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Pension Funds - the next bail out.
Old 03-03-2009, 11:12 PM   #1
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Pension Funds - the next bail out.

Bloomberg.com: Exclusive
Public pension funds across the U.S. are hiding the size of a crisis thatís been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.
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Read this - another Ponzi scheme.

A bear market uncovers a lot of fraud.
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Old 03-03-2009, 11:42 PM   #2
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A bear market uncovers a lot of fraud.
Yes. And the federal spending binge is encouraging everyone with wants, desires, pending troubles of any sort to come to the big table. Head Start funding, alternative energy pet projects, money for the American Toothpick Museum, etc.

It's kinda like when there's an accidental fire in the department store and the owner is seen throwing all the unsellable inventory into it. The shrewd operator lets no emergency go to waste.
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Old 03-04-2009, 12:13 AM   #3
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I got very depressed when I read that article. Unbelievably, states are required by law to bail those mismanaged pension funds out. So we, the taxpayers, don't even have a say in the matter, we'll have to shut up and pay. I am disgusted beyond words. You know what, my own "pension fund" (401k) got clobbered as of late, where is MY bailout? Unfortunately, not only won't I get bailed out, but I'll have to bail out everyone else who was promised a fat pension it seems (GM employees, state employees, municipal employees...).

I feel like we just peeled off a piece of dry wall (that originally looked pretty good with its fancy wallpaper) and found out that the studs behind it were rotted. The more we peel, the more rot we find. I am starting to wonder if the whole structure is not rotted to the core...
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Old 03-04-2009, 07:29 AM   #4
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The fact the public retiremnet system has been in a downward spiral has been known for sometime. The selling of the bonds and investingf for higher returns has been one reason the markets had been propped up to new highs. More conservative Pension Funds purchased large quantities of the bonds.

The system real falls apart when desparation stes in and the poorly funded plan reach for the "star or moon" returns. In the private pension system, the PBGC collects insurance revenues to pay for bailouts when a pension fund fails. When the PBGC takes over, it will reduce the Pension Benefit to a lower level that was covered by the insusrance. Remember 'SULLY' telling of his reduced airline pension? The public pensions use the public as their insurance, that reads 'ON THE BACKS OF ALL AMERICANS'

Welcome to the world of bad news! Once the times are bad like this, all of the bad things will be rolled out. The markets will continue to collapse due these situations. Sorry to say it but, there will be no place to hide, not Stocks, not Bonds, not Gold. It is just a trade off of what will tank faster than another. Buy farmland and plant crops by hand for your self, build a below ground root cellar and stock pile ammo.
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Old 03-04-2009, 11:26 AM   #5
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I got very depressed when I read that article. Unbelievably, states are required by law to bail those mismanaged pension funds out. So we, the taxpayers, don't even have a say in the matter, we'll have to shut up and pay. I am disgusted beyond words. You know what, my own "pension fund" (401k) got clobbered as of late, where is MY bailout? Unfortunately, not only won't I get bailed out, but I'll have to bail out everyone else who was promised a fat pension it seems (GM employees, state employees, municipal employees...).

I feel like we just peeled off a piece of dry wall (that originally looked pretty good with its fancy wallpaper) and found out that the studs behind it were rotted. The more we peel, the more rot we find. I am starting to wonder if the whole structure is not rotted to the core...
This argument comes up over and over and over again, but most of us municipal employees accept lower salaries to work for the government than we could get in the private sector. So in other words, you, the taxpayer, have been underpaying us our entire careers and in return we get a "fat pension". Would you rather have taxes drasctically raised now so we can earn a competitive salary instead of having a "fat pension". 6 of one, 1/2 dozen of the other. You cant expect to underpay us AND not give us increased benefits , now can you?
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Old 03-04-2009, 11:32 AM   #6
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This argument comes up over and over and over again, but most of us municipal employees accept lower salaries to work for the government than we could get in the private sector. So in other words, you, the taxpayer, have been underpaying us our entire careers and in return we get a "fat pension". Would you rather have taxes drasctically raised now so we can earn a competitive salary instead of having a "fat pension". 6 of one, 1/2 dozen of the other. You cant expect to underpay us AND not give us increased benefits , now can you?
Like I said. "Shut up and pay"... That's what you're telling all of us.
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Old 03-04-2009, 11:41 AM   #7
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You want me to cry about being paid fairly? Alot of my friends called me stupid for years for taking a government job (police officer) because they were making much more than me. I liked the job and was happy with the pay because I knew I had better benefits than them.

