Illinois Public Pensions

[kyounge1956]

(snip)Compared to rest of society, public servants are overrepresented on this forum. For the rest of us, we generally have significant saving compared to the rest of the country. Meaning we are actually able to pay of higher taxes without having to make huge sacrifices. So if you detect some anger on this forum you would be right, but I suspect it is nothing compared to what you hear at tea party convention.

To personalize the numbers a bit, I'll have to fork over roughly $30K to properly funded Hawaii's pension plans (10K for the pension and 20K for the completely unfunded medical liability). I actually have the money to fork it over, most of my fellow citizen don't. 30K *4 SWR=$1,200 or $100/month. Now if you ask me to give up $100/month for the rest of my life, than I think it is entirely reasonable for me to ask you to give up things, like they are doing in Colorado and accept a 2% COLA instead 3.5%.

You say because you would be giving up $100 a month, I (as a prospective public pension recipient) should be willing to give up something too. This is ignoring the fact that government employees and retirees pay taxes just like everyone else.

(snip)
Do you really want to stand by that comment? What % of OR taxpayers are in state pension programs? I won't even go through an example, the flaw in that logic is far too obvious at anything below 100%.

-ERD50

Yes I do. With a single exception, a public employee and a private sector worker will pay the same amount toward a hypothetical future taxpayer-funded bailout (supposing for the moment that they have the same earnings etc). They would both be paying to prop up a system (the public pension or the PBGC) from which they derive no personal benefit. The single exception is a bailout of the system from which one is receiving or expects to receive a pension, and that's a mirror image: either the private-sector employee would be paying to support a public pension system which s/he doesn't participate in, or the public employee would be paying to rescue the PBGC, which doesn't cover public pensions.

The percentage of taxpayers who are in a State pension system is irrelevant IMO. A person is either in the State system or not, and the people who aren't in it include both private sector workers and employees of government entities other than the State. If there were a taxpayer funded bailout of the state system, members of both groups would pay even though none of them are eligible to draw a State pension. Whether public or private sector, they are in exactly the same position as far as the State system is concerned.

 

[kyounge1956]

(snip)I think that FD's point about PBGC is that you should be *glad* that you are not covered by it. As he said, those covered may see reduced benefits , even those already retired and soon-to-be retired. Plus, our companies had to pay into it. We don't end up going to the taxpayers for help if our plan fails, which you are saying is OK for your case.
-ERD50

I might be glad my pension isn't covered by PBGC, if it were covered by something else, but to the best of my knowledge, it isn't. The answer I got from the presenter of the seminar was that the pension is covered by the City of Seattle. I don't know if this means the City is legally required to cover any shortfall, or if it just means "trust me" (and you know what happens every time Indiana Jones tells someone to trust him). I also don't know how typical this is of public pension systems in general—maybe some have some form of guarantee and others don't.

 

[kyounge1956]

Seems to me, then, that it would make more sense for the PBGC to start covering public pensions in exchange for the taxpayers no longer being on the hook for the shortfalls (obviously this would require coordinated changes in state and federal laws). I'm fine with funding pensions on a pay-as-you-go basis where the public pension contribution is part of their compensation package (i.e. pension in lieu of extra pay). What I'm not fine with are the laws which put the taxpayer in position of having an unlimited future liability to "make good" on these pension plans.

Interesting idea, but not one which could be put into effect immediately. Right now as I understand it the PBGC doesn't have the wherewithal to cover the pension systems it's supposed to be covering, let alone a bunch of shaky public ones, and the aforementioned shaky public systems don't have the money right now to start paying PBGC premiums. But for the future I think it definitely has possibilities.

 

[NW-Bound]

I think pension funds simply need to have reasonable and realistic expectations about return.

I am not at all knowledgeable about pensions, having none for ourselves. But several years ago, I remember reading in BusinessWeek about how some private corp pension funds used high return numbers of as high as 10% in their projections. They backed it up with the market performance of the period of 1980-2000, which everyone knows now was a fluke.

It wouldn't matter if they learn to run FireCalc. Let's say that they set up a conservative plan. Then, in good years they would run a surplus. What would happen? They would find a way to increase spending to use it up. Then, come lean years, they would be in trouble.

