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Old 04-21-2012, 04:27 PM   #41
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But, I will say that, IMHO, diversification of retirement income sources is important. Having three sourcers - personal money, pension and SS - is better than having only two - personal money and a pension.

Exactly. With all the turmoil going on, we'd just as soon DW was getting a combination of state pension + SS as compared to getting a state pension alone (for the same total amounts). In Illinois, there is no choice for K -12 public school teachers. No SS, period. So FIRE hangs in the balance at the whim of our whacky state politicians. Sigh.........
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Old 04-21-2012, 04:37 PM   #42
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I believe most public pension plans should move toward a FERS model with both a defined benefit and a defined contribution portion. The pension portion would be smaller but there could also be an employer match into a 403b plan to offset it. Obviously, whatever pension benefits have already been accrued for service already performed should be honored (and generally must by federal law, I think), but future accruals could be split between pension and a 403b.

The bottom line is that there is too much risk in many defined benefit plans -- even if fully funded at the time the work was performed, a bad market, changing demographics and actuarial realities, too much "spiking" (probably the first reform that should be done before watering down benefits where it's allowed) and other factors could leave the government on the hook for major expenditures down the road.

I happen to be a big proponent of the "three-legged stool" model of retirement funding, and that is one I think FERS definitely got right.
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Old 04-21-2012, 05:02 PM   #43
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Exactly. With all the turmoil going on, we'd just as soon DW was getting a combination of state pension + SS as compared to getting a state pension alone (for the same total amounts). In Illinois, there is no choice for K -12 public school teachers. No SS, period. So FIRE hangs in the balance at the whim of our whacky state politicians. Sigh.........
It really is screwy system when you think about all of the retirees eggs are in a single basket. Compounded by a political culture which to put it mildly isn't renown for being the most prudent stewards of taxpayers money.

I am curious is the state of the pension plan pretty big news in IL? or is typically buried in page 14 of the Tribune.
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Old 04-21-2012, 05:04 PM   #44
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Originally Posted by clifp

It really is screwy system when you think about all of the retirees eggs are in a single basket. Compounded by a political culture which to put it mildly isn't renown for being the most prudent stewards of taxpayers money.

I am curious is the state of the pension plan pretty big news in IL? or is typically buried in page 14 of the Tribune.
Dont know about Tribune, but it was front page on STL Post Dispatch today.
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Old 04-21-2012, 05:46 PM   #45
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There's a free article at The Bond Buyer, a subscription site for public financing news, issues, etc. Illinois Gov. Quinn Unveils Plan to Erase $80B of Pension Liabilities - The Bond Buyer Article
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Old 04-21-2012, 08:14 PM   #46
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The teacher pension reform is simple- they are just shifting the pension burden from the state to the school districts. Real estate taxes will then be raised to cover the districts' pension expense.
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Old 04-21-2012, 08:41 PM   #47
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Gov Quinn announced on 4/20 long overdue pension reform. Current employees would see an increase in their pension contributions by 3%, retirement age increased to 67 over a period of time, COLA tied to 3% or half of CPI whichever is less and an end to free health care. Subsidy would be offered to help with health care. Current retirees would not be part of the equation. Pensions would be fully funded by 2042. Finally some leadership in Illinois. Would anybody like to comment on these state of affairs?
This sounds pretty exciting, and amazing, too.... but....

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I also have to get a read on the votes - does this have any chance of passing?
.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.

Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.
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Old 04-21-2012, 09:43 PM   #48
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This sounds pretty exciting, and amazing, too.... but....



.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.

Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.
Oh, I think something definitely is going to get done. I am from this system and it is in pretty bad shape. This has been going on for quite a while now and I believe the political will is there now. A lot of states have already adopted some reform, i e Rhode Island and New Jersey. There is a constitutional thing involved here in Illinois though but I believe if the unions and states can agree on some middle ground here this thing can work. As long as the workers can get some guarantee on future funding to keep it solvent.
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Old 04-21-2012, 09:52 PM   #49
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This sounds pretty exciting, and amazing, too.... but....



.... but apparently it hasn't yet passed.

I think that when a politician calls a news conference to announce a bill that hasn't passed, it is worth weighing the possibility that this could possibly be an example of political posturing.
Well, there has been a lot of that lately. Some politician gets up and says 'pass this bill and everything will be sunshine and unicorns' (knowing full well the bill will not be passed), and then that person can say 'well, if they only passed that bill, we'd have sunshine and unicorns', it's not my fault, it the legislature!

Whether that is the case here, I do not know. I think it is just about getting attention and support for the idea.

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Personally, I try not to get excited about bills that haven't passed. It's just not worth the time or energy, since it seems like usually they don't.
I'm not following this. Every bill that passed was once a bill that had not passed yet. There is discussion before they get passed. We are at that stage now.

