By Brian Ochsner
Colorado's Public Employees' Retirement Association pension plan has been sold to Colorado taxpayers as a financial safety net for retired public employees. Bureaucrats claim it will always be there for retirees to live comfortably on in their golden years. Unfortunately, PERA's structure won't allow it to deliver on its promises. Here's why.
PERA is similar in structure to Social Security, which in reality, is a legalized Ponzi scheme. In the case of the famed Italian immigrant Carlo Ponzi, he thought of a way to get investors to give him their money. He promised outrageous rates of return in a short amount of time (and delivered to some of the earliest investors). But he did this by getting a constant stream of new investors to fund the original investors' principal plus interest. Of course, as history would note, eventually some investors didn't get paid off, the authorities were notified, and Ponzi was sentenced to jail. Unfortunately, the Ponzi scheme known as PERA is legal, but will end up in the same condition as the original one – insolvency.
PERA and Social Security work the same way: They rely on younger generations of citizens paying taxes to fund older retirees' pensions. Ponzi schemes are always doomed to fail unless they get progressively larger streams of revenue as time goes by. PERA is especially shaky because of the triple whammy of: 1) High U.S. inflation, 2) A declining U.S. stock market (in inflation-adjusted terms), and 3) Future lower state tax revenues due to a slowing economy.
If you believe the annual inflation rate is really 3-4 percent, I'll bring the Easter Bunny to your house for dinner. According to respected economist John Williams at ShadowStats.com, it's more like 12-15 percent annual inflation.
Why can I be confident that Colorado will see lower tax revenues? Because our economy in this first decade of the 21st Century (dot.com and real estate bubbles) has been based on excess borrowing, spending and printing of money. The Fed artificially lowered interest rates to the floor, and caused the worst misallocation of capital (to residential real estate) in the history of the world.
A recent USA Today article showed the federal government has over $63 trillion of debt and future unfunded liabilities – mainly Social Security and Medicare. America's annual GDP is about $13 trillion. Simple math tells you that Houston, we have a serious problem with our nation's financial management.
I realize the Dow index is still around 12,000. However, the value of the U.S. Dollar has declined by about 50 percent since 2002 – so it's actually declined in inflation-adjusted (real) terms. The returns on many of these stock-based investments (including supposedly "safe" mutual funds) aren't keeping pace with the actual rate of inflation (not the bogus CPI number that the federal government puts out).
Liberals have the utopian ideal that everyone should be taken care of by government from cradle to grave, the womb to the tomb. It's always been a bad idea for those of us who believe in limited, Constitutionally-based government, and the freedom to keep as much of what we earn. But it's especially bad at this time in our state and country's history.
The government that can give you everything can also take it away. When you hear more cries from liberals and Democrats for more 'contributions' to 'save PERA' (probably in the next few years), don't buy what they're selling and keep both hands on your pocketbook.
Brian Ochsner is a Denver-based marketing strategist and sales copywriter.
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Pera
On July 11th, 2008 dickrmurphy says:
While I've been a critic of PERA's funded status quite often in the past and am still not pleased with it, you simply don't understand the functioning of an investment portfolio. Stick to writing sales copy and marketing strategy. You obviously don't understand funding liabilities over time.
Dick Murphy
Mr. Murphy, I'm also a
On July 15th, 2008 Constitutional ... says:
Mr. Murphy,
I'm also a former accountant, and passed the CPA Exam in 1994. I most definitely understand the 'functioning' of an investment portfolio, and funding liabilities over time. Humor me and explain how PERA will have enough money to pay for an increasing number of retiring Baby Boomers... AND keep pace with the current rate of inflation (which is much higher than the government claims).
In theory, the PERA portfolio could grow its way out of its current shottfall. But in practice, I highly doubt it - especially since it's heavily invested in US stock mutual funds. Here's PERA's latest performance update:
https://copera401k.csplans.com/csinfo/pdfs/forms/corado/investment_retur...
Plus - you factor in a declining US Dollar, Freddie Mac and Fannie Mae are about to be bailed out at the taxpayer's expense, and we're unwinding an over-leveraged real estate market. Ben Bernanke and the Federal Reserve will continue to increase the money supply and create more monetary inflation to bail out Fannie and Freddie, and try to keep the economy and financial markets afloat.
Unless PERA reallocates its portfolio to more commodities such as gold and silver, and more stocks and funds in financial stronger countries, I don't see how PERA can grow its way out of its current deficit.
Colorado PERA & Social Security
On July 11th, 2008 LiliAnne says:
Social Security is and always has been a pay as you go system. PERA has real money, about $40 billion, invested in Colorado, US and international companies. Over 70% of PERA's dollars come from investments, 15% from employees and 15% from employers. PERA pays its retirees about $2.5 billion annually which is taxed by the state and federal government and then the remainder is spent in Colorado communities. "Simple math tells you that Houston," we have a great return with this financial arrangement.