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Pension Risk?
Old 10-04-2011, 05:29 AM   #1
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Pension Risk?

Hi,

Not sure if I am asking this in the right forum section but here it goes:

Numerous family members RE'd mainly due to nice pensions (City, County, State, etc), they have all been retired for quite some time. With all the headlines about public sector bankruptcy and pension reform they are very worried about the safety of their pensions (they recall what happened to airline pilots pensions after some of the bankruptcies).

I have never worked in the public sector and do not have a pension so I really don't know how to address their concerns.

Bottom line - what happens to public sector pensions if a City or County goes bankrupt? Can a State or Federal agency change benefits to current retirees?

Thank you for any input.
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Old 10-04-2011, 06:24 AM   #2
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I think many people on this forum are asking the same questions.

Here is a PEW report on State Pension and Retiree health reform. It gives a state by state run down on what different states plan to do. Many of them seem to still be trying to figure out what to do.

Pension and Retiree Health Care Reform in States - The Pew Center on the States


Here is another link to the National Association of Retirement Administrators that provides some links to information... include changes that have been enacted.

NASRA Changes Made to State and Local Pension and Retiree Health Care Benefits


IMO - I think cuts for current retirees would probably be avoided (as much as possible). But I suspect there will be some costs shifted to retirees anyway... could take the form of cola adjustments, increases in healthcare premiums or copays, etc.

So far, I have only read about one default.

http://www.nytimes.com/2010/12/23/bu...html?src=twrhp
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Old 10-04-2011, 07:32 AM   #3
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Originally Posted by chinaco View Post

So far, I have only read about one default.

Alabama Town
That wasn't a default -- the default was refused by a court. The city simply stopped paying pensions and left retirees with nothing. Pretty scary situation. The city refused to pay anything -- even reduced benefits. Interesting to see what will happen in the long run. If the retirees can get it together to file suit it is probably possible that a court would seize control of the city and force it to pay at least partial benefits out of operating funds, raise taxes, etc. In the meantime retirees have nothing. And, if the city is small enough there may be no money to claim. The taxpayers can leave if the rates go up to much.
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Old 10-04-2011, 10:48 AM   #4
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Originally Posted by chinaco View Post
I think many people on this forum are asking the same questions.

Here is a PEW report on State Pension and Retiree health reform. It gives a state by state run down on what different states plan to do. Many of them seem to still be trying to figure out what to do.

Pension and Retiree Health Care Reform in States - The Pew Center on the States


Here is another link to the National Association of Retirement Administrators that provides some links to information... include changes that have been enacted.

NASRA Changes Made to State and Local Pension and Retiree Health Care Benefits


IMO - I think cuts for current retirees would probably be avoided (as much as possible). But I suspect there will be some costs shifted to retirees anyway... could take the form of cola adjustments, increases in healthcare premiums or copays, etc.

So far, I have only read about one default.

Alabama Town
Thanks very much for the information! I will pass it on to the family.
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Old 10-05-2011, 05:59 AM   #5
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That wasn't a default -- the default was refused by a court.
If not "default"... then what word should I use?
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Old 10-05-2011, 07:04 AM   #6
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If not "default"... then what word should I use?
Reneged.
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Old 10-05-2011, 08:09 AM   #7
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Reneged.
Yes. Sounds like it's "de fault" of somebody ...
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Old 10-05-2011, 08:46 AM   #8
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Originally Posted by donheff View Post
That wasn't a default -- the default was refused by a court. The city simply stopped paying pensions and left retirees with nothing. Pretty scary situation. The city refused to pay anything -- even reduced benefits. Interesting to see what will happen in the long run. If the retirees can get it together to file suit it is probably possible that a court would seize control of the city and force it to pay at least partial benefits out of operating funds, raise taxes, etc. In the meantime retirees have nothing. And, if the city is small enough there may be no money to claim. The taxpayers can leave if the rates go up to much.
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Originally Posted by chinaco View Post
If not "default"... then what word should I use?
Quote:
Originally Posted by donheff View Post
Reneged.
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Originally Posted by rescueme View Post
Yes. Sounds like it's "de fault" of somebody ...
Re-reading my posts it sounds like I am saying Chinaco was wrong to chose the word "default" to describe a decision by the city to stop paying bills but I would have used default to describe it too. I was surprised upon reading the article to learn that the city was not allowed to "default" by the court. I guess that makes sense - people and companies can't just say "I am going bankrupt" and safely renege on their bills. They have to follow a process and get approval. Then they can renege on their bills. It looks like the city decided to play a little brinksmanship with the court or just to flip them the bird. As I said, above, it will be interesting to see where this goes and how the retirees make out in the long term (assuming there is a long term for many of them).
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Old 10-05-2011, 09:05 AM   #9
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There was a discussion here about Central Falls, RI, cutting pensions by about 1/3 in order to pay bondholders first (Pensioners bent over in RI) that may or may not be interesting/frightening/enlightening.

Good luck to your family.
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Old 10-05-2011, 12:58 PM   #10
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It is not clear at all what the priority is when a city/county/state is insolvent.

Do bondholders and pensioners get paid before schools and emergency workers ?

The courts could (conceivably) rule that pensioners must take less than they previously had.

This is all (mostly) unsettled law. The precedents are mostly not there.
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Old 10-05-2011, 02:12 PM   #11
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This is probably related to that RI story... It appears that there was a challenge to the RI law or some actions taken under that law that enabled state pensions to be reduced... it appears that court ruled against the state pension reductions. But it looks like the problem has to do with how they went about it. It is going to the state supreme court next.

