I enjoyed my guest hosting duties on the radio today and wanted to follow-up on a question from a caller. The caller wanted to know how many people were currently working and paying into Social Security and if the number were lower than in the past and, as a result, causing some of the financial woes for the program. Actually the number of workers paying in right now is the highest it has been, but what I told the caller to pay attention to was the number or workers per retiree, or beneficiary. The OASDI trustees report (available here) gives all this information, but I boiled it down to a simple graph.
JT tends to ask me the following question: “What worries me about the outlook for ND?” Over the last few years I answered that there was not much. That was then, this is now. North Dakota hit its first oil price catastrophe for this round of the oil boom and we are watching to see the consequences. One of the issues that worries me has to do with the demographics for the state as a whole. In this piece I will focus on the 65-and-over population and later on we can talk about other dimensions.
JT and I talked many times about pensions and the unfortunate arithmetic behind most defined-benefit pensions. We keep seeing issues arise with the pensions in places like Detroit, or now Illinois. To reiterate, I have no issue with the defined-benefit pension plan in theory. The issues I have focus on the management, or should I say mismanagement, of the pension plan. The mismanagement really falls into two categories: investment of pension fund assets bordering on fraud and, a seemingly willful ignorance about the changes in life spans for people (in this case plan recipients).
With the semester drawing to a close and the summer session getting ready to start soon my thoughts turned towards population issues. (I teach a population analysis class in the summer for the graduate students.) One of topic coming up in that class on a regular basis is pensions, particularly the math behind pensions. I thought a little post about the issues surrounding defined benefit pensions in order. JT also asked about alternative uses of the $3 billion available in the legacy fund when it becomes available in the future. So let’s start with this issue.