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Old 07-26-2013, 10:00 PM   #61
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80-100% of final salary is crazy. My private sector pension is capped at 35% of salary, 1% for every year of service, 0.5% for each year if you take it at 55.
80-100% of final salary is only crazy if there wasn't enough money contributed every year.
Some plans have the employer contributing 5% or so and the employee contributing nothing. Thats not going to add up to much. How much were yours and your employers contributions?
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Old 07-27-2013, 06:43 AM   #62
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We have no "direct" employee contributions - there is no specific debit to our paycheck for pension. The employer makes a contribution each year based on an actuarial calculation. The higher an employees income and the closer to retirement, the higher the employer contribution,

Even though the contribution isn't a direct deduction, we as employees of this specific Megacorp work for about a 10% discount in our cash compensation relative to our peers. We get an annual funding notice, as of last year the plan had $2.5bil in assets and a little less then that in liabilities.

Most younger employees including me would just rather have higher cash compensation.
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Old 07-27-2013, 08:03 AM   #63
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80-100% of final salary is only crazy if there wasn't enough money contributed every year.
80-100% of highest average salary is awesome if it is sustainable.

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Some plans have the employer contributing 5% or so and the employee contributing nothing.
My megacorp contributes 4.8% to the pension plan investing in a stable value fund. An employee is eligible for a lump-sum distribution on termination or retirement. Eligibility for retirement is age 55 + 10 years of service or age 62 or over regardless of age. A retiree has an option to receive a life-time annuity at an IRR of ~4.3% or slightly lower if continued spousal benefits on death option is chosen.

Clearly this plan is way inferior in comparison to any plan that pays over 7% of average salary of highest 3-year salary.
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Old 07-27-2013, 08:13 AM   #64
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We have no "direct" employee contributions - there is no specific debit to our paycheck for pension. The employer makes a contribution each year based on an actuarial calculation. The higher an employees income and the closer to retirement, the higher the employer contribution,

Even though the contribution isn't a direct deduction, we as employees of this specific Megacorp work for about a 10% discount in our cash compensation relative to our peers. We get an annual funding notice, as of last year the plan had $2.5bil in assets and a little less then that in liabilities.

Most younger employees including me would just rather have higher cash compensation.
This explains why you think 80-100% of final salary is crazy. You pay zero into your pension fund. Your employer pays some strange formula which includes a smaller contribution when they are younger. We all know the magic of compound interest and how much it hurts to not be contributing much at an earlier age. Between me and my employer, we contribute 36% of my salary during my entire career. Its no different than if you put 5% of your salary in your 401k and I put 36% of mine in my 401k. I'm going to be able to withdraw a lot more money when I retire than you. Just because some pensions pay a lot to their members, does not mean that the pension fund is being irresponsible or that that its going to have to be bailed out by taxpayers down the road.

As for younger people wishing they were paid more now, that's pretty much human nature and the younger people where I work feel the same way. But as they get older they start changing their tune. I work for one of the lower paid police departments in my region but the city also contributes more to my pension fund than any other city does. It sucked when I was younger and nobody felt sorry for me back then as I watched my non police friends making 6 figures, so I don't apologize to anyone now that I'm within 18 months of collecting a very healthy pension for the rest of my life.
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Old 07-27-2013, 08:37 AM   #65
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As for younger people wishing they were paid more now, that's pretty much human nature and the younger people where I work feel the same way. But as they get older they start changing their tune. I work for one of the lower paid police departments in my region but the city also contributes more to my pension fund than any other city does. It sucked when I was younger and nobody felt sorry for me back then as I watched my non police friends making 6 figures, so I don't apologize to anyone now that I'm within 18 months of collecting a very healthy pension for the rest of my life.
First, congrats on being a short-timer and an awesome pension.

When I was young, I did not pay any attention to retirement. In retrospect, I should have stayed in the USAF and retired in my early 40s.
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Old 07-27-2013, 04:49 PM   #66
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My corporate pensions are covered by the PBGC and my federal pensions are backed by my Uncle Sam. If they go away, we are all doomed anyway.
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Old 07-27-2013, 05:28 PM   #67
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My megacorp contributes 4.8% to the pension plan investing in a stable value fund. An employee is eligible for a lump-sum distribution on termination or retirement...

Clearly this plan is way inferior in comparison to any plan that pays over 7% of average salary of highest 3-year salary.
This reminded me of my wife's former pension plan. Her megacorp froze and converted its DB plan to a cash balance almost 30 years ago. All benefits from that point on were in the form of 401k.

The cash balance of the former DB plan has been invested in a stable value fund. Due to its low return and its being frozen and not added to, it is now puny compared to her 401k. It missed out on the market bull run of 1980-2000.

