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Pension question
Old 08-22-2007, 02:08 AM   #1
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Pension question

Part of our RE plan is the fact that after 20 years DH will have a fed gov't pension (he's only 1 year in so really this is not something we depend on - we're also saving for retirement as much as we can - but it is a factor). A friend who is admittedly not very financially astute mentioned to me that I shouldn't plan to depend on a pension at all because the likelihood of it still being available 20 years from now is low. Now, I know companies and even governments (i.e. for teachers) are reducing or getting rid of their pensions, but I find it hard to believe the fed is going to go the same way.

Am I being naive? Does anyone have insight on this issue?
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Old 08-22-2007, 06:38 AM   #2
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I'd be shocked if government agencies stopped funding pensions. Its one of the main reasons they can get quality people while normally paying below avg salaries (compared to private sector).

Ive been a police officer for 18 years and never have I heard any rumor of any city, state or federal agency even mentioning that they are considering doing away with their pensions.

They cant just wake up one morning and decide to stop funding their pension like IBM can. There are laws governing this sort of thing. They would need to get the laws changed.

I wouldnt worry about it.
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govt.
Old 08-22-2007, 06:38 AM   #3
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govt.

You can trust the politicians/government..........they never lie.
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Old 08-22-2007, 07:15 AM   #4
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The pension plan your DH will "retire" with is not in effect at this time. For example, the people who reached their 25 (magical # for medical coverage) years during the previous "contract" (ended 7/1/07) or before do NOT pay medical insurance premiums - ever. The contract that is in effect in 2020 (meaning how much I'll pay for med insurance) will apply to me. Odds are good he will still have a pension, but no one can tell at this point what the details of his benefits will be at that time.
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Old 08-22-2007, 07:24 AM   #5
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Originally Posted by ylm23 View Post
Part of our RE plan is the fact that after 20 years DH will have a fed gov't pension (he's only 1 year in so really this is not something we depend on - we're also saving for retirement as much as we can - but it is a factor). A friend who is admittedly not very financially astute mentioned to me that I shouldn't plan to depend on a pension at all because the likelihood of it still being available 20 years from now is low. Now, I know companies and even governments (i.e. for teachers) are reducing or getting rid of their pensions, but I find it hard to believe the fed is going to go the same way.

Am I being naive? Does anyone have insight on this issue?
Nothing in life is certain, but I am less concerned about losing my FERS pension than about losing social security, or stock market crashes, or many other possible calamities that might affect my upcoming retirement. I think you are right; I don't believe it is at all likely that the feds will eliminate his pension.

They might tax it a bit more than they presently do, or fiddle with the benefits as a prior poster indicated, but I think there would be too much of an outcry if it was just completely eliminated.

There have been rumors for many years that they might go to a "high five" instead of "high three" when initially computing one's pension, but I don't see that happening either.
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Old 08-22-2007, 08:04 AM   #6
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Death and taxes are fairly certain, and a federal pension ain't far behind. It takes an Act of Congress to change the federal pension rules and though Congress might tinker with changes every now and then, I can't see it completely eliminating a federal pension system that not only benefits a large federal civil service workforce and federal retirees, but also benefits members of Congress and their spouses as well. Besides, when you start tinkering with the civilian retirement system, it becomes fairly complicated as you normally have some spill over effects with the military retirement system and other federal systems and health and benefit programs as well.
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Old 08-22-2007, 08:14 AM   #7
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I wouldn't worry about the Federal pension. They changed it in the early 80s (everyone hired before that had the choice to stay with the old system) and have not substantially tinkered since. Your Congress critters are in the same system (with more generous benefits, of course) so they are not inclined to mess with it. And, as Utrecht said, it is a huge recruitment tool. No one is going to toss that out lightly.
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Old 08-22-2007, 11:41 AM   #8
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I'd be shocked if government agencies stopped funding pensions. Its one of the main reasons they can get quality people while normally paying below avg salaries (compared to private sector).
I'd be shocked if they did away with them as well, but I would be willing to bet money that any plan in place today will be different by the time the OP's hubby actually retires.

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Ive been a police officer for 18 years and never have I heard any rumor of any city, state or federal agency even mentioning that they are considering doing away with their pensions.
I did 27 years and my pension plan changed substantially five or six times before I retired in February. There were some changes that were in our favor, but at the end it started going the other way. New hires have a not-quite substantially reduced plan - but they do have to work until they are older and their plan is definitely not as good as those of us who were grandfathered in. Those who were grandfathered, but had to keep working for at least a few more years, got some reductions/changes in benefits. In some cases they had to modify their retirement dates. Those of us who could retire right away did so (700 left in about a year and a half and they are expecting another wave soon as the deadline for a final important change comes up soon).

