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Old 07-17-2013, 07:28 PM   #21
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As an active duty military member, I am pretty rare amongst my cohorts in that I frequently advocate for the military (really all public employment) dumping pensions in favor of defined contribution plans. I have been serving for nearly 14 years, so I know that (assuming I finish out my full 20) I will have a nice COLA'd pension waiting for me. But the situation is untenable and outdated as far as the federal government goes.

I believe opening the Thrift Savings Plan to the military was the first step in driving the military toward defined-contribution retirement, and I do think it's the way to go. That said, military pay is a sacred cow - what politician is ever going to advocate for reducing military benefits substantially, and particularly in an all-volunteer force? Talk about political suicide.

Still, it needs done, in my opinion. Offering "early" pensions is seen as an easier way out, but it's just a band-aid.

.

I agree I meet and/or play poker with a lot of NCO with 8-12 years that are getting out. In many case by choice in some cases not really. If they worked for most government agencies they'd be entitled to a pension at 62 or so. Now there are fair number of benefits for our military, but I find the binary nature of the 20 year pension to be very unfair. If you making to 20 years you get a terrific pension (mostly because you can collect it so young) but if you just make 19 years you get zip.
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Old 07-17-2013, 07:35 PM   #22
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Where were the public employee unions in Illinois when all this was going on? Supposedly, they are so phenomenally powerful that they could have demanded generous contributions to the pension and got them. Or were they part of the problem? ...
Thanks, that is the perfect segue for my response to youbet...

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Originally Posted by ERD50 View Post
But - if my MegaCorp went bankrupt, the PBGC (a Govt Program) would take over, and pensions would be capped at $57,477 per year (age 65 - no COLA). So is it so unreasonable to put this same cap on the public sector employees of Illinois, if IL essentially goes bankrupt? And the PBGC is funded by insurance payments from my employer - IL hasn't even made insurance payments.
-ERD50
An interesting proposal, but there are differences between your MegaCorp's DBP plan and the Illinois plan. MegaCorp's plan is likely a true DBP with MegaCorp contributing all the money to the fund. MegaCorp must meet funding requirements and standards and pay insurance premiums to qualify for PBGC insurance.

The Illinois pension funds are supposed to be funded by a combination of employee payroll deductions and state contributions, although the state has missed its contributions many times. ....
Differences yes, but if we view it in terms of 'total compensation', MegaCorp either offered a pension to compete for talent, or they would need to offer a higher salary in its place. So in essence, the employee is paying all of this, one way or the other.

So back to Chuckanut's Q - Where was the Union when this was going on? Well, the way I see it, and I'm open to alternate explanations, is that the Union leaders were complicit in this mess. If I were dependent on an Illinois pension, I'd be mad as heck at my Union 'representation'. Why did they allow the politicians to divert the funds? Why did they continue to fund the campaigns of those politicians? Why did they encourage their members to vote for those politicians? My explanation:

If the Union demanded (and threw their weight behind that demand) that the pension be fully funded, the politicians would have had to raise taxes in real time. That would have brought the issue into the light, and IL taxpayers would be questioning this expense. I say the Union leaders were as interested in keeping this low profile, as the politicians were in using the funds. Kick the can down the road, and all of them would be retired (with their own fat pensions) before the stuff hit the fan. Match made in heaven!

Alternate explanation? Keep Occam's Razor in mind!


Quote:
I'd also add that Illinois would never qualify for PBGC insurance because they refuse to make actuarial based contributions preferring political based estimates (going as low as zero) instead.

And yet, the Union never pushed to meet the arguably lax standards that private companies had to meet. But their members expect even higher 'guarantees'? I'm sorry, but that's just wishful, unrealistic thinking. I suspect that even my modest proposal, that IL pensioners be capped at the same limits that private pensions are (which is measured at 65 YO, and non-COLA) would be met with anguished cries of "unfair!". Even though they never paid the insurance premiums that were part of my total compensation.


Quote:
The last three recent proposals for "pension reform" coming out of Springfield have all included a clause which continues to call for employee contributions to be mandatory and direct deductions from pay checks while the state's contribution will be "flexible."

It's almost hard to believe...........
I'm glad you said "almost" - this is Illinois after all.

