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Old 09-30-2011, 02:20 PM   #21
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I'm having some difficulty following all this. The article claims that there is no "government retirement trust fund" -- are you saying there is one? As I interpret what you've said, the current estimated pension and health payouts for its employees and retirees are included in each department's yearly budget. Is that budgetary allocation what you're calling a "trust fund"?
As I understand it there is a Civil Service Retirement and Disability Fund into which agency and employee contributions for both FERS and CSRS are dumped. CSRS was never fully funded so the retirement fund was never able to fully pay those costs - the general funds had to be hit up for that. The FERS contributions are calculated to be actuarialy correct and the agency contributions are adjusted by OPM when the calculations change. BUT the retirement fund doesn't necessarily hold enough funds to cover all the expected FERS expenses for two reasons. 1) It pays pensions under the CSRS which isn't fully funded, and 2) Just like with Social Security, the Treasury can and does borrow from the retirement fund. But, FERS itself is fully funded. It is not in financial trouble, the Federal Government is in financial trouble

On a spearate but related issue, The treasury also borrows from the Thrift Savings Program. We were all warned during the budget crisis that our funds were being raided but not to worry...


Edit: thanks for those precise figures Tadpole.
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Old 09-30-2011, 02:39 PM   #22
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Originally Posted by GregLee View Post
I'm having some difficulty following all this. The article claims that there is no "government retirement trust fund" -- are you saying there is one? As I interpret what you've said, the current estimated pension and health payouts for its employees and retirees are included in each department's yearly budget. Is that budgetary allocation what you're calling a "trust fund"?
Yes, it's all put into the original trust fund, the "Civil Service Retirement and Disability Fund". You can Google it. But, since you asked I thought I'd try to find the actual financial/actuarial reports on it. I failed but will keep trying. Meanwhile, I ran into this summary of a Congressional Research Service report:
Federal Employee Retirement Programs: Budget and Trust Fund Issues - PolicyArchive

Quote:
Civil service retirement annuities are paid from the same trust fund regardless of whether the benefits were accrued under CSRS or FERS. FERS pension benefits are fully funded as they are earned, and the full cost of funding retirement benefits under FERS is recognized in each government agency's annual budget. CSRS is not fully funded, and the full costs of pension benefits earned by workers under CSRS are not accounted for in the budgets of individual federal agencies. Although the two programs are financed differently, the ultimate source of the money from which benefits are paid is the same for both programs: revenue collected by the government through taxes and by borrowing from the public.
So I was wrong on one point. They apparently do not even try to prefund CSRS so I guess that might be where the shortfall comes from when you fungiblize the funds. If so (am I'm not saying it is so), then it looks like CSRS is (in an accounting sense) partially paid for out of money people thought was being prefunded for FERS actuarial balance. So, again, where are the sane actuaries I know a few years ago some people were whining about CSRS retirees dipping into the FERS retirement savings. I wasn't very interested so I largely shook my head in the appropriate direction to avoid a long discussion. This may been about the consequences of the above quote.
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Old 09-30-2011, 02:41 PM   #23
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Edit: thanks for those precise figures Tadpole.
donheff, Sorry I duplicated your excellent explanation (better than mine). I was drafting it as you posted so I didn't see the question was already answered.
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Old 09-30-2011, 03:07 PM   #24
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... it looks like CSRS is (in an accounting sense) partially paid for out of money people thought was being prefunded for FERS actuarial balance. So, again, where are the sane actuaries I know a few years ago some people were whining about CSRS retirees dipping into the FERS retirement savings. I wasn't very interested so I largely shook my head in the appropriate direction to avoid a long discussion. This may been about the consequences of the above quote.
This is no different than dipping into the Social Security Trust fund to pay for wars. The taxpayer is borrowing from the fund to cover current expenses and the taxpayer owes the money back. In the FERS case it is clear that the retirement benefits are FULLY covered unlike SS which is about 25% short. It would be a travesty to short change FERS employees in any way because we borrowed their contributions to pay other expenses but I don't see any likelihood of that happening. Prospective changes to the relative employee/agency percentages on the other hand could happen.
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Old 09-30-2011, 03:15 PM   #25
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So, again, where are the sane actuaries
I think it's rather peculiar to call (part of) the system "fully funded" when evidently all this means is that there is provision in the budget for paying out current obligations. Compare this to the state of the Hawaii state pension fund which was reckoned a year ago to have $7 billion in unfunded liabilities. But that doesn't mean that there is no provision in the state budget to make current pension payments to retirees -- there is. What they've done, among other things, is increase the "matching" payments in the budgets of the various state departments that are made into the fund, as required year by year to find enough money to make the pension payments. Something like what the feds are doing. No one here, though, is trying to pretend that this counts as full funding of the pension system, which is still presumably billions in the hole. The Hawaii pension fund is not just a budgetary device, but a bunch of actual securities and other investments, and it's underfunded because there won't be enough in it in the future to meet the obligations of the pension system. But for the federal system, it seems to me, comparing apples to apples, just as the article claims, there is no actual pension fund there at all.
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Old 09-30-2011, 03:22 PM   #26
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Hey GregLee, It's not us employees that came up with the language or the process. Yea, I guess treasury bonds aren't actual securities. The employee's don't set up these things. The critters that you guys elect do.
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Old 09-30-2011, 03:31 PM   #27
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Originally Posted by GregLee View Post
I think it's rather peculiar to call (part of) the system "fully funded" when evidently all this means is that there is provision in the budget for paying out current obligations. Compare this to the state of the Hawaii state pension fund which was reckoned a year ago to have $7 billion in unfunded liabilities. But that doesn't mean that there is no provision in the state budget to make current pension payments to retirees -- there is. What they've done, among other things, is increase the "matching" payments in the budgets of the various state departments that are made into the fund, as required year by year to find enough money to make the pension payments. Something like what the feds are doing. No one here, though, is trying to pretend that this counts as full funding of the pension system, which is still presumably billions in the hole. The Hawaii pension fund is not just a budgetary device, but a bunch of actual securities and other investments, and it's underfunded because there won't be enough in it in the future to meet the obligations of the pension system. But for the federal system, it seems to me, comparing apples to apples, just as the article claims, there is no actual pension fund there at all.
I don't think it is comparable at all. The FERS system was designed to be fully funded from the outset. Adjustments are not made to meet current obligations, they are made if the actuarial basis changes (hiring older or younger workers, life expectancy, inflation expectations, etc). And it isn't "part of the system." FERS was designed to be a separate fully funded replacement for CSRS. The choice to use a single accounting fund to manage cash flows doesn't change the underlying facts - income (employee and agency payments) = outflows (pensions).

