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  #151  
Old 08-19-2016, 10:19 AM
nonlnear nonlnear is offline
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What you say applies to Social Security as long as we believe that Congress will not alter accrued benefits and that the SS promise has the full faith and credit of the US behind it.

But assets in other plans can affect the value of the liabilities they stand behind. The assets represent collateral and strengthen the liabilities.

But the expected return is not a key factor in measuring PV.

Imagine a weak sponsor has a plan with liabilities that would be worth $100 if risk free. With no funding, the promise might be worth only $60.

Now add $50 worth of bonds. The PV might increase to $80. Now add $30 in equities on top of the bonds. The expected return increases over what it was with only bonds in the plan. But the value of the liabilities increases again, perhaps to $90, due to increased collateral. The liabilitiy increase from $80 to $90 implies a lower discount rate for the liabilities even though the expected asset return has gone up.
This is an implicit acknowledgment that the plan liabilities are really riskier (to the beneficiaries) than a clinical reading of the plan's benefit schedule would imply. (Fine print notwithstanding. I'm talking about the benefits as they would be described in a brochure for Joe Shmoe, not the fine print which may or may not acknowledge that it all might go boom and Joe gets some reduced benefit from PBGC or whoever.)

There is a way to circle this around to a point of fundamental agreement between yourself and Dr. Gold: the verbatim promises of a pensions plan, if valued as such should not depend on the assets backing them. Any dependence of the liability valuation on the assets backing those liabilities is an implicit acknowledgment of an extra layer of risk to the beneficiaries.
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  #152  
Old 08-19-2016, 10:25 AM
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Of course, the conversation here centers around government-sponsored plans, for which the risk is pretty small -- not ZERO, but still small. Governments generally have the ability to tax people (and, in the case of the Federal Government, to print money) in order to keep their promises. So, governmental pension liabilities are close to risk-free.

By the way, regarding Social Security, Congress (and the president) absolutely can change the program at any time. The Supreme Court has said so multiple times. But we must value the liabilities based on the program as it currently exists, not as we believe it might be changed in the future. Who can know what Congress might do, anyway?

Bruce
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  #153  
Old 08-19-2016, 10:57 AM
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Who can know what Congress might do, anyway?

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  #154  
Old 08-19-2016, 05:21 PM
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Of course, the conversation here centers around government-sponsored plans, for which the risk is pretty small -- not ZERO, but still small. Governments generally have the ability to tax people (and, in the case of the Federal Government, to print money) in order to keep their promises. So, governmental pension liabilities are close to risk-free.
As a taxpayer, this is an unbelievably offensive line of thinking. Remove this ridiculous "we can tax whoever we want when we want" mindset and watch everyone get their ducks in a row. Imagine if all governments did was transfer the amount of the normal cost to a company that offers annuities, and then washes their hands of the future liabilities. Then I bet we'd see the real pension costs come to light, just like we saw what happened with non government pensions. But it would remove a huge avenue of corruption for politicians and union bosses throwing around gobs of taxpayer money (and buying the votes of government workers with undervalued pension costs), because what the hell, we can always tax the people more later!
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  #155  
Old 08-19-2016, 05:31 PM
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"Offensive"? I'm not trying to offend anybody. I'm merely observing how governments behave. If you don't like it, then vote for politicians -- if they exist -- who will behave differently.

Bruce
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  #156  
Old 08-19-2016, 05:36 PM
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"Offensive"? I'm not trying to offend anybody. I'm merely observing how governments behave. If you don't like it, then vote for politicians -- if they exist -- who will behave differently.

Bruce
I think they were offended by the way things work, not by what you posted.

But yeah, certainly at the federal level, the ability to pay is infinite, so it's all a matter of willingness.
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  #157  
Old 08-19-2016, 06:41 PM
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I think they were offended by the way things work, not by what you posted.

But yeah, certainly at the federal level, the ability to pay is infinite, so it's all a matter of willingness.
I don't think that word means what you think it means.
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  #158  
Old 08-19-2016, 06:47 PM
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I don't think that word means what you think it means.
Well, they can print money as needed to satisfy the obligation. Whether or not those dollars are worth much... That's another thing.
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  #159  
Old 08-19-2016, 06:49 PM
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Well, they can print money as needed to satisfy the obligation. Whether or not those dollars are worth much... That's another thing.
I wouldn't have argued if you had said "unlimited." Just a personal quirk, maybe.
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  #160  
Old 08-19-2016, 07:23 PM
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I wouldn't have argued if you had said "unlimited." Just a personal quirk, maybe.
Fair point.
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