Judge?s ruling in pension suit a win for R.I. public workers - Boston.com

RI files appeal in public pension lawsuit - Boston.com
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Old 10-05-2011, 02:12 PM   #12
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Originally Posted by Bestwifeever View Post
There was a discussion here about Central Falls, RI, cutting pensions by about 1/3 in order to pay bondholders first (Pensioners bent over in RI) that may or may not be interesting/frightening/enlightening.

Good luck to your family.
One thing about this decision is that pensioners are a pure load, their contribution is spent. While bondholders as a class have long memories, and can put a city out of business fast.

Few would think that if pensions were vastly weakened a city would not be able to staff its offices and courts and classrooms and police and fire departments.

I know, I know, it isn't fair, this was promised etc. But if this type of thing does not happen it won't be because it isn't fair, it will be because of the poitical power of public worker unions.

Ha
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Old 10-05-2011, 03:00 PM   #13
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I know, I know, it isn't fair, this was promised etc. But if this type of thing does not happen it won't be because it isn't fair, it will be because of the poitical power of public worker unions.

Ha
Yup. And as much as pundits complain about unions for talking idiotic management into giving too much they do (or at least some do) protect workers from the abuses those same managers are ready and willing to heap on them at the drop of a hat.
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Old 10-05-2011, 06:38 PM   #14
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As with real estate, all pensions are local. To make a broad sweeping statement using generalizations on pensions to your relatives individual pensions is probably meaningless. While the climate toward pension reform is unquestionably here, the status of pensions is unique to each system. If they are truly concerned about their pension and want to know how much they should worry, I would suggest they try to find out as much about their system as possible. Questions to ask may include: 1) how many years is the system pre funded 2) what is the assumed rate of return on investments 3) how has the system performed in relation to the assumed rate 4) what percentage of the assets of the system covers future liabilities.
5) Political climate in relation to the people who set the rules for the system. Number 4 is probably the most important. While 100% is optimal I've read over 80% is considered sound. While nothing is certain, if you find the system is well funded that should allow for some comfort. If it isn't, there would be legitimate reason for concern.
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Old 10-05-2011, 06:44 PM   #15
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As with real estate, all pensions are local. To make a broad sweeping statement using generalizations on pensions to your relatives individual pensions is probably meaningless. While the climate toward pension reform is unquestionably here, the status of pensions is unique to each system. If they are truly concerned about their pension and want to know how much they should worry, I would suggest they try to find out as much about their system as possible. Questions to ask may include: 1) how many years is the system pre funded 2) what is the assumed rate of return on investments 3) how has the system performed in relation to the assumed rate 4) what percentage of the assets of the system covers future liabilities.
5) Political climate in relation to the people who set the rules for the system. Number 4 is probably the most important. While 100% is optimal I've read over 80% is considered sound. While nothing is certain, if you find the system is well funded that should allow for some comfort. If it isn't, there would be legitimate reason for concern.
You can add...

How many of the assets in the pension fund are listed at fantasy values ? What is the actual pension funding if the pension accounts are marked-to-market ? What are those collateralized debt obligations really worth in the pension fund ?
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Old 10-05-2011, 06:51 PM   #16
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Originally Posted by MasterBlaster

You can add...

How many of the assets in the pension fund are listed at fantasy values ? What is the actual pension funding if the pension accounts are marked-to-market ? What are those collateralized debt obligations really worth in the pension fund ?
MasterBlaster, you are getting above my pay grade with those terms. I'm just a lowly forum bloviator!
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Old 10-05-2011, 06:57 PM   #17
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MasterBlaster, you are getting above my pay grade with those terms. I'm just a lowly forum bloviator!
In simple terms, the pension funding accounts may not be worth what is carried on the books or worth what is published. The problems may be worse than they first appear to be.
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Old 10-05-2011, 07:03 PM   #18
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In simple terms, the pension accounts may not be worth what is carried on the books or worth what is published. The problems may be worse that they first appear to be.
No offense Master, but as someone who lives solely off a pension, I think I would been better off if I hadn't read your last post
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Old 10-05-2011, 09:22 PM   #19
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It would seem to me, that the party most able to find other income would be hit hardest with a default on a city/county/municipality, etc. How able is some retired guy in his 70's able to find work and make up the cut compared to a 35 year old fireman working and hasn't retired yet? Seems the pension would be last to get hit.

Also, there is the voter factor. What group could do more in the polls than another? And how about their children? If I told my son, move over and share the blanket, I'm a movin' in. He'd really call out the cavalry in order to be sure I'm able to afford my retirement.

It makes sense that lowering expectations of future income would be the better option than lowering actual income of current retirees. I think it's called a tiered system. California has it; 2%@55, 2%@60, etc. Personally the fire/police with the 3%@50 is way too generous. My job as a lineman for an electric utility company has a much higher risk than those according to statistics and I only get 2%@55 and there's no way a guy is going to be able to stay working as a lineman up into his 50's. Bodies wear out too soon for that to happen.
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Old 10-05-2011, 09:52 PM   #20
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Few would think that if pensions were vastly weakened a city would not be able to staff its offices and courts and classrooms and police and fire departments.
Absolutely. There will always be people lined up to get that badge and arrest power no matter how little you pay. Now, whether or not you want to actually live in such a place is completely up to you.
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