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Old 04-17-2010, 10:45 AM   #21
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I wonder how much a teacher working their 15th-20th years makes, relative to a brand new teacher working her 1st through 5th years (even though she had worked 15 years previously in another job for the same system)?
< 1 yr: 33,000
1- 4: 38,000
5-9: 42,000
10-19: 49,000
20+: 58,000

Let's supposed her salary is $38,000 and 2% per year of service, the pension will be about $15K/yr - not bad.
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Old 04-17-2010, 12:11 PM   #22
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Originally Posted by Spanky View Post
< 1 yr: 33,000
1- 4: 38,000
5-9: 42,000
10-19: 49,000
20+: 58,000

Let's supposed her salary is $38,000 and 2% per year of service, the pension will be about $15K/yr - not bad.
Better than my tiny federal pension! Not that I would turn it down. But really I thank the powers that be for the TSP, which is my rock and mainstay for steady, predictable retirement income and providing me with much more income than my pension.
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Old 04-17-2010, 12:39 PM   #23
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Originally Posted by Spanky View Post
< 1 yr: 33,000
1- 4: 38,000
5-9: 42,000
10-19: 49,000
20+: 58,000

Let's supposed her salary is $38,000 and 2% per year of service, the pension will be about $15K/yr - not bad.
But much less than the $58,000 * 20 * 2%=$23,200 of a retiree in the same system who taught for the whole 20 years. I'm not sure I have a problem with this...
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Old 04-17-2010, 01:37 PM   #24
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That's a great way to game the system. The whole pension plan should be based completely on amount put into it. My mega corp pension plan deposits a small account of money every year into an account. When I am eligible for retirement, I can take the accumulated amount with me.
You can take your accumulated money out of the PA pension fund too. But its only the exact money value that you put in. So if after 33 years of having them take 9.5% out of your takehome paycheck for 33 years only comes to $250,000, that's all you get.

If that was the way it was, then there would be no point in having a managed pension fund. You might as well save 9.5% of your take home all by yourself, because then you will have real money in the end way above the amount. And remember when interest rates were 15%. My aunt took everything out of her stocks back then and put them in 30 year CD's at 15% interest(of course the bank was totally crazy to offer 30 year CD's at that interest rate). The bank was so very very happy when she died in 1995 and the rates had dropped to 5% and she was still packing in 15% on her $100,000 watching it go up like a wildfire.

Z
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Old 04-17-2010, 05:03 PM   #25
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You can take your accumulated money out of the PA pension fund too. But its only the exact money value that you put in. So if after 33 years of having them take 9.5% out of your takehome paycheck for 33 years only comes to $250,000, that's all you get.
$250K seems incorrect (too high) if we are referring to a teacher's salary. I came up with $91,272 based on the following assumptions:
current salary: $57,179.4
merit increase: 5% yearly
contribution: 9.5% of salary
duration: 33 years

If the yearly contributions are invested with a 6% return, the account value will be $220,032, which is not sufficient to fund a retirement of $47,173 (33 years * 2.5% * $57,179) per year. With only $220,032, a 4% safe-withdrawal rate (SWR) would only yield $8,881.26. That's a big shortfall!!!!

FYI:
The mega corp for which I work provides a pension (for everyone) and offers a 401K plan. The pension is simply a sum of yearly contributions (~8% of salary) from the employer. As you can see, my pension is small. We therefore must rely almost entirely on 401K contributions and personal savings to fund our retirement.
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Old 04-17-2010, 07:32 PM   #26
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$250K seems incorrect (too high) if we are referring to a teacher's salary. I came up with $91,272 based on the following assumptions:
current salary: $57,179.4
merit increase: 5% yearly
contribution: 9.5% of salary
duration: 33 years..................................
I made up the numbers to make the point. I have a right to keep my actual salary numbers to myself. Your assumptions are incorrect. There is no such thing as merit increase, and increases are not steady, some years higher some years lower. My salary started at a different number and ended at a different number. The contribution rate is not correct. None of your assumption are correct. You don't include employer required contributions to the total, nor state government required contributions to the total pension situation. I'm not planning on enlightening you to the correct assumptions since doing so would violate my privacy and we have no idea who has access to the board and to the financial data that we might post on it.

I had no intent of giving you any figures which are accurate in any way, only to give an example to make my point. No Offense, and I'm not taking offense.

Z
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Old 04-17-2010, 09:02 PM   #27
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Z - you are quite the paradox. I'm trying to figure out whether, based on your comments in this thread,

OK... the title above says....

I should report your post?

-ERD50
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Old 04-17-2010, 09:48 PM   #28
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Z - you are quite the paradox. I'm trying to figure out whether, based on your comments in this thread,

OK... the title above says....

