American Civics
Illinois pension obligations Using Illinois as an example of what happens when pension obligations are underfunded.
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- In the last video we talked about pensions
- and how there're defined benefit plans
- and how they could get underfunded
- of how there could be temptation for people to underfund them
- In this video I want to make things a little bit more concrete
- by looking on actual numbers especially at the state level
- So right over here is a map of obviously the United States
- and what it shows is how funded the pension liabilities are in the different states
- so for example
- actually Texas for example
- 83% of their pension liabilities are funded
- They set aside 83% of they right amount of money for their pension obligations
- Not 100% it is underfunded
- but it's not crazy
- California, pretty high
- 78% but one of these states is jumping out to you
- probably because it's been shaded in red
- and that is the state of Illinois
- and Illinois is in trouble because
- it's only funded 45% of its pension obligations
- and Illinois really jumps out because
- it's in red
- but there're a lot of states pretty close to Illinois
- Louisiana 56$, Oklahoma 56%, Kentucky 54%, West Virginia 58%
- and this is an issue because
- it's set a side in the past very little money
- for the pension obligations that are starting to hit now
- especially if you have a retiring baby boomer population
- and in order to meet those obligations
- those promised obligations
- they're going to have to dig into money
- that was being spent in other places
- that going in the past when they were under funding the pension
- they were able to fund other things nicely
- but not fund the pension
- and kind of kick the can down the road
- but now that the can can't be kicked any further
- it's going to have to go the other way around
- you're going to have to take money from other things to fund your pensions
- and to make it clear
- let's focus on the state of Illinois
- So this right over here there're a couple of things going on
- In this kind of yellow ochre colour
- and I'll circle it in yellow-ochre
- they're talking about the total liabilities
- and just to make this graph clear
- it's not just about the total liabilities
- the entire height of each of these bars is the total
- is the total liabilities
- and you see how it's just completely
- it's completely blossomed here
- and there're a lot of things that go into the total liabilities
- the same things that we talked about in the last video
- they're things like return on investment
- Return on investment
- if you're in a low interest rate environment like we are right now
- For example in my savings account
- I think is getting like 0.4% interest
- It's getting pretty much no interest
- If you're in a low interest rate environment
- if your're not getting good returns
- a lot of pensions tend to go into very safe assets
- but those are going to get very low returns
- you're going to have to set aside
- more money
- And so
- you see these obligations essentially just growing dramatically
- on top of that you have things like cost of living adjustments
- These are attempts at kind of factoring in inflation
- how much things are costing in that region
- but there are also negotiated
- and especially in the case of Illinois
- they've grown faster than the rate of inflation
- And so you have these liabilities
- and you see they're getting less and less well funded
- So if we go right over here
- and this is what this green line is
- the funding ratio so how well funded are these liabilities
- red says the red part of the bar that is not paid for
- and the green is the ratio of what is funded
- essentially this higher part
- is the ratio of this part right over here to the entire bar
- And you see right over here
- Illinois is in a bad situation
- Their total liabilities are 138 billion
- this is in millions
- so it's a 138 thousand milllions
- so it's 138 billion
- This is for 1 state
- and 85 or 86 billion of that is unfunded
- that they have to figure our somewhere to get the money
- because the right amount of money was not being set aside
- And to do that they're going to have to dig into other things
- so this right over here
- this is the pension contribution
- let me circle this
- so in this yellow colour right over here is the pension contribution
- and now the state
- in order to get to a funded position
- they're going to have to make up for the underfunding of the past
- and also the other factors that are making this obligation even larger
- they're going to have to dig into other things
- and so you see right over here in yellow
- these are the pensions
- these are the contributions they're going to have to make for the pensions
- and you see that growing
- it's going in excess by 2018 of 6 billion a year
- but what's really fascinating about this graph
- is that it's passing total education funding in the state
- so the cost of funding retirements
- for people who have already done service for the state
- but aren't in service to the state right now
- is going to pass up
- and this is happening very soon
- is going to pass up actual spending on a state-wide basis on education
- and at the state level
- education is a major major major expenditure
- so it's going to be passing up a major expenditure
- a very important expenditure on the future of the state
- based on past obligations
- and to understand where this is going
- and just to understand Illinois' situation
- there are 750 thousand
- Illinois...I don't know how to say this
- Illinoians? Illinoisians?
- who are members of the State's five pension systems
- so this is the teacher's retirement system
- this is the state universities' retirement system
- this is the state employees' retirement system
- this is the state judges' retirement system
- you see that there're a lot fewer judges than that
- there's been many more teachers
- many who have been in the state universities
- and this right over here is the General Assembly
- very few people who are in the Illinois State Assembly
- and you can see kind of comparable salaries
- this is the retirement benefit
- not just the salaries
- this is on average how much these folks
- are getting once they retire on an annual basis
- so you see that they're pretty reasonable
- especially for the judges
- although that they are a small fraction
- but in all fairness this was promised to these people
- they planned
- they probably took lower compensation while they were working
- with the expectation that they were going to get these benefits
- once they retired
- they probably stayed on their jobs longer
- This is a way of retaining employees
- because they knew they were going to get these benefits
- So you can say these are really great benefits
- but at the same time these people probably sacrificed other things
- in order to get these benefits now
- But it's a very hard question
- when you look at this
- You say these people
- they've done service
- they've put these expectations
- but at the same time
- this is really cutting in
- and this is just one thing I'm showing
- It's really cutting in to very important areas of investment
- for the entire state
- So the whole reason of really just surfacing this
- whole pension issue is just to put this in
- and hopefully people understand what these issues are
- because that's the only way that fairly hard decisions
- are going to have to be made
- Decisions on cutting necessary investments
- or restructuring or who knows what it may be
- I don't envy the people who have to make these decisions
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At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger?
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