Illinois Public Pensions

[youbet]

Didn't see you posted while I was typing, so let me add a comment to this one.

Interesting that you describe this as 'the biggest impact', as there is also a lot of push to raise the SS max so that high income people keep paying SS taxes. I gotta wonder if that was in the back of their minds when they wrote that? Could be that 'the biggest impact' goes bye-bye? Then we are not left with much reform, are we?

No, it won't go bye-bye, at least as currently written. The max of $106.8k is the beginning point. It DOES NOT increase with increases of the SS max, but rather increases at a rate pegged to inflation. I think it's 50% of the GPI. Fed legislation to increase the SS max will not change this. This plan, left unchanged, makes the highly compensated folks subject to the same kind of restraints that highly compensated folks working under SS have.

To the extent that it is a small step, I'm glad they are doing at least something. But since it seems like too little, far too late, I hope they don't pat themselves on the back and act like the problem is solved.

As another poster mentioned, Illinois was being considered for a hit in its credit rating by a rating agency and something had to be done to show a "good faith effort" to control the situation to avoid the credit rating reduction. But clearly, there are no close-in savings for the state budget. Just some trimming back of benefits to make the state pension system look more like SS in terms of salary caps and FR age and to make spiking more diffcult/expensive for the various gov't agencies to pull off.

As mentioned before, I was glad to see the legislators included themselves and judges in this reform. Of course, I understand the current legislators will likely be long gone, probably dead, by the time the changes kick in.

 

[Spanky]

Maybe that helps explain some of the frustration from some of us. Oh, and I do think you are a bit guilty of painting with a broad brush also. As some have already mentioned, I don't think that most of us are mad at the people collecting the pension, but we are mad that our rulers have put us in this position. And frustrated.

-ERD50

ERD50,

I definitely share your frustration. Some countries such as Spain have alrady announced plans to reduce government pension obligations in an effort to reduce debts. It would not be surprising that others, i.e., US, will follow suit.

 

[Spanky]

The new retirement plan is still a good deal compared to SS or most private employer plans.

therein lies the problem: the public pensions will eventually bankrupt the system as contributions do NOT cover the cost of pensions.

 

[clifp]

You're writing (italics) as if dollars are going from the pockets of current employees directly into retiree's pension checks, same as current workers' Social Security taxes are being paid out in current SS benefts. I don't know how the Illinois state system is set up, but the City Retirement system here is nothing like that, and I don't know about "most local" pension systems, but in the City Employees' retirement system here, the maximum pension benefit available is 60% of your best two years' base salary, less than that if you have under 30 years of service. I'm not complaining, but it's hardly the "full income after 25-30 years" you claim public retirees are getting. Not only that, very few people are eligible for the maximum benefit at 50. You'd basically have to get hired straight out of high school—or at a pinch right after Junior College or a two-year stint in the military (if there is any such thing any more)—to have 30 years in by that age.

ISTM a lot of people on this board assume that all public employees are getting these gold-plated pensions, at very young ages, and that just isn't true. But what I'd really like to know is, since when are you the arbiter of how long people should have to work, whether in public or private employment? If private companies or government entities agree with their employees to set up a retirement benefit, who asked you whether it's overly generous? IMO, that's up to the actuary (i.e. is the funding mechanism adequate to pay the promised benefits) and the auditor (are the contributions being made as promised) to decide, not you.

I don't claim to be an expert about all private pension plans and I am certainly not arbiter of how long one should work especially retiring at very early age like I did.

However, I have been highlighting the financial troubles of public pension plans for several years and posted links and discussions from the NY Times, Washington Post, and WSJ. Most recently my favorite new study is from the Pew Center from the States. The first sentence tells most of the story.

$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises

Now $1 trillion dollars equal $8K/household in the country and for the higher income and considerably higher wealth of this forum our share of this debt, (Which is harder to shift to the next generation since state and cities can't print money) is probably $20K/forum member. Which makes it pretty darn relevant.