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Old 04-21-2012, 10:02 PM   #50
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Well, there has been a lot of that lately. Some politician gets up and says 'pass this bill and everything will be sunshine and unicorns' (knowing full well the bill will not be passed), and then that person can say 'well, if they only passed that bill, we'd have sunshine and unicorns', it's not my fault, it the legislature!

Whether that is the case here, I do not know. I think it is just about getting attention and support for the idea.



I'm not following this. Every bill that passed was once a bill that had not passed yet. There is discussion before they get passed. We are at that stage now.

-ERD50
I think they are pretty much past the discussion stage here. They already had HB512 introduced that went nowhere that had similiar ideas but a little more extreme. If I were a betting man I would say they will have something in place by 1/2013. New employees hired after 1/2011 are already on some form of this new agenda.
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Old 04-21-2012, 10:58 PM   #51
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I think they are pretty much past the discussion stage here. They already had HB512 introduced that went nowhere that had similiar ideas but a little more extreme. If I were a betting man I would say they will have something in place by 1/2013.
Yes, but there isn't an actual bill now, is there? Everything I've googled refers to a 'plan'.

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New employees hired after 1/2011 are already on some form of this new agenda.
Yes, DD started teaching in IL in 2011, so she is 'tier 2'. Details here:

Senate Bill 1946

One key point - FRA moved from 60YO to 67YO.

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Old 04-22-2012, 06:38 AM   #52
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There is no bill yet. Compare with last Ocober when Rhode Island announced its effort, which included a bill which passed a month later.

On his web site Gov Quinn refers to the "Governor's pension working group", mentions "weeks of discussion", and ends with this
Quote:
This plan reflects the discussions of the working group. The working group continues to work in an effort to find full consensus on all elements of the proposal. Members of the pension working group include Sen. Mike Noland, Sen. Bill Brady, Rep. Elaine Nekritz and Rep. Darlene Senger.
If this is a serious effort, legislation needs to be introduced very soon.
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Old 04-22-2012, 08:08 AM   #53
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I heard a several constitutional law professors argue about this with respect to California similar laws. The interesting question is what happens when the state constitutions mandates that spends A$ on the schools B$ on pensions, C$ clean water conservation and $D on anti-smoking education (paid by the tobacco settlement) but the state doesn't even have enough for A+B.

I guess a simpler solution would be simply tax pensions.
As a retiree from Illinois I now reside in Indiana. In Indiana out of state pensions like mine is fully taxed. (3.4%) It is not the end of the world. I think it would be better off taxed than to lose the 3% compounded COLA.
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Old 04-22-2012, 09:20 AM   #54
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I believe most public pension plans should move toward a FERS model with both a defined benefit and a defined contribution portion. The pension portion would be smaller but there could also be an employer match into a 403b plan to offset it. Obviously, whatever pension benefits have already been accrued for service already performed should be honored (and generally must by federal law, I think), but future accruals could be split between pension and a 403b.
.

I happen to be a big proponent of the "three-legged stool" model of retirement funding, and that is one I think FERS definitely got right.
I too like the FERS model. It has portability if you move to other employers and places more responsibility/control in the employees' hands. Many state and local governments have adopted something similar. But if you are a Fed it seems a bit like two legs since the Fed pays both the DB and SS. Pretty secure legs.
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Old 04-22-2012, 09:26 AM   #55
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They should have increased that state tax for Illinois a long time ago. Illinois has one of the lowest tax rates in the nation even now at 5%. I propose that it should also be progressive so that it hits higher earners. Also as a way to help with the reform they should also tax the pensions in Illinois. I would rather see that than to have the COLA reduced or eliminated. If the gutless wonders in Illinois find a way to get some form of this passed it will probably take effect in January of 2013. Before then you will see a lot of jump ship. I worked for the City of Chicago Water Dept. for 30 years and believe me there is a lot of dead weight there. Too many Chiefs and not enough Indians.
Unless you count the states that have a income tax rate of 0%....
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Old 04-22-2012, 09:35 AM   #56
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They should have increased that state tax for Illinois a long time ago. Illinois has one of the lowest tax rates in the nation even now at 5%. I propose that it should also be progressive so that it hits higher earners. Also as a way to help with the reform they should also tax the pensions in Illinois. I would rather see that than to have the COLA reduced or eliminated. If the gutless wonders in Illinois find a way to get some form of this passed it will probably take effect in January of 2013. Before then you will see a lot of jump ship. I worked for the City of Chicago Water Dept. for 30 years and believe me there is a lot of dead weight there. Too many Chiefs and not enough Indians.
As a tax payer in Illinois I have a very much differnt view of this. The state is cratering and this is a big reason why. Our overall tax burden is top 5 in the nation and getting worse every year. Our unemployment is over 11% and rising, its a race to see who craters first, us or california. By the way, the massive 67% increase in taxes only yielded something like 25% of the expected revenue, who would have thunk it that pesky Laffer curve at work i guess......

