If you have heard the words "75 years" and "Post Office" recently you may enjoy a brief digression about how to account for pension liabilities:
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Defined benefits pensions are an extremely expensive benefit which was once extremely popular to offer for employees, because they allow you to offer something which is valued highly by employees but costs you little in terms of cash in the present day.
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As an actuarial matter, for each day an employee labors under a defined benefits pension, you incur some liability in the future. Tech people will recognize this as very similar to stock vesting: irrespective of accounting treatment or payment timing, one day is one day long.
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The dominant way of funding pensions is called "pay-as-you-go": you're required to have cash reserves on hand to meet expected obligations over some relatively short window. But these reserves are not not not not not not not not not not not not not not not the liability.
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The liability grows every day for every current and past employee with a pension, and periodically goes down a little when one passes out of pension coverage, either by quitting before vesting or by passing away.
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This mismatch in reserves and liabilities has caused the "Pension Tsunami", because almost everyone got a rosy report from their actuaries as to what the pension would cost, took the suggested reserve levels those actuaries thought might possibly cover, and *did not* save it.
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The Post Office has relatively unique pension treatment, because it is quasi-governmental and part of the spinoff was Congress deciding that the Post Office should not be able to transfer unfunded pension liability to taxpayers.
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So Congress passed a law saying "You don't get to pay-as-you-go. Instead, you need to model out costs for current and previous employees over a 50 year window from retirement date, and reserve adequately against those projected costs."
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Defenders of the Post Office, 10+ years ago, said that this was unfair, because it is relatively unique treatment. The policy was instituted specifically to avoid transferring $100B+ in pension liability to the taxpayer.
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Here's something I wrote eight years ago:pic.twitter.com/PJcbVqUmAM
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Patrick McKenzie Retweeted Alex Godofsky
n.b. I underreported requirements for employers in this post; c.f. correction here.https://twitter.com/AlexGodofsky/status/1249570491184173057?s=20 …
Patrick McKenzie added,
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Replying to @patio11
For us simpletons, what does this imply? That the Post Office before 2006 (and other companies) pension liabilities weren't accounting fiction? If they weren't accounting fiction, why did the USPS need this new requirement, and how is it different from other pensions?
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