Gov Quinn says he was born to solve this crisis. Well, if he is serious, I'd suggest he do a Ross Perot like process and take charts of the facts and figures to the public, and put it in personal terms. Like, 'If we do nothing, we need to tax each household at $X/year for the next Y years', or 'If we make adjustment A, that takes $X down to $Z', etc....

It's unfortunate that we are at this crossroads, the solutions will not be painless.

-ERD50
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Old 07-17-2013, 08:02 PM   #23
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Of course, because I would be grandfathered under this plan, I doubt it would ever be taken seriously coming from me, but...
I'm still under my initial service obligation and like I said earlier, I would be OK with what you describe as long as the matching funds don't amount to pennies on the dollar compared to the current retirement plan. I have to do some math, but I think the matching amount would have to be tremendous compared to what any other employer offers. In that case, however, I'm not sure if it would save taxpayers much money. Right now only a small fraction of service members ever receive any retirement benefits, and I think that is what enables the pension/medical to be so generous. Under your proposed scheme, everyone would get some money no matter how long they served... assuming, of course, they actually put money into their TSP. Admittedly, I get to see firsthand how very few people actually contribute anything at all; maybe 1 in 10, and then the contributions are tiny.

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Old 07-17-2013, 08:18 PM   #24
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One partial solution would be to reduce investment fee costs and thereby increase portfolio return. Something that most every E-R.org member regularly practices.

I found this report fascinating. They estimate annualized returns for the past 5 years would have been increased by an average of 0.7% if index funds had been used instead of the states' current approach.

Wall Street Fees, Investment Returns, Maryland and 49 Other State Pension Funds ╗ Research ╗ The Maryland Public Policy Institute

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By indexing most of their portfolios, we conclude the 46 state funds surveyed could save $6 billion in fees annually, while obtaining similar (or better) returns to those of active managers. This policy potentially reduces unfunded pension liabilities by $80 billion within a few months.
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Old 07-17-2013, 08:24 PM   #25
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. . . I find the binary nature of the 20 year pension to be very unfair. If you making to 20 years you get a terrific pension (mostly because you can collect it so young) but if you just make 19 years you get zip.
From the "force management" perspective, the binary nature of the 20 year retirement has benefits. The people doing assignments are well aware that servicemembers are very unlikely to quit as they get more senior, and this allows a tremendous amount of undesirable assignments and duty conditions to be heaped on folks during these years. You might have already done 4 remote tours, the spouse is threatening divorce, and the kids are in meltdown, but it you are at 18 years and told to go solo to Korea, you'll probably go.
But, everyone knows the deal when they sign on.
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Old 07-17-2013, 09:15 PM   #26
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Where were the public employee unions in Illinois when all this was going on? Supposedly, they are so phenomenally powerful that they could have demanded generous contributions to the pension and got them. Or were they part of the problem?
I think it's pretty common knowledge amongst Illinois residents that the public employee unions are in the pockets of the dominant political party. This thread, since the OP referenced Illinois, could quickly head off the tracks on a political tangent. So I'll just say that the public employee unions and "the party" have a mutually beneficial relationship often to the detriment of union members and citizens who are just cannon fodder in the game.
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So, an underfunded pension, no SS benefits to speak of, and politicians and union leaders who don't seem to give a hoot. Well, time to get that 2nd job and work until at 70 or more. At least they probably won't get Alzheimer's.
It is indeed a sad situation for a lot of folks.
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Old 07-17-2013, 09:31 PM   #27
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Alternate explanation?
Why are you asking me to explain the workings of Illinois public employee unions and their relationship to "the party?" My earlier comments made no reference to unions, directly or implied. You live in Illinois. If you don't already understand these things, you are either very na´ve or trying to make a joke at my expense. You do understand how things work here, right?
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Old 07-17-2013, 09:37 PM   #28
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Why are you asking me to explain the workings of Illinois public unions and their relationship to "the party?" My earlier comments made no reference to unions, directly or implied. You live in Illinois. If you don't already know this, you are either very na´ve or trying to make a joke at my expense. You do understand how things work here, right?
Just putting it out there for airing. Others on the forum may not know how things work in IL. The request for an alternate explanation was open to everyone.

I also would not be surprised if a significant % of IL pensioners had never considered that explanation. I suppose many of them went on somewhat oblivious to this. Just as I probably didn't know much (if anything) about the PBGC at the time. And now they reasonably expect the promise to be kept, but there just may be no way to do that.