My advice is to be prepared for change and plan for some flexibility. The plan may be modified substantially sometime in the future - or your world outside of the plan could change. You don't want to be completely dependent on just the pension plan so that your retirement plans are ruined if something happens to the pension. Plus, and I'm definitely not trying to put any bad mojo on your DH's career, but in 27 years I've seen a lot of coworkers/associates whose careers ended earlier than they originally anticipated. Even Feds get disgusted with their supervisor/agency and quit, or get crossways with their agency and are asked to go find another job, etc.

It's always a good idea to have Plan B. Having some kind of Plan C might not be too bad of an idea either.

I remember when I was a supervisor in a federal task force and a bunch of our feds retired in the same year. 75% of them came back within a few months of retiring and asked me to sign off on their application for a state private investigator license. I was surprised at first and asked why they needed to work, or consider a future need to work. Their answers were all something along the lines of
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Hey, I'm (50 whatever) years old and I expect to live for a long time. There is no way to predict what the economy is going to do, or what a bunch of politicians are going to do. I just want to be prepared in case something bad happens.
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Old 08-22-2007, 12:08 PM   #9
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Whatever changes in your pension that "went the other way" didnt affect people already vested, right? At least in my state, thats not legal. They cant take away benefits for people already hired on.

Besides, theres no need to be lowering benefits unless the people managing your pension funds are incompetant. Our benefits are constantly being raised, not lowered.
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Old 08-22-2007, 12:22 PM   #10
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As a Fed for 30 years, I agree that a government pension will likely still be around in 20 years, but not without some changes. I'd be more worried about getting through those 20 years (downsizing, stress of doing more for less, etc.) than about FERS. Just keep pumping the maximum into your TSP every year and suppliment with a Roth if possible. And use the FSA, particularly if you have know expenses such as child care and dental. So many of my coworkers don't take advantage of FSA, but I never pass up a pretax deduction!!!
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Old 08-22-2007, 01:20 PM   #11
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Whatever changes in your pension that "went the other way" didnt affect people already vested, right? At least in my state, thats not legal. They cant take away benefits for people already hired on.

Besides, theres no need to be lowering benefits unless the people managing your pension funds are incompetant. Our benefits are constantly being raised, not lowered.
I'll try to be brief but its pretty complicated.

We manage our own pension assets through an independent pension board with trustees elected from active duty and retired members. Mayor has a rep on the board and City Treasurer is a member. Benefits are set in state law, but the law that affects us is written so that it only affects us ("in cities with population greater than..."). The pension system negotiates with the city to decide benefits, and then they go to the legislature and get them to enact the law.

We got the "meet and confer" version of (watered down) collective bargaining in 1999. Prior to that, salary, benefits and pension were strictly a mater of politics. Before our first contract we had a decent pension but had seen years of salary and benefit changes/erosion. In the late 1980's, when the salaries were suffering and some benefits were getting whacked, the city started the practice of taking away money from salary in the present but promising us more in the future by adding to what we would get when we retired.

In 1999, when we started negotiating our first contract, the stock market was at all time highs and the pension was well over 100% funded. The City gave us some nice raises. The raises naturally affected the pension's future liability.

2001/2002 the stock market was in the tank and the pension was no longer 100% funded. The City suddenly realized they were hurting as well, and a lot of salaries and benefit increases that were about to go into effect were renegotiated with our MBA. The City pleaded poverty and the Union allowed the City to push our raises farther off into the future and to freeze payments to the pension system at the current rates. Like right after the Mayor would be term-limited out in 2003. In return, the Union won concessions like greater future raises and moving a lot of money into benefits (other than salaries) that were calculated as part of overall compensation for pension purposes (OT, Hazard Pay, Acting Pay, Education Pay). All of that greatly increased our future pensions - by a lot.

The pension board screamed. Cops on the pension board were ticked at the cops on the Union board of directors because nobody had asked the pension board if they could afford any of the changes. The pension filed a lawsuit against the City.

January 2004 brought in a new mayor and one of the first things he was presented with was a huge bill for all of the police raises that were about to go into effect, along with a projection of what the City was going to have to pay into the pension to make up for several years of underfunding as well as all of the changes in compensation that had pushed up the pension benefits. Meanwhile, there were problems in the pension plan for all of the other city employees.

The new mayor said "I can't pay for all of this" and reopened the contract with the pension board (not the MBA). He got away with this because the MBA controlled salary and work conditions, but had no control over pension benefits.