So I sacrificed for 19 years (as of now) and now Im suppossed to feel bad 25 years later when its time to finally get whats coming to me? I dont think so, sir.
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Old 03-04-2009, 11:45 AM   #8
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You want me to cry about being paid fairly?
[Usual disclaimer here: since some people seem to think I want to take their pensions away, let me make it clear up front that I don't think any deals already "in progress" should be taken away from anyone. I do believe strongly that we need pension reform for future hires.]

Having gotten the preliminaries out of the way, let me ask you this:

If your employer said they would give you a lump sum representing all the "underpayment" you've ever accepted as a public employee -- with 5% interest -- in exchange for taking your pension away, would you do it?

If you think that would be a financially stupid deal for you to take, then maybe you aren't as underpaid as you claim.
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Old 03-04-2009, 11:59 AM   #9
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First of all, of course I wouldnt take a lump sum. Why would I? I didnt get a chance to invest all of that extra money on a monthly basis like I would have if I had been paid more all along. I also didnt get a chance to invest the 8 1/2 % of my salary that is taken out to help pay for my pension.

Secondly, I agree that public pension benefits should probably lowered for future hirees, but they are going to have to raise salaries substantially to do that or they wont be able to hire anyone. They cant hire enough people in just about any police agency even as it is.

Unemployment is climbing at record pace. Send those people over here. We are hiring as is just about every police agency in the country! Anyone want to guess why we cant fill all of our positions?

PS..My particular pension fund isnt in trouble in the slightest bit so none of you will have to pony up a cent to bail it out. The taxpayers in my city got a hell of a deal. They underpaid me and didnt have any consequences. Maybe the problem is the oversight of the pensions and their investments....not the pension system itself?
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Old 03-04-2009, 12:15 PM   #10
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PS..My particular pension fund isnt in trouble in the slightest bit so none of you will have to pony up a cent to bail it out. The taxpayers in my city got a hell of a deal. They underpaid me and didnt have any consequences. Maybe the problem is the oversight of the pensions and their investments....not the pension system itself?
It's true that some pension funds have been conservatively and appropriate managed. That's a good thing. Is yours actually maintained by a union (or with considerable union representation on the board)? I've noticed that many of the union-managed pension funds seem to be in better shape as they have often taken less risk -- both public sector AND private. Which makes sense; when it's controlled more by the eventual recipients instead of bean-counters who have no personal stake in the health of the fund, perhaps the "management" of the fund is more prudent.

The problem is that some of these funds were getting into hedge funds, chasing bubbles and other stuff instead of a steady, appropriate mix of stocks and bonds that is likely to remain solvent through boom and bust assuming fairly normal market cycles and not overpromising on the benefits side.

Which in itself wouldn't be so bad if taxpayers weren't on the hook for these recklessly managed pension funds. Most state laws require taxpayers to pick the slack for critically underfunded pensions. Yet most of the people of the state don't get anything other than a higher tax bill as their own 401Ks go into the toilet. I think it's fair to say that the resentment level would hit new heights if these pension funds were bailed out by Uncle Sam even as the 401Ks for the rest of us got nothing. I'd sooner not see it get that far, but if they bailed out pension funds and not other defined contribution plans for the rest of us, you're darned right I'd be mad.

Also, many pension plans made unrealistically rosy assumptions about future returns in order to give very generous pensions that simply can not be afforded if the results fall way short of the assumptions. There are plans that have assumed a 9% annual return on invested capital -- which requires taking far more risk than is acceptable in a pension fund! The same goes for things like university endowments. Some of them are hurting badly largely because of accepting WAY too much risk.
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Old 03-04-2009, 12:18 PM   #11
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FYI, I would rather pay more taxes now (and pay higher salaries for public employees if they are truly underpaid) rather than be put on the hook for untold amounts of money in the future.