I've discussed how the problem could be even worse because the typical 7.5-8.5% projected growth for public pensions fund's assets wouldn't be allowed for private funds and is likely to be overly optimistic. Right now if long term fixed income is ~5% (VBLTX) with a 50/50 AA, this implies fixed income delivering 2.5% returns leaving the equity half to deliver 10-12%. A person coming on the forum saying I need my equity portfolio to grow at 10-12% would not be met with "your doing great, retire now from the forum members". Why should public pension funds getting a better reception? There have been articles saying that in the search for higher returns that public pension funds are swinging for the fence and going after alternative investments (e.g. hedge funds) and higher equity percentages. Of course going for a home run means lots of strike outs,

But most of all I've encouraged people to look at the annual reports of their own state and local pension and apply common sense metrics like we use in the forum to judge retirement feasibility.

So lets look at what you said about your city pension fund a couple of years ago.

I had the numbers all written up for the City of Seattle employees' pension system, but I must have zigged when I should have zagged because I hit preview and my post disappeared.

It's too late to look it all up again, but the best I remember the numbers were as follows:
total assets about $1.79 billion
number of active members about 8300
number of retirees 5011
average value +/-$357K
per retiree +/-$255K

All of which sounds really nice until I reveal that these are the figures from 2006. The most recent annual report posted on the System website is 2007 and I couldn't find the number of active members for that year so I had to go back one more. The fund operated in the red for three years, IIRC 2000-2002, due to the tech bubble, but by 2006 it was nicely getting its legs back under it, and by 2007 the funding level was up into the high 90's and the "floor" was increased: pensions are now guaranteed to retain 65% of their original purchasing power (the floor had been 60%). Then came last year. The fund lost almost 27% of its value in 2008. It dropped from a funding level of 86.96% as of February 29, 2008 to 63.06% as of Nov. 30, 2008 (as reported in the March 09 minutes of the Retirement Board, the most recent ones available), but I bet that wasn't the worst of it—the Dow lost another 2200 points or so between November and March and I'm sure that didn't help matters any. A couple of other relevant numbers: each employee puts in 8.03% of salary, which is matched by the City. The assumed growth rate of the fund is 7.75%

So using you old numbers 357K/retiree at 4% SWR (partially COLAed) = $14,280. We could also annuitized $357,000 which would provide a pension of $17,076 for a 60 year old retiree or $20,128 for a 65 year old. Now note these payments can only made by seizing all of the contributions of existing Seattle workers.
Oh BTW, I looked at the latest Seattle numbers. The pension fund value has dropped $1.62 Billion you've added a few hundred new retirees. (In Jan 2010 15 folks retired 1 died) and the pension fund is < %63 funded.

Seattle workers and the City of Seattle contribution (8%) is virtually the same as Social Security. We all know of Social Securities future (current?) problems. Yet Seattle allows workers to retire much earlier, with higher benefits. Do you still want to contend that your pension plan isn't using the current contribution of worker to pay retiree benefits.? From what I've seen Seattle is a pretty typical pension fund.

Severely curtailing the future pension benefits of state and local worker like they were forced to do in Illinois, is good first step. I am not sure it is enough.
It is going to require sacrifice on the part of taxpayers, current workers, and current retireers the sooner we recognize this fact the better off we will be.

 

[Spanky]

It is going to require sacrifice on the part of taxpayers, current workers, and current retireers the sooner we recognize this fact the better off we will be.

Why should they have to sacrifice?

 

[clifp]

Why should they have to sacrifice?

What is the alternative? The top 100 billionaires in the country all giving most/all of their money to state and local governments? States and cities filing for bankruptcy?

 

[ziggy29]

Why should they have to sacrifice?

It's my feeling that when there is a big mess, everyone with a stake in it needs to be willing to each give a little bit to collectively change a lot. No one -- taxpayers, current pensioners, those working and paying into the system -- should reasonably be expected to shoulder all the burdens of fixing it.

Frankly, if I were a taxpayer in a state or local government with a huge pension mess, I'd be a lot more willing to allow my taxes to be raised to fix it if I knew it would also mean that the plans would cease (or at least become much more fiscally sane and sustainable) for new hires. The more those who would benefit from insolvent pension plans try to say the taxpayer should suck it ALL up and endure 100% of the "pain", the more this taxpayer would fight it. The more they were willing to meet the taxpayer part of the way, the more I'd support reforms even if it meant a (hopefully) one-time tax hike to shore up the plans for those already depending on them. But we can't keep making a bad situation worse by adding more new hires into already unsustainable benefit plans!

