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Old 10-13-2009, 01:59 PM   #41
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You mean the public who doesn't receive a DB pension and who must save for their own retirement?
Yes, exactly. I'm not saying I support that concept. But I am saying that either tax payers need to insist that they pay higher taxes to support public sector pension promises or throw the politicians who are making the promises out of office. There is no possible positive outcome to be derived from promising higher and higher public pensions and not funding them.

BTW, in Illinois public pensions are not taxed. So indeed, it is exclusively folks who aren't benefitting from public pensions who pay for them. Not saying that is either right or wrong, but that is the way it is.
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Old 10-13-2009, 02:16 PM   #42
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Yes, exactly. I'm not saying I support that concept. But I am saying that either tax payers need to insist that they pay higher taxes to support public sector pension promises or throw the politicians who are making the promises out of office. There is no possible positive outcome to be derived from promising higher and higher public pensions and not funding them.
Seems to me the obviously answer should be to cease or sharply curtail benefits for new hires while striving to honor existing promises. That wouldn't stop the bleeding but it would make it manageable and somewhat temporary.

Politicians could play to taxpayer advocates and budget hawks by saying they are reducing future liabilities by closing or sharply cutting back the pension programs for new hires in many occupations. They could also play to the large number of public employees and retirees by pledging that no one already in those pension plans would be adversely impacted. Most likely you'd have to change compensation packages to include a 401K or 403B match plus a higher salary (in areas where gov't employees are significantly underpaid relative to the private sector).

Frankly, I think more state and local retirement plans should follow the FERS blueprint, which provides the true "three legged stool" of retirement income.
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Old 10-13-2009, 02:24 PM   #43
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Seems to me the obviously answer should be to cease or sharply curtail benefits for new hires while striving to honor existing promises. That wouldn't stop the bleeding but it would make it manageable and somewhat temporary.

Politicians could play to taxpayer advocates and budget hawks by saying they are reducing future liabilities by closing or sharply cutting back the pension programs for new hires in many occupations. They could also play to the large number of public employees and retirees by pledging that no one already in those pension plans would be adversely impacted. Most likely you'd have to change compensation packages to include a 401K or 403B match plus a higher salary (in areas where gov't employees are significantly underpaid relative to the private sector).

Frankly, I think more state and local retirement plans should follow the FERS blueprint, which provides the true "three legged stool" of retirement income.

One of the problems with sharply curtailing current hires is that it is partly a ponzi scheme... so you would sharply cut off current funding for the people... unless of course you kept taking it out of the current hires paycheck.. which would probably mean fewer people applying for the job...
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Old 10-13-2009, 02:28 PM   #44
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In further example of the problem with this funding scheme: I live in a very heavily taxed region (typical SFR property taxes are $9k per year, two thirds of which fund the 127 separate school districts in thw county region serving a total of 476,000 students with a student to teacher ration of 13.2 to one) in which taxes are continually raised to support guaranteed entitlements to public employees. Partially as a result, the region has seen a net outflow of 20-34 year old workers, along with the manufacturing base to employ them. Property tax breaks are given to those 55 and older, and affordable housing developments are almost exclusive for 55 and older residents. We're finding those who wish to survive, much less thrive, in their working lives are tending to leave for more affordable regions. What remains are low income workers, those in public service (often making very, very good money), and those who have either already made their money or who thrive in the remaining local economy. But for those who care to look at these sorts of things, several factors point to an impending crisis:

- 20% of the local GDP feeds local and state government. The two-county region as 901 separate taxing authorities.
- Public pensions rely overwhelmingly on tax assessments for funding - employee contributions fall far, far short of those necessary to reached anything approaching full funding levels.
- Public pensions - mostly union-negotiated - rely on an outdated formula which allows for overtime in pensino calculations, and pays out unsued sick and personal days at final salary levels (one recent school superintendant retired with a $240k per year pension and a $967k lump sum payout).
- Pension fraud is rampant. Virtually all retirees from the local commuter railroad retire on full disability. Commissioners and other employees of local agencies "retire" to begin drawing pensions and immediately go back to work in their old jobs at the same salary, only now drawing a pension typically equal to their old salary.
- 35% of the regional population is 55 years or older.

To say this is a recipe for disaster is an understatement. The response from public employee unions has been as expected: as long as they get theirs it doesn't matter the cost to the region. There are 50 states in this country, and as workers look at their futures, they will vote with their feet. Frustrated with their prospects and treated as the goose who laid the golden retirement egg, young workers are leaving in droves. What will remain is an increasingly untenable system in which "promises" must be fulfilled by a smaller and smaller group of taxpayers.