I should report your post?

-ERD50

It didn't look like anyone wanted to move it to the political arena. And since I decided that maybe, like you said elsewhere, I was a little too sensitive that day, I would just let it go, and go with the flow, and ignore anything that bothered me too much.

So..... I'm moving on. Besides like I said, I was just a bit edgy.

Do what you think you have to do? I try to think out of the box most of the tyme and stay as enigmatic as I can.

Z
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Old 04-17-2010, 10:01 PM   #29
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I would just let it go, and go with the flow, and ignore anything that bothered me too much.

So..... I'm moving on.

Z
Sounds like a plan! Good to hear it.

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Old 04-17-2010, 10:16 PM   #30
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I had no intent of giving you any figures which are accurate in any way, only to give an example to make my point. No Offense, and I'm not taking offense.
No actual numbers are needed to illustrate why the pension plan is underfunded.
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Old 04-17-2010, 11:01 PM   #31
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That's a great way to game the system. The whole pension plan should be based completely on amount put into it. My mega corp pension plan deposits a small account of money every year into an account. When I am eligible for retirement, I can take the accumulated amount with me.
I'm not sure what you mean when you say the pension plan should be based completely on the amount of money put in. How would that work in practice? Is what you have in mind different than 401k and other defined contribution plans?
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Old 04-17-2010, 11:24 PM   #32
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No actual numbers are needed to illustrate why the pension plan is underfunded.

OK... but I wasn't commenting on the underfunding of defined benefit plans, I was commenting on the fact that taking out what you put in is not any different that taking what you put in and putting it into CD's and then cashing them in later.

The bottom line is that most defined benefit plans are in my estimation giant ponzi schemes. I'm happy to have one, but when any portion of the payout is coming form the people who are still working, which is what social security is, then its just a giant ponzi scheme.

Some pension plans are more ponzi than others.

BUT BE THAT AS IT MAY, THE BOTTOM LINE IS THAT..... many state pension plans are locked in stone. There are solutions.

As I've said before, these solutions involve:

1. an ending of the high level defined benefit for all new employees, either a removal altogether or a reduction to a base level much like when you work as a waiter they give you a kind of stipend of 30% but your must make all the rest in tips.

2. An increase in the payments into the funds by the existing employees

3. An increase into the funds by the employers but spread over a long period of time and not able to be reduced simply because it looks like a good financial set of years, or at least as long as the fund is 100% funded(in PA it has to be 86% funded by law).

4. An extension of the period of time before the defined benefit can actually be taken, such as 62 or 65 or even 67 instead of 58, regardless of how many years in the program.

5. Very severe penalties for early retirement that amount to 10's of percentage points for each year rather than a couple.

I think these are the things that WILL HAPPEN. I'm not sure I agree, but I don't see any way out of them. And i believe that Social Security will also be forced to intervene in this way also.

BUT..... Those who are currently close to retirement(within 15 years) are not in a position to make other arrangements in regard to their pensions, and these people must be allowed to get what they were given originally.

Just my opinion.....

Z
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Old 04-17-2010, 11:56 PM   #33
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I'm not sure what you mean when you say the pension plan should be based completely on the amount of money put in. How would that work in practice?
I meant to say that funds (employee contribution + employer contribution, if any) such pension plan should be invested similar to a 401K plan. However, the plan decides on how the money is invested.

Quote:
Is what you have in mind different than 401k and other defined contribution plans?
No, the only difference is that you do have the option how the money is invested.
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Old 04-18-2010, 12:01 AM   #34
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I think these are the things that WILL HAPPEN. I'm not sure I agree, but I don't see any way out of them. And i believe that Social Security will also be forced to intervene in this way also.
You might be right.
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Old 04-18-2010, 12:57 AM   #35
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OK... but I wasn't commenting on the underfunding of defined benefit plans, I was commenting on the fact that taking out what you put in is not any different that taking what you put in and putting it into CD's and then cashing them in later.

The bottom line is that most defined benefit plans are in my estimation giant ponzi schemes. I'm happy to have one, but when any portion of the payout is coming form the people who are still working, which is what social security is, then its just a giant ponzi scheme.

Some pension plans are more ponzi than others.

BUT BE THAT AS IT MAY, THE BOTTOM LINE IS THAT..... many state pension plans are locked in stone. There are solutions.

As I've said before, these solutions involve:

1. an ending of the high level defined benefit for all new employees, either a removal altogether or a reduction to a base level much like when you work as a waiter they give you a kind of stipend of 30% but your must make all the rest in tips.

2. An increase in the payments into the funds by the existing employees

3. An increase into the funds by the employers but spread over a long period of time and not able to be reduced simply because it looks like a good financial set of years, or at least as long as the fund is 100% funded(in PA it has to be 86% funded by law).