The inability to agree to "shared sacrifice" is a big reason why so many entitlement plans -- particularly those related to retirement, be it SS, Medicare and public pensions -- keep looking at problems that are bigger and bigger and harder and harder to fix as time goes by without consensus on how to collectively make the sacrifices we all need to make to fix it. Everyone seems to say all the *other* stakeholders need to endure all the pain... but leave me alone! And the more we are paralyzed from action because some groups won't agree to their share of the pain, the worse it gets for ALL of us down the road.

 

[Bimmerbill]

I've seen quite an increase in negative news/web articles dealing specifically with federal employees (I'm one, so I keep an eye on this stuff). Seems like the public sector is the new whipping boy.

I expect the public to be worked up into a frenzy, and to be "punished" as a result. Pay freezes, changes in benefits, etc. Sure, that's happening in the private sector, but I dislike the race to the bottom.

Trouble is, once we are "taken care of" who is next?

As far as pensions: has anyone looked at the benefits of retired people living on pensions? They probably are not sucking up gov't bennies at the rate of those living in poverty. They are probably more self sufficient, less draining on society? Pay more taxes, etc.

Is there a way to measure that? Does that offset the upfront cost?

 

[utrecht]

therein lies the problem: the public pensions will eventually bankrupt the system as contributions do NOT cover the cost of pensions.

Statements like this one are what boil my blood. "Public pensions" will not bankrupt the system. There is nothing inherent in a public pension that makes it evil just by its mere existence. The problem is that many of them are run by fools and many of them have unrealistic rules governing the payouts.

My pension fund (Dallas Police and Fire Pension) is thriving and at some point in the near future (10 years maybe?), the percentage that the City contributes will be lowered.

Saying all public pensions are bad just because some of them are and they are the ones making news, is like saying all <insert race here> are bad just because some of that race are bad and those thugs are the ones who make the news.

 

[ziggy29]

I've seen quite an increase in negative news/web articles dealing specifically with federal employees (I'm one, so I keep an eye on this stuff). Seems like the public sector is the new whipping boy.

Unfortunately, they are barking up the wrong tree if they are targeting their outrage at federal employees.

Since FERS, federal employee retirement benefits aren't the bank-breaker they used to be. Frankly I think if state and local governments would have followed suit and went more toward the FERS model over the last couple of decades, many of the bigger messes would be in much better shape.

It's not the pension per se, it's the overpromising. If you don't overpromise by assuming unrealistic long-term rates of return, you're not going to run into many underfunding crises because the current-year, pay-as-you-go employee and employer contributions to the fund are much more likely to be adequate to meet the promised benefit down the road.

I will agree with some of the "pension defenders" here that there can be a tendency to attack all public pension plans instead of just the overpromising, unsustainable ones run by idiots and politicians buying votes -- and that is a shame. There's no reason why anything needs to change with the plans that are solvent and which make prudent assumptions about the future, especially if the total compensation (wages plus benefits) are inline with the private sector overall.

I think the timing of these pension plan blow-ups -- being concurrent with all the bailouts, making many people feel like *everyone* is getting bailed out of a jam except for them -- probably hurts sentiment as well, as many people are weary of seeing more tax dollars go to everyone but them (or so it feels like). And it does make us lose sight of the ones that are prudently run in a fiscally sound and sustainable way.

 

[Spanky]

I've seen quite an increase in negative news/web articles dealing specifically with federal employees

The blame goes to the policy makers (not the federal employees).

 

[clifp]

Over the course of the last couple of years I've done back of the envelope calculation on about a dozen pensions. For everyone like Leonidas's police pension that was properly funded (and even his plan assumed a fairly optimistic projections of future) I've seen 3 or 4 that were woefully underfunding. And this is using balances typically from June of 2008 before the worst of the crash. Who knows what the funds did during Oct 08 and Mar 09.

Go back and read the Pew Report I linked earlier and tell me why when it says that only 4 out 50 states have properly funded pension we shouldn't be concerned and why a trillion deficit isn't big a deal.