Rock, meet hard place.

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Old 07-17-2013, 09:53 PM   #29
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Just putting it out there for airing. Others on the forum may not know how things work in IL. The request for an alternate explanation was open to everyone.
Oh, I see. I've gone back and read your post again and it seems pretty clear you were poking at me about it and referring to me by name. But, whatever......
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I also would not be surprised if a significant % of IL pensioners had never considered that explanation. I suppose many of them went on somewhat oblivious to this.
Many employees just go about their jobs and assume things like pension formulas, benefit packages, next week's wages, etc., will happen as promised. Remember the folks pulling the wool over their eyes were folks like inmate Rod Blagojevich whose off the wall actions might be difficult for the average Joe to anticipate. Too bad. Now they're screwed.
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And now they reasonably expect the promise to be kept, but there just may be no way to do that.

Rock, meet hard place.

-
Happy now?
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Old 07-17-2013, 10:28 PM   #30
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Oh, I see. I've gone back and read your post again and it seems pretty clear you were poking at me about it and referring to me by name. But, whatever......
Yes, I was responding to your comments, but the discussion is open ended. I use them as a springboard for further discussion. You can choose to respond or not, or maybe someone else will. Not sure what difference this makes?

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Many employees just go about their jobs and assume things like pension formulas, benefit packages, next week's wages, etc., will happen as promised. Remember the folks pulling the wool over their eyes were folks like inmate Rod Blagojevich whose off the wall actions might be difficult for the average Joe to anticipate. Too bad. Now they're screwed.

Happy now?
I was just pointing out in this thread, the politicians are not the only ones at fault. Often they are the sole target for the under funding issue, but it seems they had assistance.

It's a bad situation. If you're inferring I'm taking some pleasure from this, you are mistaken. But regardless of how we got here, the situation is what it is. How do we move forward?

As I said earlier, I'd like to see Gov Quinn put it in household budget terms. I think that would facilitate some discussion, and frame possible solutions. I know there's been talk, just like with SS, that adjustments will need to be made to assure that something is there for everyone. Maybe some reasonable proposal is some tax increases, along with some modifications for the higher level pensions, so lower income pensioners are not affected. Not unlike the model of the PBGC for private pensions. I'd sure like to see some proposals on the table and getting exposure and healthy debate. If they keep kicking the can, we could hit a brick wall where payments stop for everyone, because there just isn't anything there. I think that would be the worst outcome for the pensioners, and I don't want to see that. I'm hoping we (Illinois) can be pro-active and spread some moderate pain to save something for those most at risk, but that appears to be just a hope.

-ERD50
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Old 07-18-2013, 03:34 AM   #31
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I was just pointing out in this thread, the politicians are not the only ones at fault. Often they are the sole target for the under funding issue, but it seems they had assistance.
No. The then gov did not have much assistance. It's hard to not give Blagojevich the majority of the credit for the 2005 "pension holiday." He openly takes full credit. A creative mind can imagine some non-political hero who could and should have jumped in and stopped him, and there are records of speeches in the Springfield house of folks trying to do so (see my post mentioning Chicago Magazine). But when the buck passing begins and ends at the gov's desk, it's hard to get too excited about and place blame on the little guys who screamed but not loud enough and were run over by Da Machine.
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If you're inferring I'm taking some pleasure from this, you are mistaken.
Really?
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I know there's been talk, just like with SS, that adjustments will need to be made to assure that something is there for everyone.
There's been more than talk, just no agreements. Have you read the legislation that's been introduced in one or the other of the houses in Springfield? It's been all over the media and is readily available for your review.
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I'd sure like to see some proposals on the table and getting exposure and healthy debate.
Have you read the legislation that's been introduced in one or the other of the houses in Springfield? It's been all over the media and is readily available for your review.


Most of the proposals (via introduced legislation) so far share these elements:

1. Employees contribute larger percentages of their salary.

2. New hires, existing employees and retirees all take cuts to both already earned credits and to future credits. One proposal for retirees does offer the option of continuing the current pension level but they loose subsidized retiree medical coverage. So, for example, a retiree might chose to give up retiree health insurance and go with ACA in lieu of taking the pension cut. This was designed to provide a "choice" and avoid the change seeming to be a diminishment of their pension which is prohibited in the state constitution. I thought this was clever. The state saves by either reducing the retiree's pension or by no longer providing subsidized health insurance. (Subsidized health insurance is not protected in the constitution.)