My own spending fluctuates with the market. But I suspect a pension fund, private or public, would ratchet up outflows in good years, then have a tough time in bad years. Same thing with any governmental budget. Which brings me up to the next point.

Future 'promises' really cause problems, in both the private and public sector.

At a minimum, there should be strict, very conservative pay-as-you-go funding for any future promises.

Talk about promises, what about SS and Medicare? Pay-as-you-go will not work either. An individual would know to bank any surplus in good years to save for rainy days, but I doubt that a collective fund (private or public) would have the discipline to sit on its hands and not ratchet up the pay-out in good years.

 

[ziggy29]

Talk about promises, what about SS and Medicare? Pay-as-you-go will not work either. An individual would know to bank any surplus in good years to save for rainy days, but I doubt that a collective fund (private or public) would have the discipline to sit on its hands and not ratchet up the pay-out in good years.

SS and Medicare are not pay as you go systems. They are like public pensions and prepaid tuition programs in that people pay in today for the promise of being "covered" years down the road. In theory public pensions don't have to be that way, but only if the promised benefits are set at reasonable, sustainable levels that don't require taking on too much risk.

They can ratchet up the benefits in the "good years" all they want as long as they don't expect the taxpayers to make up the shortfalls in the bad.

 

[ziggy29]

It wouldn't matter if they learn to run FireCalc. Let's say that they set up a conservative plan. Then, in good years they would run a surplus. What would happen? They would find a way to increase spending to use it up. Then, come lean years, they would be in trouble.

I remember, not *too* many years ago, when the state of California had something like a $15 or $20 billion surplus. During that time I was screaming up and down that the thing to do was to put it into a rainy day fund so they can use it during a recession so they didn't have to raise taxes or slash spending at the worst time to do either. The recession of the early '90s was still fresh in my mind and all the budget problems that occurred in that downturn.

But no. Every activist wanted the money to crank up funding for their pet programs. Some public unions pointed at it as a reason to give them big raises. Taxpayer groups saw it as a reason to issue rebate checks or cut taxes.

In the end, under pressure it was spent one way or another.

Think they wish they had that money over the last couple years?

 

[Emeritus]

SS and Medicare are not pay as you go systems. They are like public pensions and prepaid tuition programs in that people pay in today for the promise of being "covered" years down the road. In theory public pensions don't have to be that way, but only if the promised benefits are set at reasonable, sustainable levels that don't require taking on too much risk.

They can ratchet up the benefits in the "good years" all they want as long as they don't expect the taxpayers to make up the shortfalls in the bad.

I'm confused by your comment. Medicare and SS are classic PAYG systems. Medicare and SS are taxes and the payments are expenditures. For accounting purposes the government issues "bonds" to the SS system when income is greater than expenses, but it is still taxes and expenditures. They are purely statutory benefits. People harp on the fact that one government bond is as good as another in terms of being paid, which is true, but the benefits are not any kind of legal right.

 

[Rustic23]

Who to cut when Gov. is out of money? Well State Governments are not out of money. Neither is the Federal Government. They are spending more than they are taking in, but they are still taking in lots of money.

It is time government starts to act like a family. If you get laid off, you cut back on the extras, movies, cable, eating out. Government on the other hand threatens to cut essential services, police, fire, release felons from jails. When government has closed all the library, funding for zoos, art, midnight basketball, street cleaning, new construction, reduction of work force, then it may look at pensions. Pensions are, IMHO, a debt owed for work already performed. If a state is going to pay it's bill for asphalt, cement, pens and pencils, it should also pay it's dept for labor. Is any state going back to it's contractors and saying 'Yea we contracted for 1 gazillion for that road, but we don't have a gazillion, so we are only going to give you a bazillion' and there is nothing you can do about it.

 

[Dan]

clifp, in 2004 I retired from public safety into the California Public Employees Retirement System (CalPers) and, although their portfolio balance was recently 200 billion in assets, who knows what may happen to that value in the future. They have crawled back from a few periods of tremendous losses since they began in 1932 and have always recovered well. Under state law, California taxpayers are mandated to fund current retirees' pensions should CalPers fail, unless, of course, the nations entire economy takes a complete dump.

Does the Hawaii pension system, and I suppose most other states' pension systems as well, not have similar protections, within reason?