Current employees had a raise in the percentage of their salary as contributions into the pension immediately. There was a three-year grandfather clause on calculating pensions (went to a 3 year average rather than highest salary plus average of extra pays), DROP interest floor was raised, but the maximum interest was capped at 7% until the pension was 100% funded and then it would go to a maximum of 10% - in 2000 the interest had been 16%). What pays were included in compensation for pension calculation purposes were drastically reduced. A lot of other things were changed, and we got some good things in return, but the majority of the department was eligible for retirement and 15% walked out the door and collected their pensions and rolled their DROP accounts over to IRAs.

New employees really got shafted. No more DROP, minimum retired age introduced (age 55) as opposed to 20 years service being only requirement, greatly increased employee contribution to pension, 45% pension after 20 years as opposed to 55%, etc.

If you look at this and say "that's a mess", you would be absolutely accurate. But when you work for a bunch of short sighted politicians that is the sort of thing you can expect.

If you think this is a mess, Google "Police Pension Problems" and you will see different, but equally screwed up, problems in cities, counties and states across the country. The great majority of the problems are caused by political decisions that must have seemed like a great idea at the time they were made.

As complicated and weird as our situation was, I think that we all came out pretty well in the end. But change was the order of the day. Some of us left three - five years earlier than we expected and others are staying that much longer than they expected. It depended on your individual situation and how the changes affected you. Luckily for me, my pension was just a part of my overall retirement financial picture and I had more options than some folks did.
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Old 08-22-2007, 01:52 PM   #12
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thanks for your insight, guys. you basically corroborated what i felt in my gut - don't depend on it, we may not even stay that long, but it is unlikely to go away.
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Old 08-24-2007, 01:06 AM   #13
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The federal government's pension plans (CSRS and FERS) are the safest around. Where else can a company that needs/wants more money simply raise taxes on every wage earning in the nation.

To get the most out of the FERS plan your spouse must put at least 5% into the TSP whereby the government will put in a matching 5%. Hopefully, he can put in much more than 5%.
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Old 08-24-2007, 04:05 PM   #14
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Where else can a company that needs/wants more money simply raise taxes on every wage earning in the nation.
It doesn't work that way. The defined benefit aspects of the Federal retirement systems are basically jointly funded by the employer's (yes, it's the Federal Government) and the employee's contributions to the system. I'm not sure how much Uncle Sam kicks in, but it might be lower than the employee's total contribution of 7 percent of his earnings for CSRS participants. I don't think CSRS or FERS has ever needed more money -- the systems are incredibly self-sufficient.

In fact, on several occasions, the Government has "borrowed" money from TSP (raided the G-Fund) to accommodate a few budget issues with the national debt ceiling. The Government has repaid the amounts it has borrowed, but employees and retirees have no control over these borrowings, unlike private employees who would be able to prevent an employer from raiding a private retirement program funded primarily by employee contributions.
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Old 08-25-2007, 08:43 AM   #15
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In fact, on several occasions, the Government has "borrowed" money from TSP (raided the G-Fund) to accommodate a few budget issues with the national debt ceiling. The Government has repaid the amounts it has borrowed, but employees and retirees have no control over these borrowings, unlike private employees who would be able to prevent an employer from raiding a private retirement program funded primarily by employee contributions.
That line of reasoning is why I, and a lot of my peers, withdrew our DROP (locally similar version of TSP) funds out of our pension system when we retired. Most of us thought it would be difficult (legally and politically) for our employer to come in an raid the system - but none of us thought it impossible.
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Old 08-26-2007, 05:27 PM   #16
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That line of reasoning is why I, and a lot of my peers, withdrew our DROP (locally similar version of TSP) funds out of our pension system when we retired. Most of us thought it would be difficult (legally and politically) for our employer to come in an raid the system - but none of us thought it impossible.
Except the TSP is the most expense efficient set of index funds you can invest in and the treasuries portion is no different than any other Treasury. It is backed by the full faith of the US Government -- if it goes bankrupt we are all in trouble. I moved an American Fund IRA INTO my TSP account after I retired. I wish I could roll DW's IRAs in.
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Old 08-26-2007, 05:34 PM   #17
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Except the TSP is the most expense efficient set of index funds you can invest in and the treasuries portion is no different than any other Treasury. It is backed by the full faith of the US Government -- if it goes bankrupt we are all in trouble. I moved an American Fund IRA INTO my TSP account after I retired. I wish I could roll DW's IRAs in.
Like you, I have a lot of confidence in the TSP and I will be leaving my money there when I retire. I wouldn't want to put all my eggs into ANY basket, though, not even this one. So, maybe it is not so bad that you have some assets in other IRAs.

That said, as baskets go, it looks like this will be my main one.
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