Watching the money run out: a simulation with a Chicago pension

April 13, 2017

Includes “One thing to note for those who think pay-as-you-go is A-okay. (That is: “It doesn’t matter if the pension fund runs out, we can just pay for benefits with current contributions.”) The reason the pension assets run out is because the starting assets are insufficient, and the contributions are really insufficient. This is why I looked at what the increase in contributions would have to be to cover the outgoing cashflows. In this case, the increase is over 300%. So if you think the current contributions are too high, how are 4x the contributions going to be affordable? If you think pre-funding the pensions is expensive, wait until you have to do pay-as-you-go. It’s really expensive.”

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