Illinois Public Pensions

[Spanky]

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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]

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Originally Posted by 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.

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]

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Originally Posted by clifp 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]

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Originally Posted by 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?

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]

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Originally Posted by ziggy29 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]

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Originally Posted by ziggy29 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]

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Originally Posted by kyounge1956 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]

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Originally Posted by clifp (snip) So lets look at what you said about your city pension fund a couple of years ago. Quote: 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]

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Originally Posted by kyounge1956 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.

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Originally Posted by kyounge1956 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]

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Originally Posted by ziggy29 Quote: 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]

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Originally Posted by ERD50 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]

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Originally Posted by ziggy29 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.

[retiredncolorado]

I know this thread is related to the Illinois pension plan. But wanted to provide some info from another state.

I am new to the forum but interested/affected by changes to DB plans. I am a retiree from the Colorado Public Employee Retirement Association. Our retirement plan has had some substantial setbacks due to changes in the market and the overall historical funding level. We have a ruling from the state attorney generals office that states that people with vested benefits have a state and federal right to receive benefits, and that these benefits cannot be changed. Well, shortfalls in billions have a way of affecting legal interpretations. We believed that the state attorney generals ruling garenteed our benefits. But, the governer just signed a bill that changed the COLA amount for current retirees. We had a gauranted 3.5% annual increase that was changed to 2%. The Colorado PERA leadership stated that the COLA was not a benefit, and therefore could be changed. There has been a class action lawsuit filed by the members affected. We will see where this ends, but for now they did change our benefits as retirees. We also received a letter that future changes may happen if required.

Be carefull about what you are being told are constitution rights. The retirees of Colorado believed they were protected.

If you are interested in learning more go to: saveperacola.com for more information.

[kyounge1956]

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Originally Posted by 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.

I don't know how unsustainable the promises really were. The ordinance creating the Seattle pension fund was signed into law in March of 1929, and maybe they've been figuring if the Great Depression didn't bankrupt the fund, nothing will. Maybe they're right, too. With 20-20 hindsight, probably back in the 1970's or so, when all of us baby boomers were graduating from college and entering the workforce, somebody at each pension fund should have smacked their forehead and said "Good heavens! thirty years from now we're going to have a whole bunch of people become eligible to retire all at once, and we'd better figure out now how we're going to pay for their pensions!" But it doesn't really surprise me that it didn't happen. And two big market downturns in less than ten years right before the thirty years were up was just bad luck. Who could have predicted it? And even if all the pension funds had seen what was coming and sold out their stocks, wouldn't that just have made things worse?

The outgoing tide reveals that what was once a pair of respectable swim trunks has dwindled away to a scanty Speedo. But how is it possible to ensure that a fund is, and continues to be, financially sound? AFAIK, unlike some others, Seattle's fund hasn't been (and can't be) raided to make up a shortfall elsewhere in the budget and (also AFAIK) the City has been putting in their half. But in spite of all that, we really got clobbered. What's a prospective early-retiree to do?

[clifp]

I agree with you the problem was a combination of bad planning and bad luck. I have philosophical problems with defined benefits for any type of pension, although defined contributions have their own problems also.

Coloradoretiree points out the problem quite well "Well, shortfalls in billions have a way of affecting legal interpretations.". Most of public pension plans have laws or even in many cases state constitutional projections. The Colorado case is just the canary in the coal mine. Laws and even constitutions can and will be changed. Voters pension plans have also been terminated like Ziggy's, their employee 401K contribution eliminated, and their balances decimated. Instead of mere furloughs lots have gotten pink slips. Frankly, I wouldn't put a lot of stock in the value of the laws protecting your pension benefits in this environment.

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%.

What I really really fear, is we (the taxpayers, Mayors/Governors, state workers) all end up in a situation like the UAW and the auto industry, with both sides digging in until the tsunami comes and wipes us all out. So it saddens me to see the CO public employee unions launch lawsuits. Government provides lots of useful services, and they pretty much all are provide by rank and file employees not elected officials. Outside of the dangerous jobs you don't get many so I am sympathetic. But, I think you can forgive me and others if I am not thrilled at the opportunity of spend $100 bucks each and every month to pay for public employees pensions, that I've been warning about for years.

[Spanky]

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But, I think you can forgive me and others if I am not thrilled at the opportunity of spend $100 bucks each and every month to pay for public employees pensions, that I've been warning about for years.

Count me in as one of those who is not thrilled about paying for someone's pension.

[Spanky]

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By 2030 I suspect $630 will buy a gallon of gas!

Ha! Ha! may be two gallons? Who knows. If we assume inflation is 5% and price stays at the current level of $3, the price of a gallon of gas would be about $8 in 20 years. Obviously, that's not a good assumption as the price depends on so many unforeseeable events.