Pension Fund Bailouts, Unfunded Liabilities and Tax Revolts -- Oh My!

Damien and fellow WSCS co-founder (and brother) Derek Hoffman joined me to discuss the related issues of data showing average public sector workers make more than private sector while, at the same time, private sector pension funds may need a bailout for up to $1 trillion of their own unfunded liabilities.

The Pension Benefit Guaranty Corporation (PBGC), which guarantees the private-sector pensions of 40 million Americans, has about $70 billion of assets at its disposal, The WSJ reports. "But the present value of its liabilities (to make good on underfunded pensions) is $92 billion [and] the deficit is expected to surpass $30 billion in the next 10 years."

Whatever the actual size of the PBGC's funding shortfall, "it's still just a little drop in the bucket" of what will be needed, Damien Hoffman says. "The problem we're going to see here is the government has not put enough money away: This is another off balance sheet liability that the government doesn't like to talk about but will ultimately cause another bailout."

The Hoffman Brothers are especially sensitive to the plight of younger workers, who are being asked to fund both the private pensions and government-funded retirement benefits of the Baby Boomers while at the same time feeling nothing comparable will be available to them in 30 or 40 years hence.

As with Gary Shilling, among others, Derek Hoffman speculates there may be a "tax revolt by private sector employees" and what Damien describes as a "death spiral" between the public and private sectors.

That said, Damien writes: "I don't think this is a public versus private sector issue as much as an issue of people incorrectly believing that:

1) There are guarantees in capitalism, and;

2) Taxpayers can sustain irrational retirement benefits for public sector retirees.