Pension, healthcare, Medicaid conundrum

[imoldernu]

My guess would be the "bird in the hand" option.
Time to count the blessings, and be happy that the pension is not funded by Chicago.

Here's the latest on the outlook for public employee pensions in the windy city.

City lawyers predict 'catastrophic outcome' if pension reform overturned | Chicago

Quote:

Chicago faces a $300 million deficit in 2016 with shortfalls continuing “for the forseeable future” — even before piling on $20 billion in pension liabilities that have saddled the city with the “worst credit rating of any major city other than Detroit.” And if state legislation that saved two of four city employee pension funds is overturned, a “catastrophic outcome” awaits retirees and Chicago taxpayers alike triggered by “further downgrades.”

[nun]

Quote:

Originally Posted by imoldernu My guess would be the "bird in the hand" option. Time to count the blessings, and be happy that the pension is not funded by Chicago. Here's the latest on the outlook for public employee pensions in the windy city. City lawyers predict 'catastrophic outcome' if pension reform overturned | Chicago

Its a real concern, but there was also a lot of hype and scaremongering around public pensions in the wake of 2008. Right now my state pension funding ratio is on the way up. The whole state system (including teachers and local workers) had a 71% at the end of 2013. The separate state workers pension was probably closer to 75% or 80% funded. Market returns and recent pension reforms that changed how benefits are calculated and pushed back the retirement age should see the funding ratio over 80% in the next couple of years. Also 2/3rd of the contributions come directly from state employees wages and the the state has a plan to reach a 100% funding ratio in 2030. So while giving up a chunk of money to any organization to buy an annuity is tough I feel pretty confident in the commitment and ability of my state to meet their obligations. We have a strong union and a democratic legislature which also gives me some confidence.

[Chuckanut]

Quote:

Originally Posted by nun Also 2/3rd of the contributions come directly from state employees wages....

Thanks for mentioning that. It is an often forgotten fact. Part of a pension payment is simply return of the employee's contributions and a return of the earnings on those contributions.

[nun]

Quote:

Originally Posted by Chuckanut Thanks for mentioning that. It is an often forgotten fact. Part of a pension payment is simply return of the employee's contributions and a return of the earnings on those contributions.

Yes, the number of public pensions that don't require contributions from the employees is very low today. My state has both a DC and DB plan and you can choose one or the other. When I stared working I chose the DC plan as I wanted the flexibility and the DB plan had a 10 year vesting schedule. The contributions were the same, 11% of salary and the state kicks in 5%. Strangely the state is now allowing people in the DC plan a one time buy opportunity to buy into the DB plan ie to switch horses in mid stream. As I was thinking of using some of my savings to buy an annuity I decided to accept the offer as the state's DB plan is far better than any annuity I could buy on the open market.

[Mulligan]

Quote:

Originally Posted by Chuckanut Thanks for mentioning that. It is an often forgotten fact. Part of a pension payment is simply return of the employee's contributions and a return of the earnings on those contributions.

It is still stunning how little that is in the total scheme of things. Very few pension systems I know of have a 14.5% contribution rate of total yearly compensation (which includes health insurance premium) and a 14.5% match like my pension system. Despite the big contributions from both sides, the system is held together by the investment returns. 67 cents of each pension dollar received comes from investment returns, while the other 33 from the contributions.
When government pensions skip their required contributions it is easily seen the compounding damage done to it years down the road.


Sent from my iPad using Tapatalk

[nun]

Quote:

Originally Posted by Mulligan When government pensions skip their required contributions it is easily seen the compounding damage done to it years down the road. Sent from my iPad using Tapatalk

Yes very true. My state obviously fully funded the DC side of things, but did not do the same for the DB pension option for a long time, relying on investment gains and creative accounting to plug the gaps. That has now changed with the 2012 pension reforms and the state is increasing it's annual contribution to catch up.