And I don't blame the public employees for wanting what was promised to them. I am blaming the people who mismanaged and underfunded pension funds for years by hiding behind shady accounting practices, the same people who, in a short while, will be asking taxpayers to pay for their stupid mistakes.

But I understand the game. Elected officials want to get re-elected, so they're never going to push higher taxes if they can find ways to avoid it. They'd rather pile up the mess in a corner and let their successor deal with it. And the snow ball gets bigger and bigger and bigger...
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Old 03-04-2009, 12:22 PM   #12
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The real test is whether the private employee, with that "extra pay," can retire earlier than the public employee, with the pension. Obviously, in the same position. It's difficult to compare a police office since a security guard just doesn't cut it.

Take an electrical engineer with a city and an electrical engineer with a private company. Is that pay difference sufficient enough to let the private employee retire with the same benefits (pension AND health care)?
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Old 03-04-2009, 12:24 PM   #13
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not like the benefits have to be paid out all at once. i read the same stories in 2001-2003 and they went away for a few years only to return with the latest bear market.
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Old 03-04-2009, 12:32 PM   #14
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I seriously doubt that there will be untold amounts of money paid to bail out these public pensions. The way I understand it, the ones who were mismanaged and are in trouble are only "in trouble" if everyone retired at the same time and they actually had to pay out benfits to everyone. Thats obviously not going to happen.

It seems to me if they just lower benefits for future hirees, the problem will take care of itself.

Also, like I said, the pension funds wouldnt be able to be mismanaged if the right people were watching over them.

On a side note, one of the reasons that my pension fund is in great shape and always will be is because a relatively small percentage of people actually make it all the way to retirement age still working as a police officer. People leave for all kinds of reasons alot of them related to stress and burn out. Alot of those people stupidly take their pension contributions back and forego their pension. They only get to keep what they contributed and the pension fund keeps what the city contributed all those years without ever having to pay any benefits on that money. It happens over and over again. Also, alot of cops die young and never collect anywhere near enough to pay back what the pension fund made off of them.
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Old 03-04-2009, 12:39 PM   #15
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The real test is whether the private employee, with that "extra pay," can retire earlier than the public employee, with the pension. Obviously, in the same position. It's difficult to compare a police office since a security guard just doesn't cut it.

Take an electrical engineer with a city and an electrical engineer with a private company. Is that pay difference sufficient enough to let the private employee retire with the same benefits (pension AND health care)?
Those figures would be easy enough to look up. Id be willing to guess the city engineer makes at least 15% less and also has to pay 5-10% into his pension. 20-25% extra saved over 25 years would really add up. This doesnt even take into account my cities health care plan which sucks big time.

As I said, if the job and benefits are so great, why arent people knocking down our doors to get hired, expecially right now?
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Old 03-04-2009, 12:51 PM   #16
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In having this conversation we should remember that all public pensions are not the same and cannot be painted with the same broad brush. Some city/state public pension systems are very responsible. Some are not and made wild promises to employees & their unions. (blame your legislators)

As re: federal pensions - while good, I don't think anyone could characterize the new (since 1984) federal FERS retirement system as overly generous (particularly in comparison to the old federal CSRS & some state/city plans)

Additionally, we should also make sure we are not comparing Law Enforcement/Firefighter pensions (whether City, State, or Federal) with regular employee civil service pensions. In my mind LE/FF pensions are akin to having been in the military 25 or 30 years.
(many of us in LE/FF in fact made a choice to go from the military to civilian LE based partially on the somewhat comparable retirement system - otherwise I'd have have stayed mil)
BTW - 26 years federal law enforcement (+ 4 years mil. I paid into the federal pension system for) gets me:

* Pension: 44% of hi-3 avg salary
(cola'd at CPI minus 1%)

* Pension Supplement: till age 62 = approx 62% of my age 62 SS benefit
(not Cola'd & subject to earnings test reduction of $1 for every $2 earned over 14k)

* Thrift Savings Plan
(essentially a 401k w/same rules - govt has been matching up to 5%)

* SS when I'm 62
(aforementioned pension supplement goes away at age 62 whether I elect to start drawing SS then or not)

* Health insurance at same rates as when employed
(about 30% of total premium)
The plan I'm under is the most generous federal civil service pension available. Overly generous? I don't know - I do know of some State Law Enf retirement plans that are much more generous - I'm sure we'll each have our own opinion on that - all I know is that was the deal when I signed on, if it hadn't been I'd be retiring from the military this year.