If you can describe a better way to fully fund a defined benefit retirement system I would like to hear it.
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Old 09-30-2011, 03:40 PM   #28
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If you can describe a better way to fully fund a defined benefit retirement system I would like to hear it.
No, it's fine by me. And Hawaii voters and taxpayers will welcome the news that previous reports of their state pension system being $7B in the hole were premature. Actually, it's not in the hole at all.
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Old 09-30-2011, 04:04 PM   #29
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No, it's fine by me. And Hawaii voters and taxpayers will welcome the news that previous reports of their state pension system being $7B in the hole were premature. Actually, it's not in the hole at all.

A huge difference is that Federal Government has multiple ways of raising money, including printing money, borrowing money, raising taxes, and selling assets. The state of Hawaii, unless the native Hawaiians succeed in going back to the Monarchy, has but one way, raise taxes.

I'd also note that pension benefits for Federal Employees, 1.1% * years of service payable at age 62, is less than 1/2 as generous than typical state and local pension plans. Assuming DonHeff is correct and Federal agencies are billed for their employees retirement cost in actuarialy sound fashion I have no big concern about the Federal pension plans.

This from one of the boards most vocal pension hawks.
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Old 09-30-2011, 04:51 PM   #30
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I'd also note that pension benefits for Federal Employees, 1.1% * years of service payable at age 62, is less than 1/2 as generous than typical state and local pension plans. Assuming DonHeff is correct and Federal agencies are billed for their employees retirement cost in actuarialy sound fashion I have no big concern about the Federal pension plans.

This from one of the boards most vocal pension hawks.
I tend to agree. I'm not worried about FERS much at all. CSRS was becoming a huge issue (and is), but it has had no new participants for many years so we suck it up and move on. It's some of the state and local plans which were on par with CSRS for generosity that are a problem.

Frankly I think FERS is a model retirement plan that I'd like to see all over the place (though the pension part may have to be made portable to match reality in today's world).
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