The last 60 years has seen the greatest intergenerational transfer of wealth in history. It is difficult to think of a word more appropriate than "selfish" when used to describe two generations who have willingly sacrificed the future of their children and grandchildren for their own advantage today.
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Old 10-13-2009, 02:45 PM   #45
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Seems to me the obviously answer should be to cease or sharply curtail benefits for new hires while striving to honor existing promises. That wouldn't stop the bleeding but it would make it manageable and somewhat temporary.
Honor the existing promises to current employees retirement as long as we're willing to do whatever it takes with taxes and truly fund the pension systems to support that. But remember if there has been significant hiring in the last decade, or so, it'll take many years before the system really gets much relief.

Otherwise, another alternative is to make the current employees plans a hybrid:

1. New hires get new, reduced pension benefits.

2. Current employees receive credit at the old promise level for years already put in and receive credit at the new promise level for future years.

With this plan, very senior employees, say within a few years of retirement, would feel only a small impact. Newer employees would have more of an impact, but would still get credit at the old, higher promise level for years already worked and "in the bank" and would be aware long before retirement while they still have time to save and invest accordingly.
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Old 10-13-2009, 03:12 PM   #46
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"Honor the existing promises to current employees retirement as long as we're willing to do whatever it takes with taxes and truly fund the pension systems to support that. But remember if there has been significant hiring in the last decade, or so, it'll take many years before the system really gets much relief."

The problem is that the tax camel is already one straw away. Every proposal involves throwing potential employees under the bus while giving current employees a complete pass, all funded by increasing taxes rather than employee contributions. I think we can see what it did to GM - essentially the entire company assets were given to retirees.

AS previously noted, the Fed did the smart thing in 1982 by adopting the FERS approach - employees would receive a guaranteed floor income while being expected to reach into their own pockets like those without DB pensions. Unfortunately, we don't see that on the state or local level. Instead of trying to move these pension programs more in line with Federal and private programs, trends in recent years have been to push for even more generous terms. In NY, both the United Federation of Teachers and the Transit Union have been pushing for an improvement in their existing 25/55 scheme (25 years of service at 55 years of age for full benefits), strgonly advocating - and striking for - a 20/50 scheme. Thats right - as states an municipalities state in horror at the ticking timebomb of pension obligations, public employee unions are lobbying hard to spend fewer years working to receive full pension benefits for an even longer period of time. Meanwhile, they vociferously object to increasing employee contribution from 2% of salary to 3% of salary.

It is far too late to simply cut benefits for "unborn" workers, not that the typical public employees union would allow that. In many states, agencies, and municipalities, salaries have grown to be more than generous under the guise of remaining competitive, free for life health insurance has become unbearably costly, and the answer is either a) pretend the pension funds will magically make much more than market rate returns, or b) assume that the taxpayer will pick up the tab down the line. The other two alternatives are the third rail of union politics. Either enact wholesale reform of the pension system similar to the Fed's actions on 1982, or require employees to fully fund their own defined benefit scheme. Unfortunately, the most politically expedient thing to do is pretend the problem doesn't exist and hope you'll be long gone when the systems fails.
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Old 10-13-2009, 04:06 PM   #47
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" Every proposal involves throwing potential employees under the bus while giving current employees a complete pass,
Not true randyman. See my post above where I propose a reduction to current employee's plans.
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Old 10-13-2009, 04:09 PM   #48
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Not true randyman. See my post above where I propose a reduction to current employee's plans.
This is true, but would be a very hard sell politically and some would consider that breaking a promise. It might be best to be content with the lower hanging fruit at this point.
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Old 10-14-2009, 10:24 AM   #49
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"Not true randyman. See my post above where I propose a reduction to current employee's plans."

Let me rephrase that - in my state, every proposal by the public employee unions advocates preserving all current benefits while cutting those to "unborn" workers. And as far as breaking a promise, I never promised anyone that I'd fund their retirement at the expense of my own. Someone in the past has promised my income to someone else, but it wasn't me.
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Old 10-14-2009, 11:02 AM   #50
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This is true, but would be a very hard sell politically and some would consider that breaking a promise. It might be best to be content with the lower hanging fruit at this point.

Yes, it would be a tough political nut to crack. The solution I proposed (current employees continue to get credit for the current pension plan for years already worked but get credit for a less generous plan for future years) commonly occured in private business over the past decade. But doing that to public sector employees would create quite a stir, that's for sure.........

I think it's just a matter of how bad the underfunding gets and what tax increases would be necessary to bail out the funds. If taxpayers continue to struggle preparing for their own retirements, they might create quite a bit of political turmoil themselves if asked to pay dramatically higher taxes. The proposal on the table here in Illinois is for a 50% state income tax increase!