3. Lots of misc rule changes to eliminate spiking and other abuses.

4. The state's contributions remain non-mandatory and the unions continue to be prohibited from suing if the state fails to contribute.

5. The state's contributions, if and when made, continue to be determined by political calculation rather than actuarial calculation.

I have no problem with #1, #2 or #3. But #4 and #5 just seem stupid. We reduce pension costs by reducing the value of retirement benefits earned in the future and the already earned retirement credits of current employees and retirees but then leave the door open for a future governor (Blagojevich-2 ?) to continue the practice of "pension holidays?" What's the point of that?

I do think part of the solution is to put state employees into the SS system. Then they will at least know that their 6% SS contribution is being matched dollar for dollar by the employer. And the Feds could step in with the handcuffs when Illinois decides to take a "SS holiday." SS + a 3% 401k/403b match could look mighty, mighty sweet to a new State of Illinois employee right now.

I think the state could also win a lot of good will if they offered preferential treatment in hiring back past employees who retired in the last few years and who find themselves in a strained financial situation if cuts to retiree pensions turn out to be more than superficial. With teachers, this could be done by modifying the rules on double dipping to allow going back and working part time in the same school or system they retired from. Actually, that could work for any employee.
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Old 07-18-2013, 09:20 AM   #32
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Seems like those giving, receiving and those paying thru taxes for some of these pensions and healthcare benefits had their heads burried in the sand when it comes to the adage, if its too good to be true, it probably is.

I suspect the solution will involve some pain for everyone: existing and future workers, existing retirees and tax payers.
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Old 07-18-2013, 09:35 AM   #33
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I suspect the solution will involve some pain for everyone: existing and future workers, existing retirees and tax payers.
"Politicians" are conspicuously absent from your list of those that will share in the pain. I agree with you.
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Old 07-18-2013, 01:20 PM   #34
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"Politicians" are conspicuously absent from your list of those that will share in the pain. I agree with you.
Yep, they deserve a special class of pain like no other.
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Old 07-18-2013, 02:12 PM   #35
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I think it's pretty common knowledge amongst Illinois residents that the public employee unions are in the pockets of the dominant political party.
Alas, often the unions are so heavily one sided when it comes to party politics that the party they favor can take them for granted since they know they can count on them every election even if they ran a toothless, homeless, retired, dog catcher for governor. And, the party they don't favor sees no point in doing the slightest thing to garner their favor since granting 9 out of 10 requests would only get them criticism for not granting the 10th request.

At least that's the way it appears to me in my home state.
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Old 07-18-2013, 02:29 PM   #36
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Sadly, in Illinois, it does not matter who the dominant party is - they are all crooks !

A lifelong Illinois resident and not proud of it .
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Old 07-18-2013, 02:43 PM   #37
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Wow. It hurts to see what is going on in my native state. When I visit there, I get a headache over all the discussion, much like I get a headache reading the above posts.

I don't think I can ever go back home. I just can't take on that kind of problem. No thanks.

And sadly, I'm hearing much of my friends and family wanting to "get out" as they near retirement. IL has some really serious issues to solve and they keep pushing it off.
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Old 07-18-2013, 05:48 PM   #38
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From the Chicago Tribune
Chicago bond ratings slashed - chicagotribune.com
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Moody's Investors Service has slashed Chicago's general obligation and sales tax ratings by three notches to A3 from Aa3 due to the city's large and growing pension liabilities and related budget troubles.
...................................

Moody's also lowered its rating on Chicago's water and sewer senior lien bonds to A1 from Aa2 and its rating on the city's second lien bonds to A2 from Aa3, which affects $3.3 billion of debt. The rating agency's outlook on the debt is negative.
...................................

Illinois lawmakers are struggling to solve the state's own $100 billion unfunded pension crisis, forcing local pension problems to the sidelines.
A3 to Aa3 ... that's 3 notches... not a small reduction.
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Old 07-19-2013, 07:18 PM   #39
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I grew up in Springfield. Great horseshoes and cozy dogs and melo-cream donuts. Oh ya, and mob murders. Nice town.
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Old 07-19-2013, 07:35 PM   #40
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I fear there will be coming pension defaults. Another good reason to have a 401k or IRA.
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