The actuarials who calculate the financial health of pension plans have to make many projections, regarding inflation, pay increases, life expectancy etc. Very often things like future returns are mandated (like in my state) by the state legislator. You really have to dig deep to see the tricks they play with pension funds. The thing that can't be fudged is to look at the funds assets, the number of people paying in, the number of retirees/beneficiary, their average benefits and do some per person calculations.

Utrecht you say your pension is in good shape,. Being a Texas I suspect you are right. Still in your case if you took the money in the fund and turned into an SPIA how much would the average retiree be able to collect is that more or less than the average person is receiving now?

Finally, like Ziggy my complaints are not about Federal pensions. For a change Uncle Sam is doing thing right when comes to retirement. A modest pension with a minimum retirement age, and a significant financial penalty for taking an early retirement, a best in class 401K plan (TSP), social security, and good education program. IMO all states and local governments and most private corporation would do well to emulate how the Uncle Sam provides for the retirement needs of its worker in a fiscally responsible way.

 

[Nords]

Over the course of the last couple of years I've done back of the envelope calculation on about a dozen pensions. For everyone like Leonidas's police pension that was properly funded (and even his plan assumed a fairly optimistic projections of future) I've seen 3 or 4 that were woefully underfunding. And this is using balances typically from June of 2008 before the worst of the crash. Who knows what the funds did during Oct 08 and Mar 09.
Go back and read the Pew Report I linked earlier and tell me why when it says that only 4 out 50 states have properly funded pension we shouldn't be concerned and why a trillion deficit isn't big a deal.

I'm encouraged that the pension-accounting system has been changed to require proper assessment of pension funding. 10-15 years ago no one was even officially required to recognize that a problem existed, let alone do anything about it...

The "awareness" step is nearing completion, and now all those unwieldy bureaucracies can begin lurching toward a solution.

 

[haha]

What is the alternative? The top 100 billionaires in the country all giving most/all of their money to state and local governments?

That is what the governments, retirees and current workers implicitly endorse.

What none of them realize is that these wealthy people can go anywhere. Almost any country will roll out the red carpet for them.

Ha

 

[utrecht]

I realize that this is a hot subject right now, but do you seriously believe that "governments, retirees and current workers" implicitly endorse that the top 100 billionaires in the country give all/most all their money to the govt?

That's just plain dumb.
Is there even 100 billionaires in the country?

 

[ERD50]

I realize that this is a hot subject right now, but do you seriously believe that "governments, retirees and current workers" implicitly endorse that the top 100 billionaires in the country give all/most all their money to the govt?

That's just plain dumb.
Is there even 100 billionaires in the country?

Don't take it so literally. In the broader sense, 'tax the rich'.

Does "increase taxes on those making over $250,000 per year" ring any bells?

-ERD50

 

[kyounge1956]

This common defensive rebuttal breaks down on scrutiny, IMO, for a couple of reasons.

1. The big pension benefits only come with longevity. Those of us in our 40s don't have time to get a big enough pension to make it worthwhile.

2. Some of us *did* choose a job with a pension and retiree health insurance in our 20s. I did. Problem is, retiree health insurance was taken away completely and my pension was frozen as puny levels. (Still want to talk about reneging on promises?) Is that somehow my fault for making a bad career/employer choice, keeping in mind this was in 1987? So are you saying I should have seen this coming in the private sector but knew governments wouldn't follow suit? That's a lot to ask of someone who was 22. And by the time these things were taken away, I was over 30 and lost 10 critical years toward building a killer set of retirement benefits based on longevity.

3. It's easy to say "we made our own bed" because we didn't have a crystal ball to see how the perks of private versus public sector would change over the next 20-25 years. Now if I were given the option of having a time machine to take me back 20 years, maybe I'd take you up on that government job offer. But it no longer makes sense given that any pension I could get for 10-15 years of service would be rather small.

I suppose you think it's our fault for not being able to tell the future in the 1980s when choosing careers and employers, and not knowing that by the 2000s the private sector deal would suck more and more compared to government work. If so, then I'm guilty of not telling the future. Fine.

