by Walsh – 8.75% for state workers, 9.5% for teachers – is already not hailed with enthusiasm by those doing the contributing. How realistic would it be to request a 42% or 54% increase in the next contract negotiations?
8.25% investment growth
This assumption, in turn, is composed of two separate assumptions: the performance of the stock market and adequate funding by the General Assembly.
George Elbow correctly disposes of the first when he points out that the stock market cannot be counted on to sustain any particular growth or direction, thereby casting doubt on even the 7% return table to which Andrew extended the Walshian Assumption. The General Assembly itself has disposed of the second assumption with its track record: funds needed for pension investing have been diverted over the course of decades to programs of dubious public merit deemed to be political advantageous to certain sectors of the General Assembly.
In short, it is difficult not to conclude that the Walshian Assumptions are overly optimistic and that, therefore, his scenario is unrealistic and unsustainable. As to fairness, George, I’m glad to state the obvious: promising a guaranteed income to one sector of the state’s population on the basis of the non-guaranteed income of another sector is not just unfair but unrealistic to the point of delusion.