The fed govt was able to switch active employees to a new plan going forward when FERS was created. Why can't the states and municipalities do the same using similar tactics?
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Old 10-14-2009, 11:04 AM   #51
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Yes, it would be a tough political nut to crack. The solution I proposed (current employees continue to get credit for the current pension plan for years already worked but get credit for a less generous plan for future years) commonly occured in private business over the past decade.
I believe retaining pension credit for service already accrued under a pension plan is required by federal law. I have a puny pension waiting for me down the road from nearly 12 years at my first Megacorp, which pulled the plug and froze my pension after about 11 years of service.
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Old 10-14-2009, 11:17 AM   #52
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I believe retaining pension credit for service already accrued under a pension plan is required by federal law. I have a puny pension waiting for me down the road from nearly 12 years at my first Megacorp, which pulled the plug and froze my pension after about 11 years of service.
OK, that would be congruent with my proposal.

Hey..... I have nothing against state, county and municipal employees. In fact, my extended family as well as DW are well represented in that employment arena. I'm just saying that in many cases their pensions have been over promised and the pension funds under delivered (as per the article OP posted). Somethings gotta give......... higher taxes or more realistic pensions....... or some combination.
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Old 10-14-2009, 11:27 AM   #53
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I don't think higher taxes are going to go over well...........
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Old 10-14-2009, 11:40 AM   #54
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I don't think higher taxes are going to go over well...........
Really?

Yeah, you're right. Here in Illinois our new govenor (Blagojevich replacement) wants to increase state income taxes 50% and has a strong majority in the state house to do so if he and they want. But they're afraid of losing seats in future elections and are trying to come up with some scheme where the vote is hidden or something so those voting "yes" don't take the wrap with the voters...... It's a mess. And it impacts the pensions and retirement of public sector employees directly and the retirements of private sector folks indirectly through the higher taxes.

It seems like there are a lot of chickens coming home to roost from bygone political eras that are impacting boomers trying to retire now.
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Old 10-14-2009, 11:32 PM   #55
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Seems to me the obviously answer should be to cease or sharply curtail benefits for new hires while striving to honor existing promises. That wouldn't stop the bleeding but it would make it manageable and somewhat temporary.
Well, Ziggy, it can happen in some instances. My former government employer had a pretty nice DB plan.

They kept the DB plan in place for all the current employees, but here's the 457b deal they recently announced for the newbies:
Retirement - XXX offers full-time employees a contributory retirement program, wherein employees can contribute through payroll deduction up to the maximum limit permitted by the IRS (currently $15,500/year). XXX will automatically contribute 2% of an employee’s salary (including overtime) to the employee’s retirement account. If an employee chooses to contribute, XXX will match dollar for dollar of the first 4% of that an employee contributes, making XXX’s contribution a total of 6%. There is a pro-rated vesting schedule, and employees are fully vested after five years of service.
Pretty similar to the typical Megacorp plan, yes?
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Old 10-15-2009, 01:31 AM   #56
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Well, Ziggy, it can happen in some instances. My former government employer had a pretty nice DB plan.

They kept the DB plan in place for all the current employees, but here's the 457b deal they recently announced for the newbies:
Retirement - XXX offers full-time employees a contributory retirement program, wherein employees can contribute through payroll deduction up to the maximum limit permitted by the IRS (currently $15,500/year). XXX will automatically contribute 2% of an employee’s salary (including overtime) to the employee’s retirement account. If an employee chooses to contribute, XXX will match dollar for dollar of the first 4% of that an employee contributes, making XXX’s contribution a total of 6%. There is a pro-rated vesting schedule, and employees are fully vested after five years of service.
Pretty similar to the typical Megacorp plan, yes?
Htown Harry,
What was the attitude of the employees' union (if there is one) about this change?
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Old 10-15-2009, 06:45 AM   #57
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The fed govt was able to switch active employees to a new plan going forward when FERS was created. Why can't the states and municipalities do the same using similar tactics?
Many of them did, as they did where I worked and at about the same time. I was offered the option of getting back half of the contributions I had made to the retirement system to date and switching to the newer system, which would have cut retirement benefits almost in half. I declined the offer.

Some of the dumber ones did take the offer and bought cars, boats, and such with the sudden influx of cash. Those are the ones who are going to be working after retirement because they have to, not because they want to.

And although my retirement plan does include a 100% COLA, that meant that this year it went DOWN by .1%. (Yes, it's in the contract.) While some may argue about the numbers/details I have no quibble with the underlying principle, which is to maintain a constant level of purchasing ability.
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Old 10-15-2009, 07:33 AM   #58
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Htown Harry,
What was the attitude of the employees' union (if there is one) about this change?
This particular case, there were limited politics at play and almost no public outcry. The independent agency reports to an appointed board, not directly to elected officials. There is a union for the blue-collar employees, but this change affected only about 1000 workers in the non-union plan. Also, it's in Texas, an open shop state where unions generally have less legal and political clout.

Admittedly, these circumstances are not the norm. My only point is that it can happen.

As to the reaction of the employees I know, they were relieved it wasn't worse. Management had floated a bunch of reduced benefit ideas before settling in on the "if you are hired after 2008" strategy.
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