Pension problems?

[Exterous]

I think the first thing to do is to end the spiking in the last year in some pension plans. That would mean one takes the average of the 3 highest years basic salary, plus perhaps up to some limit like 10% of overtime in addition. If overtime exceeds the limit it does not count towards the pension, and unused vacation and sick time get paid but don't count towards the pension.

I think limits on overtime and sick padding are a good idea although I would like to see the pension payout based on your lifetime earnings much like SS is. My wife is in a pensioned industry where they already have the 3 year limit and most are salaried. However, numerous (and easy) opportunities still exist for employees to pad their final 3 years of compensation - many of which are required by state or federal policies. Averaging over your career would make padding much harder. That said I don't think you'll see any large changes in pension calculations outside of bankruptcy any time soon as the pattern seems to be moving along the lines of increasing contributions for existing members and moving to a DB plan for new hires instead of calculation of payout changes

 

[chasesfish]

Move the requirement to 5 years instead of three.

 

[utrecht]

My pension fund is in good shape but they are very pro-active so they recently made some changes (mostly for new hires) to shore it up even further. They had an actuary determine how much each change would increase the funding. Here they are:

1) Vesting increased from 5 years to 20 years. Personally I don't think this helps all that much. People who quit before 10 years tend to tend a lump sum of their contributions as payment in lieu of their pension which is moronic but they do it anyway. Not many people who make it to 10 years leave before 20 years.

2) Changed from average of highest 3 years to highest 5 years. We already have no spiking or overtime included in calculations.

3) Retirement age raised from 50 to 55. You can still retire early but there's a significant penalty if you leave early and collect your pension early. There's no penalty for leaving early if you don't collect anything unto 50 (or 55 for new hires).

4) Multiplier lowered from 3% to 2%.

5) DROP (delayed retirement option program). This is an option which allows you to delay collecting your pension and having it deposited into an interest bearing account. It pays a guaranteed 8-10% depending on the rolling 10 yr avg of the returns of the pension fund. You can continue working past retirement age, but be retired for purposes of the pension. You accrue no more benefits and have your pension deposited into the savings account each month. In the past, once you entered DROP, you no monger made your contributions to the pension so you technically got a raise. This changed and you must still keep contributing. For new hires the DROP interest rate got lowered to ZERO percent. I think that is ridiculous and have no idea why anyone would enter DROP under those circumstance. I would've rather they lowered the DROP interest to the rolling 10 yr avg with no upper or lower guarantees on the interest rate. I also would've voted to limit the number of years in DROP to 7. It used to be 5 but is unlimited now.

We have none of the controversial things like spiking, included health care coverage, payments of sick time included in pension, etc. Our only bonus pension feature is the DROP program but the actuary says it is not hurting the fund. Again, I think the interest rate should be changed to the actual 10 yr rolling avg.

All of these changes required a vote of the pension members and they were voted in easily because we believe the fund needs to be sustainable long term or we all get hurt. As I've stated before, we have a great pension but also have one of the highest contribution rates in the country at 36% combined so we can afford the good benefits. Most of that high contribution rate is paid for by accepting lower salary than surrounding cities, so my city and taxpayers aren't "paying extra" or being overtaxed to pay for our generous pension.

 

[JoeWras]

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.

Right, short of bankruptcy.

My first Megacorp came close and made some really hard edged decisions and stopped the DB plan in its tracks in 2006. The net effect was that pensioners could not get the years of service anymore to make the formula favorable. They'd still get their pension, but it would be like if they quit after 10 or 15 years, even if they eventually work 25 or 30. So they didn't reduce credits, but without being able to gain new ones, the formula worked against them.

At least they started a nice DC plan that the employees could then change to.

Same megacorp a decade earlier told existing retirees they would now have to pony up some for healthcare costs. Those retirees paid nothing, but would now have to contribute. The cry from that community was deafening, but Megacorp went ahead anyway. This was big, and something that will probably be more complex for public institutions to do short of bankruptcy.

Disclosure: I always say I have no pension. Fact is, I have a small vesting from Megacorp 1. But with just less than 10 years of service, my benefit will only be enough for 1 round of golf per month. I can hardly worry about it. And if inflation comes, maybe it will be good for a hamburger per month.

 

[Chuckanut]

Move the requirement to 5 years instead of three.

It already is for many us us, such as yours truly.

 

[utrecht]

Move the requirement to 5 years instead of three.

If you're a public employee who rarely gets a raise, 3 years or 5 years makes no difference

 

[BLS53]

From the PBGC :


A pilot friend who had to retire about five years ago (age 60) had a pension of about $105K... He also had just bought a $500K new house and was paying for college for 2 kids. Pension disappeared. At the time, I think the PBGC paid a max of about $45K.

We go into retirement trusting in promises. Trust in God... all others pay cash!

Airline pilots in many cases, weren't LBYM'ers. With ex's, mistresses, children, private airplanes and boats, stashed around the world. The Dean Martin character in the original "Airport" movie, wasn't too much of a stretch from real life. Those times are largely gone, with aviation as a whole an insecure profession these days..