Article 16, Section 66 of the Texas State Constitution is titled "Protected Benefits Under Certain Public Retirement Systems." Was passed about 4 or 5 years ago. Applies only to systems that are NOT statewide systems.

(e) Benefits granted to a retiree or other annuitant before the effective date of this section and in effect on that date may not be reduced or otherwise impaired.

It states what are NOT benefits....health benefits and life insurance. The AG's office has stated that everything else is considered a benefit, including COLA's, how the benefit is calculated, etc.

Annuitant is anyone who is entitled to recieve an annuity, which is basically anyone who is vested in their pension plan.

And lastly, the provision does not apply to systems covering the police and fire of San Antonio. I don't know why that was put in there.

 

[ziggy29]

Pensions are, IMHO, a debt owed for work already performed.

I'd amend this slightly to say that pension benefits already accrued for prior service is a "debt" owed for work already performed.

I believe federal pension laws already recognize this; you can not take away pension benefits earned for work already performed. But nothing says they can't change the formula for *future* work performed, or stop enrolling new hires into DB plans -- or even terminate the plan completely (unless state law prohibits it). This is why I still have a puny Megacorp pension waiting for me; though they terminated the plan on me, the law requires that I still receive what I already earned up to the day they killed the DB plan.

 

[militaryman]

To be drastic and get the reductions necessary can't an entity (Fed Gov. State Gov or private) simply cut current pay across the board? This would effectively cut pension liabilities as the DB pensions are usually based on average of final several years salary. It would affect those close to retirement less than younger employees because your average would be higher as an employee about to retire. Seems like this would be a back door way of dealing with sky rocketing pension costs as they technically are not changing anything about the retirement system.

Course as a Fed. Employee I would hate to have to see it happen but I also realize that the national debt issue has to be addressed and I would feel alot better about an across the board freeze in all programs and also a cut that would be phased in over the next 5 years.

Say freeze everything in 2011 and cut 1% in 2012 and 2% in 2013 and see where we are at that point. No exceptions... rambling....

 

[youbet]

There is a nuance concerning Illinois public pensions as a part of a total compensation package that seems to be overlooked. Here, and I suppose in some other gov't venues, machine politics dominates. Public employee benefits are not set at a level to provide competitive compensation in order to attract and retain qualified employees. Rather, they are set in "smokey back rooms" in negotiations between machine politicians and stakeholder organizations. There is always a tit for tat flavor to the proceedings and a direct connection between political support on the part of the stakeholder organization to the politicians writing and supporting the legislation that is creating the benefit. Public outrage seems to flare when two things happen simultaneously:

1. State finances falter and tax increases are suggested.
2. The level of employee benefits as a factor contributing to the budget issue gains some attention in the media.

Laws which mandated more transparency upfront would help keep the public from being "surprised" and politicians from quietly using pension/benefit provisions as payback for political support.

Taxpayers know that if they want competent employees working for them, they have to pay the going rate. But here, some seem to be shielded from the reality that overall compensation levels were set under the guise of what the employees "deserve" or "need" as opposed to what it takes to attract and retain good help.

I'm talking Illinois here...... I'm sure many gov't employers don't run things the way they are here, although it seems like most states are having budget trouble at the current time. The fact that Illinois legislators have actually legislated reform to make future pension benefits more congruent with anticipated future revenue streams and the requirements of attracting future employees is a change I wasn't expecting.

Concerning Illinois public employees and FIRE, it seems the tools will still be in place for future hires to get to the promised land........

 

[utrecht]

Lets have some happy news for a change. My pension plan was just named "Mid- sized Public Pension Fund of the year".

 

[REWahoo]

Sorry utrecht, no positive pension news permitted on this thread...

 

[Nords]

Lets have some happy news for a change. My pension plan was just named "Mid- sized Public Pension Fund of the year".

What did it do to achieve that recognition?

Or did it recently drop out of the "Large Public Pension Fund" class?

 

[Rustic23]

looks like Houston is going after health care cost:

Mayor Parker increases insurance premiums of city retirees | Houston & Texas News | Chron.com - Houston Chronicle

 

[youbet]

Lets have some happy news for a change. My pension plan was just named "Mid- sized Public Pension Fund of the year".

Oh OK, if you insist on happy...... then let's try a little happy.....

