Illinois Pension Reform

[youbet]

Ah, you're right. I re-read the article MB linked, $25,000 was their example number. The cap is $1,000 for each year of service. And I left out the detail that the $1,000/year is increased 3% each year. Is that right?

Nope. But I give you credit, you get closer and closer with every iteration!

But not for existing retirees. right? I didn't see that in the article MB linked, but maybe another source has that?

According to a TRS report issued this morning, a retiree receiving the average pension lost 18.6% of the value of the pension they will receive over the next 20 years. So, a significant haircut for the typical Illinois retiree.

Also agree. My daughter is an IL teacher in the 2011 plan. Even though she is in the higher demand STEMs arena (Math specifically), graduated with high honors from U of I Champaign, and had excellent experience and references and presents herself well - she really had to compete for the jobs she got. They clearly did not need to offer the previous level of generosity in pensions to attract talent, and it was fiscally irresponsible to do so. And as you say, if the market gets tight for workers, raise salaries if needed. That's transparent and no future promise concerns.

Actually, they absolutely did need to offer the Tier II pension to your daughter. But not as an incentive for her to accept the job. The system needs her pension contribution NOW to stay afloat! Did you note that while they mandated your daughter contribute to a Tier II pension, there is no particular likelihood they'll actually pay her that pension as it is currently structured? Why should they? The precedent has clearly been set. But the flow of contributory dollars from the paychecks of new Tier II employees, like your daughter, is essential. The need to pay her a pension later, not so much.

Your daughter has a huge advantage. She is witnessing the fact that while having pension contributions deducted from her paycheck is mandatory, there is no likelihood that she'll ever be paid, at least not paid based on the terms she thinks are in place. Therefore she can quickly and easily build alternative retirement financing schemes and have no issues down the road. Current retirees, as compared to new Tier II hires, were blindsided. Most naively thought their pensions were "guaranteed." It kind of reminds me of the concept of having a "guaranteed" annuity.

Maybe the detail that I'm missing is that would be age 65 for a plan terminated in 2013. So it's not just the year they retired to consider, but the termination date of the plan.

Yes, that's it. You miscomprehended the clear statement by the PBGC that the PBGC's caps refer to the age of the employee/retiree when the pension plan is terminated or the company is declared bankrupt. It does not refer to the employees age at retirement.

 

[haha]

Your daughter has a huge advantage. She is witnessing the fact that while having pension contributions deducted from her paycheck is mandatory, there is no likelihood that she'll ever be paid, at least not paid based on the terms she thinks are in place.

So if I understand your paradigm, this "contribution" should be compared to protection money a small storeowner pays to be allowed to stay open, or the finder fees the Chinese worker from the countryside pays to all the middlemen who stand between her and the job.

You pay it, or someone else will. If you don't pay it, you will not work.

Good racket for whoever can get on the right side of it.

Ha

 

[youbet]

So if I understand your paradigm, this "contribution" should be compared to protection money a small storeowner pays to be allowed to stay open, or the finder fees the Chinese worker from the countryside pays to all the middlemen who stand between her and the job.

You pay it, or someone else will. If you don't pay it, you will not work.

Good racket for whoever can get on the right side of it.

Ha

Well, the pension contribution is mandatory and is turned over to Illinois politicians. (Oh boy..........) They tell you that you are paying for some retirement benefit, "X," to be paid as an annuity in the future and under certain conditions regarding age, years employed, etc. You must make the pension contribution as a condition of employment. They are free to change the benefit "X" or the conditions under which it is collected as they wish in the future. The public supports this since the pension promise is substituted for a portion of wages in a compensation package. But, unlike wages, the pension doesn't necessarily have to be paid or can be paid at a steep discount.

This is similar to how SS works. Today's workers are paying in to finance today's retirees' SS checks. There is no particular reason to believe that SS will be there, in today's terms, for today's workers when they retire. But because the fed gov't works within a two party system there is some competition for votes and much more transparency, SS reductions seem to be slower in coming.

 

[haha]

I'm really working to try to see how you could interpret my words the way you did. I don't get it....... Perhaps your own agenda........

The pension contributions that Illinois employees pay today are needed to fund the pension funds and keep them from going broke. But the pension terms they are working under may or may not be the terms they retire under. They may receive less than is currently the documented plan. This is just how SS works. Today's working are paying in to finance today's retirees' SS checks. But, there is no particular reason to believe that SS will be there, in today's terms, for today's workers when they retire.

It has nothing to do with any agenda of mine. I completely agree with you that this is also how SS works. You pay, or you don't work; you don't work and you don't make a living. You are paying to be allowed to hold one of these jobs. I see it as being almost identical to the two examples I gave. I have little interest in state and municipal pensions other than as a taxpayer, but I am interested in SS. And they have made it completely clear that though I had to pay, they don't have to pay me.

How is this different? Or maybe I do not understand what you have explained about the new IL state pensions?

Ha

 

[youbet]

It has nothing to do with any agenda of mine. I completely agree with you that this is also how SS works. You pay, or you don't work; you don't work and you don't make a living. You are paying to be allowed to hold one of these jobs. I see it as being almost identical to the two examples I gave. I have little interest in state and municipal pensions other than as a taxpayer, but I am interested in SS. And they have made it completely clear that though I had to pay, they don't have to pay me.

How is this different? Or maybe I do not understand what you have explained about the new IL state pensions?

Ha

We cross posted. I reconsidered my reply and have edited what I previously posted. Yep, SS or Illinois pension contributions (probably others too) are just current taxes you pay in order to have the job. Any future benefit is unrelated to what you're paying in now and subject to the whims of the politicians and the public.

 

[misanman]

This discussion almost makes me happy I'm not entitled to a pension.

 

[ERD50]

Nope. But I give you credit, you get closer and closer with every iteration!

Am I a contestant on a game show? I'll take Door # 3, Monty!

So I guess you are referring to the next clause "In addition, all COLA would be eliminated for one to five years for current state workers (not retirees), depending on their age"

I wasn't focusing this on those not retired yet, that's why I skipped it.

But not for existing retirees. right? I didn't see that in the article MB linked, but maybe another source has that?

According to a TRS report issued this morning, a retiree receiving the average pension lost 18.6% of the value of the pension they will receive over the next 20 years. So, a significant haircut for the typical Illinois retiree.

A little cryptic. Is this 18.6% reduction a calculation on the average effect of the COLA cap? Then we've already talked about it.

-ERD50

 

[jon-nyc]

Well, the pension contribution is mandatory and is turned over to Illinois politicians. (Oh boy..........) They tell you that you are paying for some retirement benefit, "X," to be paid as an annuity in the future and under certain conditions regarding age, years employed, etc. You must make the pension contribution as a condition of employment. They are free to change the benefit "X" or the conditions under which it is collected as they wish in the future. The public supports this since the pension promise is substituted for a portion of wages in a compensation package. But, unlike wages, the pension doesn't necessarily have to be paid or can be paid at a steep discount.

That seems too cynical. The benefit is worth far, far more than what the employees paid in, is it not? Even if this cut survives legal challenges won't that still be the case?