I imagine many of the "victimized" pilots, learned some humility, and do just fine on the $45k.

 

[BLS53]

True. However, SS is what we talk about, and means testing has been mentioned more than once.

The poor get so little from SS, and it is really a form of welfare for people with low paying jobs. I would not be so heartless to talk about cutting it for them.

The rich already do not get out of SS in proportion to what they put in. I have pointed out in the past that a person making $100K does not get double what a $50K wage earner gets, despite contributing exactly 2X. With taxes, they are getting even less.

However, the rich are few, and even if we cut them out all together, how much would that help?

What concerns me is among the middle class, two guys making the same amount, contributing the same in their working life, the guy who manages to save extra via 401k or IRA now gets penalized. If you need to cut, then cut them equally. No rewards for big spenders. Else, nobody would save anything!

The problem with these ideological issues concerning who deserves SS, is that how do you administer such a policy? Subject every applicant to a judicial review, and make value decisions on how people have managed their finances throughout their life? I don't think that's the original intent of SS.

If such a policy was implemented, to "reward savers" and punish the "spendthrifts", it would be a bureaucratic nightmare beyond belief. Think of the issues we have now with SS disability, where a judge approves or declines applicants, and magnify those issues across the entire population of seniors applying for SS. At least with SSDI, there is some definable level of physical and mental incapacity to determine the approval of benefits.

I suppose the fiscal zealots implementing such a program, could get with the credit reporting agencies and design a "SS score" to approve or disapprove benefits. There would be a new breed of attorneys springing up to appeal the denials as well.

It's always interesting to me, when the anti-government crowd, comes up with these ideas to punish people they don't like, that would in turn require an increase in government intervention to implement.

 

[BLS53]

This short article link shows some of the prominent options and solutions to fix SS and what the surveyed Americans thought was the best option. Only 31% of Americans favored means testing to help solve the funding problem, while 69% of the 2,000 Americans surveyed favored increasing the social security tax 1%. They did not want to change retirement age or use chained CPI. They didn't want to deprive the wealthy people of their SS, but were positive in their response to lifting the income limit that is taxed on SS. So it appears Americans are willing to pony up to keep SS benefits at status quo.
5 Ways to Fix Social Security - Planning to Retire (usnews.com)

Chained CPI is a relatively painless change, that should be implemented. What's interesting is that a certain political faction has pushed it for years, and then the opposing faction suggested it recently, and it was shot down as a bad idea.

 

[Spanky]

Think of the issues we have now with SS disability, where a judge approves or declines applicants, and magnify those issues across the entire population of seniors applying for SS.

According to the data of SSA, the ratio of disabled worker (8,827,795) to retired worker (36,719,288) is about 1 to 4 at the end of Dec 2012 even though the approval rate of eligibility for disability is less than 50%.

 

[NW-Bound]

The problem with these ideological issues concerning who deserves SS, is that how do you administer such a policy?
...
If such a policy was implemented, to "reward savers" and punish the "spendthrifts", it would be a bureaucratic nightmare beyond belief...
...
It's always interesting to me, when the anti-government crowd, comes up with these ideas to punish people they don't like, that would in turn require an increase in government intervention to implement.

I think you are much confused.

The savers create their own rewards. The spendthrifts reap what they sow. That is if they each get the same SS, if they have contributed the same into the system.

What means testing does, and this is what some in the government propose, is to say that if you have saved money in an IRA, 401k, or even in CDs, then we will give your SS to your friend who has saved nothing. Why? Because he needs it and you don't! To each according to his need. Does that sound familiar?

Means testing like the above is easy to do, because the government already knows about everyone's account. Of course, people may just try to hide money under their mattress from now on instead of investing (or even buying CDs), so that they will appear "needy".

 

[ERD50]

Airline pilots in many cases, weren't LBYM'ers. With ex's, mistresses, children, private airplanes and boats, stashed around the world. The Dean Martin character in the original "Airport" movie, wasn't too much of a stretch from real life. Those times are largely gone, with aviation as a whole an insecure profession these days..

I imagine many of the "victimized" pilots, learned some humility, and do just fine on the $45k.

Broad brush? I'd be curious to hear Gearhead Jim's take on that.

I know a pilot, a real (long term) family man, and I don't see any wild spending, their home is more modest than ours. Of course he could have mistresses and children in other countries he flies to, no way for me to know, but I'd be very surprised. And his DW would kill him if she found out - she's not the kind to stand for that!

I know he got his pension cut, we've talked about it in very general terms. It's not the kind of thing we'd go into in specifics.

-ERD50

 

[ERD50]

Originally Posted by BLS53 View Post
The problem with these ideological issues concerning who deserves SS, is that how do you administer such a policy?

I think you are much confused.

Agreed. Means testing adds to the administrative complexity. The default, no means testing is simpler.

What is more complex - filling out a FAFSA form, or not filling out a FAFSA form? And then, the form had to be created, updated, and administered. And you have to do some checking for cheaters. Simple?

You can hold differing opinions on whether means testing is appropriate or not, but you can't claim it is simpler.