Jealousy? Maybe a little -- or resentment that I had my deal taken away from me and now some of us facing declining real wages and high unemployment are asked to pay higher taxes to secure for others what was taken away from me and those like me. I could just as easily say that what you write smacks of defensiveness even if I don't see anyone here going after the pension benefits of those already hired or retired. I don't understand why those already in the system are so touchy about changing the rules for new hires -- especially if that's part of the way to secure the pensions of those already in the system. I just don't get it. Seems to me that protects taxpayers *and* those already in the system as employees or retirees.

Well since ERD50 has admitted that there was a bit of jealousy I will admit that I was and still am feeling somewhat defensive, maybe not so much about the pension issues themselves as the negative stereotyping of government workers. It's not unfair and inaccurate, just as it would be unfair and inaccurate to characterize all private-sector employees based on the guys who got seven-digit salaries and big bonuses for running the banking system into the ground.

 

[kyounge1956]

This common defensive rebuttal breaks down on scrutiny, IMO, for a couple of reasons.

1. The big pension benefits only come with longevity. Those of us in our 40s don't have time to get a big enough pension to make it worthwhile.

2. Some of us *did* choose a job with a pension and retiree health insurance in our 20s. I did. Problem is, retiree health insurance was taken away completely and my pension was frozen as puny levels. (Still want to talk about reneging on promises?) Is that somehow my fault for making a bad career/employer choice, keeping in mind this was in 1987? So are you saying I should have seen this coming in the private sector but knew governments wouldn't follow suit? That's a lot to ask of someone who was 22. And by the time these things were taken away, I was over 30 and lost 10 critical years toward building a killer set of retirement benefits based on longevity.

3. It's easy to say "we made our own bed" because we didn't have a crystal ball to see how the perks of private versus public sector would change over the next 20-25 years. Now if I were given the option of having a time machine to take me back 20 years, maybe I'd take you up on that government job offer. But it no longer makes sense given that any pension I could get for 10-15 years of service would be rather small.

I suppose you think it's our fault for not being able to tell the future in the 1980s when choosing careers and employers, and not knowing that by the 2000s the private sector deal would suck more and more compared to government work. If so, then I'm guilty of not telling the future. Fine.

Jealousy? Maybe a little -- or resentment that I had my deal taken away from me and now some of us facing declining real wages and high unemployment are asked to pay higher taxes to secure for others what was taken away from me and those like me. I could just as easily say that what you write smacks of defensiveness even if I don't see anyone here going after the pension benefits of those already hired or retired. I don't understand why those already in the system are so touchy about changing the rules for new hires -- especially if that's part of the way to secure the pensions of those already in the system. I just don't get it. Seems to me that protects taxpayers *and* those already in the system as employees or retirees.

It seems you want to ensure that because you got a raw deal, someone else should get a raw deal, too. It seems to me that your quite understandable resentment is aimed, not at the people who wronged you, but at people who have a possibility of getting a good deal, which strikes me as rather odd.

 

[ziggy29]

It seems you want to ensure that because you got a raw deal, someone else should get a raw deal, too.

You would be wrong because I've repeatedly said that only new hires should be impacted by new rules. They know the new rules coming in and can't claim anyone "broke promises" on them. That's not a raw deal. That's adapting to new economic realities.

 

[kyounge1956]

(snip)
So lets look at what you said about your city pension fund a couple of years ago.

Quote:
Originally Posted by kyounge1956
I had the numbers all written up for the City of Seattle employees' pension system, but I must have zigged when I should have zagged because I hit preview and my post disappeared. It's too late to look it all up again, but the best I remember the numbers were as follows:
total assets about $1.79 billion
number of active members about 8300
number of retirees 5011
average value +/-$357K
per retiree +/-$255K

All of which sounds really nice until I reveal that these are the figures from 2006. The most recent annual report posted on the System website is 2007 and I couldn't find the number of active members for that year so I had to go back one more. The fund operated in the red for three years, IIRC 2000-2002, due to the tech bubble, but by 2006 it was nicely getting its legs back under it, and by 2007 the funding level was up into the high 90's and the "floor" was increased: pensions are now guaranteed to retain 65% of their original purchasing power (the floor had been 60%). Then came last year. The fund lost almost 27% of its value in 2008. It dropped from a funding level of 86.96% as of February 29, 2008 to 63.06% as of Nov. 30, 2008 (as reported in the March 09 minutes of the Retirement Board, the most recent ones available), but I bet that wasn't the worst of it—the Dow lost another 2200 points or so between November and March and I'm sure that didn't help matters any. A couple of other relevant numbers: each employee puts in 8.03% of salary, which is matched by the City. The assumed growth rate of the fund is 7.75%

