<p>Without commenting on the actual thread there are some things I think I can shed light on:</p>
<p>1)The biggest rise in college costs is for salaries and such of staff, especially medical benefits. Medical costs have been rising much faster then the rate of inflation, and it has hit colleges as well as private employer. The cost of benefits and such is skyrocketing.</p>
<p>2)Many schools also have been facing rises in infrastructure costs, like insurance, maintenance, heating and cooling costs, etc, and again much of this is going higher then inflation.</p>
<p>3)Also keep in mind that schools generally fund aid and other programs from their endowment returns, they plan on a certain rate of return and use that money for various things (depends on the endowment and its terms; some schools can use the endowment only for things like aid, others can use it for operating or capital costs). With the financial debacle in 2008, a lot of endowments were trashed (not sure where they are today, given the rise in markets).</p>
<p>Not saying there aren’t ineffiencies and such, just saying these are some of the factors.Service industries like colleges, where much depends on human interaction, tend to be more expensive since economies of scale and rises in productivity tend to be lower then other things. </p>
<p>Plus state schools have faced an influx of talented students I suspect (just my guess) who due to economic factors either are priced out of top private schools or don’t want to build up debt to go to one, and it may have strained them as well.</p>
<p>As far as pensions go, the same problem that hit private industry with traditional pensions has hit the public sector as well. With traditional pension plans, employers are supposed to regularly contribute to the plan as well as employee contributions, and those funds are invested to build them up, so that when people retire there is money to pay their pensions. </p>
<p>In theory, pension plans are supposed to be fully funded, but they often have not. In the 1980’s, with the whole leverage buyout phase (and an administration favorable to those doing these things), one of the big points of contention were the pension funds, they were allowed to be treated as a cash asset of the company being taken over, and with leverage buyouts the pension funds were often part of the plan in how to buy a company, sell off its parts and the pension funds in effect became like cash (as a result, many private pension plans went underfunded or unfunded entirely, and ended up being covered by a federal government program, that screwed those in the pension plans because they don’t pay 100% on the dollar from what I understand). Companies also underfunded the pension plans, they were given permission, as a cost savings, not to fund fully what they needed to do, arguing that the cost savings would allow them to pay into the funds “down the road”. Do a google on unfunded pension liabilities to see what I am talking about.</p>
<p>With government pensions, much the same thing. As states more and more started running into problems balancing their budgets, due to a number of factors, instead of facing reality, they did what politicians do best, they pulled a slight of hand (and before anyone thinks i am making a political shot at any one party or group, forget it; they all did this, ‘fiscally responsible’ conservatives, “tax and spend liberals”, members of the ‘middle road’, all did this). In NJ, it started a number of years ago, when to balance budgets without cutting services and such, they started using pension funding as a piggy bank, so instead of putting x hundreds of millions as a pension payment, they in effect put an iou saying “i’ll pay that later”…problem is they never did, and that 100’s of millions wasn’t collecting investment returns, so down the road, when people start drawing pensions, suddenly there isn’t enough to pay these from the interest on the funds, so they have to ‘fill in the gap’ with payments from the budget (in effect, the ‘loan’ is coming due). It is much like social security, where to hide budget deficits, especially since the 80’s, excess funds in ss not needed to pay beneficiaries were ‘borrowed’ (put a security note in its place)…problem is, when that money is needed, guess what? It isn’t there. Treasury notes pay interest (which comes out of, ta da, the federal budget) but the problem is that if there is 100 billion in t notes there, that generates about 5 billion in interest, while they may need 20 billion to pay beneficiaries above incoming payments for that year…you get the drift). </p>
<p>When people talk about the cost of unfunded pension liabilities, this is what it means. These liabilities can also happen if the rate of return of investments doesn’t match expectations, but with government pension benefits the real issue has been that many states underfunded them to help balance budgets, and now the bill is coming due. </p>
<p>The reason states want to switch to 401k’s is an obvious one, the employee contributes, and while the state can contribute, they also a lot more easily can say “we don’t have the resources this year”, much as private companies in bad years can reduce or stop their matching portion. In a sense it is much more honest, but also I suspect it is basically getting rid of any kind of responsibility towards employee pension costs and leaving it to the employee, which is a way to cut benefits without appearing to.</p>