So, when a pension does not take the conservative approach, it can do better, or worse if not managed correctly.
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Old 07-28-2013, 07:04 AM   #68
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This explains why you think 80-100% of final salary is crazy. You pay zero into your pension fund. Your employer pays some strange formula which includes a smaller contribution when they are younger.
.
To clarify, while there may not be a direct deduction from my paycheck, I certainly "pay" into my employers plan. I pay into the plan by working for a 5-10% discount to my peers at other institutions doing the exact same job,
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Old 07-28-2013, 07:59 AM   #69
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To clarify, while there may not be a direct deduction from my paycheck, I certainly "pay" into my employers plan. I pay into the plan by working for a 5-10% discount to my peers at other institutions doing the exact same job,
I understand what you are saying, but that's not enough to build a big pension fund which is why you think 80% is crazy. Now if you were working at a 12% discount which your employer was putting into the pension fund, along with another 12% of their own money that they were matching and contributing. AND you were having 12% deducted from your paycheck and contributing it to the pension fund, then you would be able to collect 75+% of your salary in retirement.
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Old 07-28-2013, 09:21 AM   #70
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I just read in the op-ed section of my local newspaper, Hank Kim, the Executive director and counsel on Public Employee Retirement Systems proclaimed in his letter Detroit's pension system is not source of the city's failure. He wrote the the police and fire plan is 96% funded and over 87% funded for the other city employees. Now I can't imagine him outright lying on this figures, so assuming them to be true, why are these people being threatened with severe pension cuts? What am I missing here?
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Old 07-28-2013, 09:40 AM   #71
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The other side says there's a $3.5 billion shortfall. I would say that someone is seriously mistaken.
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Old 07-28-2013, 09:53 AM   #72
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I just read in the op-ed section of my local newspaper, Hank Kim, the Executive director and counsel on Public Employee Retirement Systems proclaimed in his letter Detroit's pension system is not source of the city's failure. He wrote the the police and fire plan is 96% funded and over 87% funded for the other city employees. Now I can't imagine him outright lying on this figures, so assuming them to be true, why are these people being threatened with severe pension cuts? What am I missing here?
Here's a big overview on why this could be a game changer from one of the smartest people in finance:

Detroit Bankruptcy a

The question is will the bankruptcy judge try to change where Pensioners fall in the rank of creditors. If they place them higher than they normally would be, it'll really wreck other municipalities ability to borrower. The pension plans may or may not be funded, but the other obligations of the city were not. If a private employer goes under, the pensioner tends to only get a portion of what they were owed from the guarantee fund.
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Old 07-28-2013, 10:43 AM   #73
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Originally Posted by chasesfish View Post

Here's a big overview on why this could be a game changer from one of the smartest people in finance:

Detroit Bankruptcy a

The question is will the bankruptcy judge try to change where Pensioners fall in the rank of creditors. If they place them higher than they normally would be, it'll really wreck other municipalities ability to borrower. The pension plans may or may not be funded, but the other obligations of the city were not. If a private employer goes under, the pensioner tends to only get a portion of what they were owed from the guarantee fund.
So in other words, the money may be there, but may also be used instead to pay other city debt and obligations. I just assumed previously that the money was separate and maybe severely underfunded, but neither of those are true.
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Old 07-28-2013, 10:50 AM   #74
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The most recent annual report(s) should answer all funding questions. The data is there. One liability that is typically unfunded is future healthcare cost.
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Old 07-28-2013, 10:58 AM   #75
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The most recent annual report(s) should answer all funding questions. The data is there. One liability that is typically unfunded is future healthcare cost.
The healthcare liability may be the difference in determining what is the "true" funding status of the system. Just my opinion, but I could see stripping the retiree healthcare out as a cut, but taking away true pension dollars when it is properly funded away from the pensioners is not right in my maybe biased opinion.
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Old 07-28-2013, 11:51 AM   #76
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The healthcare liability may be the difference in determining what is the "true" funding status of the system. Just my opinion, but I could see stripping the retiree healthcare out as a cut, but taking away true pension dollars when it is properly funded away from the pensioners is not right in my maybe biased opinion.
This is roughly how the corporate world did it. First freezing health care contributions at current levels, then doing away with the benefit for retirees, then freezing the pension (eliminating cola). In aggregate, that probably reduces the total future liability by half (wag).

Still, the case here is to determine who has higher rank between muni bond holders and pension holders. It will be interesting, take a long time to resolve, offer up many more "hair on fire" moments for Ms Whitney and her peers. This case has more real world applicability than other recent defaults (Stockton, Jefferson) and will be a real opportunity for some bright legal minds to shine.
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Old 07-28-2013, 12:24 PM   #77
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This is roughly how the corporate world did it. First freezing health care contributions at current levels, then doing away with the benefit for retirees, then freezing the pension (eliminating cola). In aggregate, that probably reduces the total future liability by half (wag).

Still, the case here is to determine who has higher rank between muni bond holders and pension holders. It will be interesting, take a long time to resolve, offer up many more "hair on fire" moments for Ms Whitney and her peers. This case has more real world applicability than other recent defaults (Stockton, Jefferson) and will be a real opportunity for some bright legal minds to shine.
Yes it will be. It's one thing to cut public pensions because the money wasn't there. It is definitely a whole different game when the money is essentially there, but gets seized and delivered to some other creditor.
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Old 07-28-2013, 12:27 PM   #78
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I wish I had my sister's pension. 2 percent for every year, and COLA'd to boot.

She wishes that she had mine. 1 percent for every year, no COLA. A contribution rate of 0, ie fully funded by my employer, vs her contribution rate of 12 percent.
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Old 07-29-2013, 06:44 AM   #79
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... I think the real issue when discussing underfunded public pensions is what to do about folks already retired and what to do about the credits already earned by current employees. I don't know of any instances in the private sector where an ongoing company rewrote history and reduced the pensions of retirees or told current employees that the credits earned in prior years and already in the books were being reduced. So in places like Illinois and Calif, we're treading on new ground. And we might be setting precedents that carry over to the private sector.
The following article describes a precedent set in a tiny small town of 1 square mile in Rhode Island. A retired firechief got his $34K pension cut in half. He started as a fireman at the age of 20, and retired at 42 at a salary of $60K. He also had retiree's family health insurance with no copay, but it was not clear what happened to that.

'It's degrading': Bankrupt New England mill town offers Detroit a bleak preview - In Plain Sight
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Old 07-29-2013, 06:51 AM   #80
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Yes it will be. It's one thing to cut public pensions because the money wasn't there. It is definitely a whole different game when the money is essentially there, but gets seized and delivered to some other creditor.
I believe this already happened in the private sector, Do a Google search for Delta Airlines pilot pension
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