So using you old numbers 357K/retiree at 4% SWR (partially COLAed) = $14,280. We could also annuitized $357,000 which would provide a pension of $17,076 for a 60 year old retiree or $20,128 for a 65 year old. Now note these payments can only made by seizing all of the contributions of existing Seattle workers.
Oh BTW, I looked at the latest Seattle numbers. The pension fund value has dropped $1.62 Billion you've added a few hundred new retirees. (In Jan 2010 15 folks retired 1 died) and the pension fund is < %63 funded.

Seattle workers and the City of Seattle contribution (8%) is virtually the same as Social Security. We all know of Social Securities future (current?) problems. Yet Seattle allows workers to retire much earlier, with higher benefits. Do you still want to contend that your pension plan isn't using the current contribution of worker to pay retiree benefits.? From what I've seen Seattle is a pretty typical pension fund.

Severely curtailing the future pension benefits of state and local worker like they were forced to do in Illinois, is good first step. I am not sure it is enough.
It is going to require sacrifice on the part of taxpayers, current workers, and current retireers the sooner we recognize this fact the better off we will be.

One slight correction, that post wasn't from a couple of years ago. IIRC it was from last fall sometime, but since the March 09 minutes were available at the time, it could not be any more than a year old. The info on the pension fund website was seriously out of date when I looked it up.
It's absolutely true that the Seattle employees' pension fund got its teeth kicked in last year. More info has been added to the website since I wrote that comment and at one point the funding level was down to about 56%. I thought it had recovered to just over 63% the last time I checked but it is certainly not back up to 65% yet. This is the worst hit the pension fund has had since at least the 1980s and I wasn't able to find any info before that. It may be the worst ever.

As for not paying current benefits out of current contributions, I was thinking of the shortfall as being made up by spending down principal, just as a retiree who took more than the year's income out of an individual portfolio would be doing. But since the current employees' contributions are going into the principal balance, maybe that is splitting hairs—a distinction with no real difference.

Sacrifices are quite possibly in the works already. There is a provision in the contract for my union (and I expect for other nions as well) that if the pension is underfunded the percentage of salary deducted from employees' paychecks can be increased, with the City match remaining equal to employee contribution. I think that's quite likely to happen, given the huge hit the fund took last year. I think, but I am going by memory, that the fund's growth rate assumption may have been revised downwards as well, which means any increase in contributions will have to continue longer than it would have otherwise, to get back to 100% funding. The Board has also voted to change the actuarial table used to calculate funding adequacy and employee benefits. Those changes are going into effect later this year, but I haven't been able to get any specifics yet. I would assume that a more recent actuarial table will reflect longer lifespans and hence any change in benefits will be a reduction. It makes sense to update the info used to calculate benefits and funding adequacy, but I suspect that if the reduction is significant, the change of tables may possibly precipitate a large-ish number of immediate retirements to beat the cut-off date—maybe prompting exactly what the fund doesn't need at this point.

 

[ERD50]

Well since ERD50 has admitted that there was a bit of jealousy ...

Just to be clear, what I said was ... Maybe I am a bit 'jealous', and the rest of that line was meant to say 'who knows if I ended up better/worse off overall?' ... So I really don't feel that I am jealous at all when I look at the total package, but I left the 'maybe' in there since it can be hard to measure our own emotions, we are just too close to it.

It seems you want to ensure that because you got a raw deal, someone else should get a raw deal, too. It seems to me that your quite understandable resentment is aimed, not at the people who wronged you, but at people who have a possibility of getting a good deal, which strikes me as rather odd.

This is where you seem to be misunderstanding our views. When MegaCorp was cutting my benefits, I didn't look at it as 'being wronged'. I saw that it was a reflection of economic realities. Sure, I didn't like it, and it is easy to point out X,Y,Z failure of management to steer the ship better so that we wouldn't be in the economic mess, but the situation was what it was. If I didn't like it I could look for greener pastures.

