NY Times Delusion on Public Pensions

This could be alternatively titled – Assumptions Matter.

The major reason for the pension crisis in Detroit is poor assumptions, including:

1.  Rediculously high investment return assumptions for the pension funds.

2.  The delusional assumption that the industrial revolution would return circa 1909.

3.  The now reinforced imaginative assumption that one could “guarantee” defined benefit pensions regardless of how the future turned out.

The Detroit bankruptcy filing exposes the simply shameless, self promoting assumptions.

Of course, along comes the NY Times to weigh in on the issue, including this snippet:

Some lawmakers like Senator Orrin Hatch, Republican of Utah, have suggested that cities and states reduce benefits for retirees or force them into riskier and more expensive retirement options including annuities and 401(k) plans. That would be the wrong lesson to learn from Detroit.

Of course, the Editorial Board of the NY Times is making a variety of assumptions in this piece.

Specifically on 401(k) plans, they are assuming that the investment choices of retirees would be more risky than those by the Pension funds managed by municipalities.  In light of the Detroit pension fund crisis, that hardly seems plausible.

On a level of risk, 401(k) participants can invest all of their proceeds into Federal government insured instruments, including CDs. The Times is automatically assuming that the pension guarantees of municipalities is greater than that of the FDIC – really?

One need not venture farther than these pathetic assumptions to recognize the absence of intellectual vigor behind the NY Times editorial.

It does highlight, however, that assumptions matter – whether it is a calculating an investment return or writing an insipid editorial.

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