-ERD50

 

[chasesfish]

Airline pilots in many cases, weren't LBYM'ers. With ex's, mistresses, children, private airplanes and boats, stashed around the world. The Dean Martin character in the original "Airport" movie, wasn't too much of a stretch from real life. Those times are largely gone, with aviation as a whole an insecure profession these days..

I imagine many of the "victimized" pilots, learned some humility, and do just fine on the $45k.

This thread isn't meant to be spiteful towards those who's pensions are at risk. We could also go down the route of public employees voting in the same people who bankrupt their system and have no sympathy for them because of that. However, a lot of that power and idiocy is concentrated in a few politicians and public union leaders.

 

[Spanky]

Means testing like the above is easy to do, because the government already knows about everyone's account. Of course, people may just try to hide money under their mattress from now on instead of investing (or even buying CDs), so that they will appear "needy".

Does the government really have access to the amount that you have in all your accounts? The amount in tax-deferred accounts, I guess, are reported.

 

[NW-Bound]

Does the government really have access to the amount that you have in all your accounts? The amount in tax-deferred accounts, I guess, are reported.

I am not sure if the government knows about after-tax accounts as it stands. However, it is easy for them to know, or to demand all financial institutions to report it.

Currently, people who are on food stamps or some welfare programs are not allowed to have a certain amount in their checking account. From what I have read, this is enforced (I wonder what they can do about people who simply withdraw and deal in cash).

In countries that have asset-based taxes (in addition to income taxes), you have to report any personal collectibles, valuable objects such as rare paintings, antique furnitures, etc... In those countries, one expects that the easier targets like bank accounts will be counted first.

I am not saying the US SS and tax system will go this way, but some pols already start talking about that. And I find it alarming.

 

[gauss]

Beware of any attempts to means-test SS benefits. This will divide & separate people in terms of their support of the program as it starts to more resemble a welfare program.

The current high levels of popular support for the SS program that we observe, as reported by Mulligans article in post #111 of this thread, would likely be a thing of the past a decade or so after means-testing were to being IMHO.

-gauss

 

[meierlde]

Beware of any attempts to means-test SS benefits. This will divide & separate people in terms of their support of the program as it starts to more resemble a welfare program.

The current high levels of popular support for the SS program that we observe, as reported by Mulligans article in post #111 of this thread, would likely be a thing of the past a decade or so after means-testing were to being IMHO.

-gauss

To boot there are two means tested features of Social Security right now. One is a means test based upon lifetime earnings. If you look at the benefit formula one finds that lower incomes recieve a greater percentage of their average earnings than higher incomes. 90% up to average earnings of 791/month, 32% between 792/month and 4768/month and 15% above 4769 to the ss limit. In addition if ones total income exceeds some sum, social security benefits are 85% taxable. The numbers are the average of the wage adjusted earnings for the highest 35 years of earnings.

 

[jclarksnakes]

To boot there are two means tested features of Social Security right now. One is a means test based upon lifetime earnings. If you look at the benefit formula one finds that lower incomes recieve a greater percentage of their average earnings than higher incomes. 90% up to average earnings of 791/month, 32% between 792/month and 4768/month and 15% above 4769 to the ss limit. In addition if ones total income exceeds some sum, social security benefits are 85% taxable. The numbers are the average of the wage adjusted earnings for the highest 35 years of earnings.

Exactly what I was going to say. SS is already means tested.

 

[NW-Bound]

Yes. And that happened before the pols even talked out loud and actually used the word.

SS benefits are regressive. That is to be expected if we consider that it is a form of welfare. Many aspects of SS are welfare, for example benefits to young children, divorced spouse of retirees, etc... That welfare aspect is arguably desirable.

The taxing of SS can be viewed the same way as taxes on IRA and 401k distributions. Is there any reason why it should be different?

But now, when they say out loud "Means Testing", I wonder how soon I should draw down my IRA and 401k and convert them to lumps in my mattress.

 

[meierlde]

Yes. And that happened before the pols even talked out loud and actually used the word.

SS benefits are regressive. That is to be expected if we consider that it is a form of welfare. Many aspects of SS are welfare, for example benefits to young children, divorced spouse of retirees, etc... That welfare aspect is arguably desirable.

The taxing of SS can be viewed the same way as taxes on IRA and 401k distributions. Is there any reason why it should be different?

But now, when they say out loud "Means Testing", I wonder how soon I should draw down my IRA and 401k and convert them to lumps in my mattress.

I expect the ability of heirs to essentially reset the clock on Required Minimum Distributions to go away. Essentially the new idea would be that if you inherit an IRA/401k you take the originators RMDs (or at least the percentages) so that one can not postpone taxes more than one lifetime.

 

[NW-Bound]

If FIRECalc's most optimistic prediction comes true, that would mean that my children would quit work and instantly go into ER upon my demise (or rather my wife's demise as she most likely outlives me). Their earned income would be nearly totally taxed away.

Hmmm... I will think about hollowing out my mattress to get some cavities in there to hide my stash, so that the bumps will not bother my sleep.