4. An extension of the period of time before the defined benefit can actually be taken, such as 62 or 65 or even 67 instead of 58, regardless of how many years in the program.

5. Very severe penalties for early retirement that amount to 10's of percentage points for each year rather than a couple.

I think these are the things that WILL HAPPEN. I'm not sure I agree, but I don't see any way out of them. And i believe that Social Security will also be forced to intervene in this way also.

BUT..... Those who are currently close to retirement(within 15 years) are not in a position to make other arrangements in regard to their pensions, and these people must be allowed to get what they were given originally.

Just my opinion.....

Z
I doubt that #5 could be justified actuarially. Adding one extra year does not make tens of percentage points difference in the total amount paid out to that person in benefits. As I understand it, if the actuaries have done their math right, it doesn't really matter when you retire, because all the options are equal from the actuarial viewpoint. That's how a pension system knows how much to reduce the basic benefit if you want your pension to continue to your beneficiary after your death, or for a fixed term of years, or if you take a lump sum.

It could be that public pension underfunding originates at least partly because the actuaries are not doing their math correctly, or are using unrealistic assumptions or outdated life expectancy data. Correcting those problems might require a significant overall reduction in benefits, and possibly a greater reduction of benefits for those who retire early, but I don't see any justification for penalizing early retirees more than is required to make their benefits actuarially equivalent to the pensions of those who work longer.
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Old 04-18-2010, 07:34 AM   #36
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What I'd like to know is, if your ability to ER depended on this job and this pension fund, what would you suggest?
Since we all know that eventually these problems will be solved by a clawback of savings from one boomer to pay the other, why not make the clawback fun by setting up retiree casinos with 85% of the profits devoted to solving retiree problems including state and local pensions.

I am retiring to WA soon and would prefer to transfer my money this way since regressive sales taxes would probably hurt the very people that need the help. Let the Microsoft and government pension people voluntarily part with their dough.
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Old 04-18-2010, 04:11 PM   #37
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I meant to say that funds (employee contribution + employer contribution, if any) such pension plan should be invested similar to a 401K plan. However, the plan decides on how the money is invested.


No, the only difference is that you do have the option how the money is invested.
I think that's only reasonable. Times change. Unless aliens land and want us to work for them, or some major boom takes place with technology that one we have access to the USA is going the way of Britain, and needs to get out of the way for the next booming economy west of us.
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Old 04-18-2010, 04:21 PM   #38
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I doubt that #5 could be justified actuarially. Adding one extra year does not make tens of percentage points difference in the total amount paid out to that person in benefits. As I understand it, if the actuaries have done their math right, it doesn't really matter when you retire, because all the options are equal from the actuarial viewpoint. That's how a pension system knows how much to reduce the basic benefit if you want your pension to continue to your beneficiary after your death, or for a fixed term of years, or if you take a lump sum.

It could be that public pension underfunding originates at least partly because the actuaries are not doing their math correctly, or are using unrealistic assumptions or outdated life expectancy data. Correcting those problems might require a significant overall reduction in benefits, and possibly a greater reduction of benefits for those who retire early, but I don't see any justification for penalizing early retirees more than is required to make their benefits actuarially equivalent to the pensions of those who work longer.

I think you misunderstand what I said(I perhaps pulled a Greenspan here). Right now the penalties for early retirement in the PA Teachers fund for example is not severe enough to prevent many teachers from taking early retirement and losing a couple of percentage points off their total salary. I believe its about 2% per year taken early. So if PA teachers were getting a 75,000 payment because they made 100,000 for the last three year(which is easily possible if you were an administrator) and you went out four years early, then that person's retirement benefit would only be dropped to 69,000. I'm proposing that early leaving 4 years early should forfeit 5% per year early so that leaving with a 75,000 per year pension gives you only a 60,000. Now this is a lot of money, and few teachers make that much money unless they are administrators, or superintendents.

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Old 04-19-2010, 10:02 AM   #39
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I wish my fed pension was 2% penalty per year. It is 5% and no COLA until age 62 if I take an early retirement at 56.
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Old 04-19-2010, 10:21 AM   #40
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I wish my fed pension was 2% penalty per year. It is 5% and no COLA until age 62 if I take an early retirement at 56.
Yeah, under CSRS there was no "early out" reduction for retirement as young as 55, and *earlier* than that it was only 2% per year.

The feds were ahead of the curve in terms of properly addressing unsustainable pension costs when it stopped enrolling new hires into CSRS. I believe that to the extent it makes sense to keep offering DB pensions to new hires in most (perhaps not all) public occupations, state and local governments should switch new hires to a FERS-like plan.
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