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Old 04-22-2012, 09:38 AM   #57
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I fairly impressed those are significant changes to the system. Moving the retirement age to 67 and capping and deferring the COLA are roughly 20% increases in the pensions financial health. A system with 2.2% multiplier needs a combined contribution (state + employee) of between 25-30% so increasing the contribution to by 3% is another ~10% increase. All and all I think the plan would be about 50% better funded than current system.

Still I am surprised that no sacrifice was asked of current retirees. Why not make the COLA provision apply to everybody working or retired?
I believe the reason is because Pension Obligations are protected by the State Constitution. Any changes to existing pensions would require an ammendment to the constitutes, that is not going to happen.

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Old 04-22-2012, 12:33 PM   #58
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It puzzles me the way some look at pension benefits.
Let me first say that I receive a pension for my career in the fire service in Illinois and have served on the pension board.
Our pensions are state regulated, but locally controlled. That is why the local fire and police department pensions are in much better shape than the state run funds. The state has been trying to get their hands on the local fund's assets for years, and had they succeed, we would be in the same position as the state workers.
You must understand, when we received benefits years ago it was in leu of raises that others may have taken.
Look at it this way.
Lets say in 1980 two employees are negotiating for an increase. One accepts a 5% salary increase, while the other accepts a future pension benefit, lets say a COLA adjustment for his future pension.
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. No one would think of going back and asking the first worker for that extra 5% he received and all of the compounded salary since then, so why is it OK to ask for a negotiated provision of a worker's retirement when they where both negotiated in good faith back in 1980. Just because a provision of his pension has not been yet been realized, does not mean that it is not owed.
Just my 2
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Old 04-22-2012, 01:01 PM   #59
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It puzzles me the way some look at pension benefits.
Let me first say that I receive a pension for my career in the fire service in Illinois and have served on the pension board.
Our pensions are state regulated, but locally controlled. That is why the local fire and police department pensions are in much better shape than the state run funds. The state has been trying to get their hands on the local fund's assets for years, and had they succeed, we would be in the same position as the state workers.
You must understand, when we received benefits years ago it was in leu of raises that others may have taken.
Look at it this way.
Lets say in 1980 two employees are negotiating for an increase. One accepts a 5% salary increase, while the other accepts a future pension benefit, lets say a COLA adjustment for his future pension.
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. No one would think of going back and asking the first worker for that extra 5% he received and all of the compounded salary since then, so why is it OK to ask for a negotiated provision of a worker's retirement when they where both negotiated in good faith back in 1980. Just because a provision of his pension has not been yet been realized, does not mean that it is not owed.
Just my 2
May be all true, but absent any numbers it's hard to judge. If the pension benefits were the long term equivalent of the increases waived you may have an argument. However, if the pension benefits were exorbitant because incumbents on both sides knew they would never have to deal with the fiscal consequences many years later, that's another kettle of fish. There are far too many documented examples of the latter.

And asking taxpayers from the private sector, who are much less likely to have any pension at all than public sector employees, to make good on under funded pensions is a tall order no? Where public sector employees used to have lower salaries and better benefits, public sector salaries have caught and surpassed private sector salaries from what I've read.

Whether any of this applies to IL I don't know. In most cases I suspect all parties will have to make sacrifices, it may not be enough to just say 'not me.'
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Old 04-22-2012, 01:26 PM   #60
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It puzzles me the way some look at pension benefits. ....
Now more than 30 years later, do to a failure of the state to properly fund the system ( a whole other issue), there is a crisis and we think its OK to talk about telling a retiree to give back his COLA provision. ...
Several things.

First, I'm not sure that people in general are saying it is "OK" to ask a retiree to give back his COLA provision. I actually think most people view this as a pretty extreme measure.

Second, I'm pretty sure that there is no serious talk about changing benefits for those already retired in IL. That appears to be a Constitutional issue, and probably a political third-rail.

Third, as Midpack points out, there is a reality that must be addressed: 'However, if the pension benefits were exorbitant because incumbents on both sides knew they would never have to deal with the fiscal consequences many years later, that's another kettle of fish.'


Looking at your intro post, I see you have a $40,000, 3% COLA pension at 55 YO, plus SS. Let's compare that to a typical corp pension - a corp pension would have a FRA of 65 and be cut in half at 55 YO. So that makes your $40,000 equivalent to an $80,000 corp pension. And a corp pension is typically zero COLA, and a COLA pension is worth ~ 2X what a non-COLA pension is, so that doubles your pension again to.... $160,000 annually. Plus SS.

Now, is it still so puzzling that the public might have a little push-back to having their taxes raised to cover those kinds of pensions that they don't get, in hard economic times?

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