This is the reality that IL (and other states) finds themselves in. They need to fix it. No way will everyone be happy. And I can think of no reason why any one group should be isolated from that reality.

-ERD50

 

[ERD50]

Originally Posted by kyounge1956 View Post
It seems you want to ensure that because you got a raw deal, someone else should get a raw deal, too.

You would be wrong because I've repeatedly said that only new hires should be impacted by new rules. They know the new rules coming in and can't claim anyone "broke promises" on them. That's not a raw deal. That's adapting to new economic realities.

I'll go further than ziggy and say that I don't have a huge problem with some changes to current employees if needed. The closer you are to retirement the less the changes should be. And if the employees don't like the total compensation package, they can do the same as any other employee - look for something better.

It happens in the private sector, why should public sector employees be insulated from this, if it is indeed an economic reality? One alternative is raise the state sales tax, and that effects me - I don't get to say "Hey, only charge that increased tax to people who moved to IL or were born after that date?". I dunno, sounds like a lot of 'one way street' talk to me.


-ERD50

 

[ziggy29]

I'll go further than ziggy and say that I don't have a huge problem with some changes to current employees if needed. The closer you are to retirement the less the changes should be.

I believe that's pretty much guaranteed to happen because federal pension laws don't allow any cutbacks to *already earned* pension benefits. So someone who has already accrued 20 years under the terms of the pension plan before the changes have already "locked in" a lot more than someone who worked only 10 years under those terms. You could cut future accrual of benefits, you could even freeze the pension entirely, but you can't take back what they've already earned.

Which is why, even after Megacorp froze my pension and stopped offering any to new hires, I'll still have a whopping $630 a month waiting for me in 2030 if I start collecting at 65 (not adjusted for inflation) -- I had already earned that much benefit when they froze the pension and they can't take it away. By 2030 I suspect $630 will buy a gallon of gas! Still, it's better than nothing. And it wouldn't surprise me if they offer to "cash me out" shortly before I turn 55 (earliest eligibility date).

 

[clifp]

A few more thoughts.

Kyoung you are right yur post was from last fall. I have been posting about pensions for a several years and I've just become more vocal as the recession has made bad problem really worse.

According to Forbes 40% of the 1000 odd billionaire live in the US. A quick perusal of the wealth of the top 100 US Billionaire looks like we could solve the state and local pension by simply taking most of their money. Although even that wouldn't solve the problem if portfolio returns drop to the 5-6% range as I fear.

It is really pointless to talk about who's fault this is. Ultimately We the People elected the politicians (or didn't work hard enough to elect the other guy) who made unsustainable promise about future benefits. Public sector perhaps deserve a bit more "blame" for electing union official focused so much on increasing pension benefits. But even the public employee union guys were just doing their job.

We haven't seen a financial crisis like this one of almost 80 years so I can't blame us for not see it coming. However, as Buffett says when the tide goes out you can see who is swimming without bathing suits. The great recession was a financial earthquake, and in addition to crumbling shaky financial institutions, it also caused a Tsunami who's impact won't be felt for several years. Right now the water has rushed out revealing all of the naked pension plans. I really don't see an alternative to getting bathing suits for many pension plans in the intermediate term. In the long term we need to ensure the foundation of of these pension plans is built on concrete and not sand.

 

[kyounge1956]

I believe that's pretty much guaranteed to happen because federal pension laws don't allow any cutbacks to *already earned* pension benefits. So someone who has already accrued 20 years under the terms of the pension plan before the changes have already "locked in" a lot more than someone who worked only 10 years under those terms. You could cut future accrual of benefits, you could even freeze the pension entirely, but you can't take back what they've already earned.(snip)

Where can I find out more about this law? Does changing the actuarial table count as a "cutback" if it results in a lesser benefit for same wages + years of service? About the only thing I've been able to find out about the upcoming changes is that they will go into effect before the end of this year, and from what I've heard so far it sounds like anyone who has not retired by then gets their benefit calculated using the new table only, regardless of how long they have been working for the City. Does what you have written above mean it would be illegal to do that? Is there any requirement for such changes to be phased in rather than applied all at once? And do you know if this law applies to public pension systems? I only found out last month that PBGC does not cover public pension systems. What else doesn't apply to us, I wonder.