Is this it?

http://www.moneymanagementletter.com/articleFree.aspx?ArticleID=2361808

 

[samclem]

Oh OK, if you insist on happy...... then let's try a little happy.....

Is this it?

Mid-Sized Public Plan of the Year

From a portion of the linked article:

Dallas returned -4.2% for the year ending Sept. 30. The average return for public funds with assets greater than $5 billion was 0.51% for the same period.

The Vanguard 2030 target fund (I picked it at random, figuring their investment horizon might be close) had a total return of -.04% for the same period. Those pension funds are getting a great deal when they hire these investment geniuses.

 

[utrecht]

Nice job of editing an article to slant it the way you want it to sound. Heres the entire paragraph.

"Dallas returned -4.2% for the year ending Sept. 30. The average return for public funds with assets greater than $5 billion was 0.51% for the same period. Keith Stronkowsky, a senior analyst at NEPC, said returns for the fund's allocations to private equity and real estate lag by at least a quarter. He added that the numbers for both asset classes and the fund's short-term performance will be more in line with the run up in the market next quarter"

Quite a bit more positive than when you only clip certian parts of the statement.

Besides, why is the person who wrote this article that you are commenting on, comparing the Dallas Police and Fire Pensions number to the avg return for public funds with assets greater than $5 Billion? The Dallas Police and Fire Pension Fund has less than $5 Billion in assets. Typical bad reporting.

 

[samclem]

Quite a bit more positive than when you only clip certian parts of the statement.

I'm not seeing the difference. The Dallas fund had returns lower than anyone could have gotten by just buying the Vanguard Target 2030 fund. Maybe that's something to brag about, I don't know. That's all I was pointing out. BTW, do you know if the returns they are citing are before or after their advisory fees and other expenses?

 

[utrecht]

No, I dont know. I didnt quote any returns. You did. I have no idea if those figures are correct or not, especially since the author already made one glaring mistake.

Where did you look up the returns for the Vanguard fund listed by budget year (ending in Sept)? I cant even find quarterly returns listed on Morningstar anymore.

The point of my original statement was that my pension fund is doing better than most others. Not that the advisros are geniuses. I have no idea why all pension funds dont just invest like most of us do and index everything. I'd be willing to bet that pension funds wouldnt be in anywhere near as bad shape as they are if they all just indexed everything in a standard 50/50 mix.

 

[utrecht]

Looks like Ive found some more selective comparison in the returns you listed. Vanguard 2030 started in mid 2006

2008
Dallas Police Pension returns....-24%
Vanguard Retirement 2030.......-32.9%

2007
Dallas Police Pension returns.....10.7%
Vanguard Retirment 2030..........7.5%

 

[samclem]

Where did you look up the returns for the Vanguard fund listed by budget year (ending in Sept)? I cant even find quarterly returns listed on Morningstar anymore.

I didn't find it pre-canned. I went to the Vanguard site for the fund and they list the quarterly returns. I just started with $100 and multiplied by the successive quarterly returns ending 12/08, 03/09, 06/09, and 09/09.

I'd be willing to bet that pension funds wouldnt be in anywhere near as bad shape as they are if they all just indexed everything in a standard 50/50 mix.

Agreed.

 

[utrecht]

Lets take it a bit farther:

2008
Dallas Police Pension....-24%
Vanguard 2025...........-30.05%
Vanguard 2030...........-32.9%
Vanguard 2035...........-34.66%

2007
Dallas Police Pension....10.7%
Vanguard 2025.............7.6%
Vanguard 2030............7.5%
vanguard 2035.............7.5%

2006
Dallas Police Pension.....16.8%
Vanguard 2025..............13.24%
Vanguard 2035.............15.2%

2005
Dallas Police Pension......10.3%
Vanguard 2025...............5.45%
Vanguard 2035..............6.3%

2004
Dallas police Pension.......14.77%
Vanguard 2025...............10.11%
Vanguard 2035...............11.95%

It looks like my pensions funds advisors beat the Vanguard geniuses hands down. At least in this short time span comparison. At least its a longer time frame than the one data point mentioned in the article you quoted.

 

[samclem]

It looks like my pensions funds advisors beat the Vanguard geniuses hands down. At least in this short time span comparison. At least its a longer time frame than the one data point mentioned in the article you quoted.

That sounds great for you, it's extra money in the account if their performance keeps up.