At least nobody's begrudging the military retirees their benefits.

This thread may be more enlightening/productive if we can avoid the broad-brush comments, sour grapes, & make sure we are not debating apples/oranges.
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Old 03-04-2009, 12:55 PM   #17
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As I said, if the job and benefits are so great, why arent people knocking down our doors to get hired, expecially right now?
For one thing, I'm 43 and doubt I'd get hired -- some of these positions seem to have age restrictions on new hires (at least the military and public safety positions do). And other than those, which are still open in some places, and things that require specific training like health care, the competition I've seen for most public sector jobs is fierce. People are putting more of a value on job security, retirement benefits and health insurance than ever.

And I know my wife is going after all the government jobs in the area but coming up empty so far.

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In having this conversation we should remember that all public pensions are not the same and cannot be painted with the same broad brush. Some city/state public pension systems are very responsible. Some are not and made wild promises to employees & their unions. (blame your legislators)

As re: federal pensions - while good, I don't think anyone could characterize the new (since 1984) federal FERS retirement system as overly generous (particularly in comparison to the old federal CSRS & some state/city plans)
I know you and I have had this discussion before -- I do agree that I think the feds pretty much got it right with FERS -- at least that's a lot closer to the true "three legged stool" approach we've heard about for so long. And it doesn't seem to overpromise.
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Old 03-04-2009, 12:58 PM   #18
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The argument that public employees are underpaid and therefore should receive better pensions does not always hold true. In suburban NY, most police officers retire at 20 years making a six figure salary, and teachers (competition is fierce to become a public school teacher here) retire at 55 with generous pensions as well.

As far as needing to pay competitive wages, exactly who are the police competing with? I didn't realize that private security guards made so much money. And teachers in private schools generally receive much less than public school teachers.

The point is not about individual deals, but the mathematical sustainability of such a legacy burden. A police office can work for a salary (and overtime) for twenty years, retire at 42, and then draw a pension for the next forty years. If it doesn't work for GM (which has a 1.5 billion market cap and a 70 billion pension fund) it certainly can't work on the massive scale of public employment. Taxes must go up to pay these massive pension committments, and the only way to accomplish that is to throw another brick on the back of the taxpayer or inflate away the value of the pension. The taxpayer will still pay it, but it won't be worth as much.

As for you last question, the answer is there's a line out the door to get hired by state and local governments.

For a reality check, take look at the story of Viejo, Ca. The police and fire unions used the argument that you had to pay to get the best, and it - literally - bankrupted the city. Paying $120k to a police officer in a city with a median family income of $50k is not only unfeasable, its immoral.
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Old 03-04-2009, 01:18 PM   #19
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Teacher & LE pensions in TX don't seem to be near as generous as what you describe randyman65. (DW is a teacher)

But then you are talking about NY & CA which are among a certain number of locales known by me as "the usual suspects" in this entire financial debacle we are undergoing.

Perhaps this issue is not so much about public-sector pensions as it is about the mentality of state/local governments (and voters?) in certain parts of this country.
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Old 03-04-2009, 01:23 PM   #20
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F Paying $120k to a police officer in a city with a median family income of $50k is not only unfeasable, its immoral.
What's usually happening here is exploiting a loophole in the pension plan that should be closed.

I guarantee you the cops are getting nowhere NEAR $120,000 a year in most cases. What's happening is that the pension plans often base payouts on some average of your last few years of service (I think last 3 years and last 5 years are most common). So some cops (and not only cops; this happens in a few other areas as well) sign up for all the overtime they can get in order to inflate their overall pay for the last several years -- thus fattening their pension payouts. Some of them doubled up on their base pay with the overtime they racked up. And that could double their pension if they do it for all of their last several years (the ones used for pension calculations).

All one has to do is exclude overtime pay from pension calculations and that problem is largely solved.
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