Poll:Complicated retirement withdrawal options

[ERD50]

...
Also, we dont get social security so the pension is not as great as it might sound. I bet if you add your $17K pension to your social security, it adds up to right around where most public pensions are.

You (and your employer) also didn't pay into social security.

Gotta keep it apples-apples.

-ERD50

 

[W2R]

To make matters worse, the City is of Dallas is in a world of hurt because people are retiring in droves right now to get out before the new rules kick in Sept 1st. Just about anyone over 50 is leaving and the dept is already understaffed by like 700 officers. They are struggling mightily to recruit people due to all of this mess.

The City of San Antonio is recruiting in Dallas using billboards like this on major Dallas highways.
San Antonio uses billboards, promise of 'strong pension' to recruit Dallas officers - Story | KDFW

Utrecht, honestly, to me this is shocking! I never thought something like this would happen in Dallas, of all places.

So glad that you planned ahead and will be able to make it through all these cutbacks without having to go back to work.

I don't know anything about pensions and DROPs, or I would chime in on that too. Just wanted to convey my amazement and best wishes to you concerning the situation there. I'm glad you got out before all this hit the fan.

 

[utrecht]

My understanding is most private sectors don't have pensions or if they are it's a DC pension of something like 3-4% salary per year.

This is a debate that comes up over and over regarding pensions. Most private sector employers contribute to your 401k and most private sectors positions pay better than similar public sector positions. Most public sector employees get a pension which is a benefit that brings the benefit package to a somewhat level playing ground and attracts people who are willing to dedicate their life to public service as opposed to chasing signing bonuses, 401k matching, severance packages ect. (Our health insurance sucks big time also).

This isnt a debate as to whether or not a person should have a pension. The issue is working 25+ years under the promise of certain benefits at retirement that are then taken away once you get there.

This pension fund was mismanaged by morons who didnt want to lower the DROP interest rate so they took risks at a level bordering on criminal activity (and there is an FBI investigation) in attempt make profits large enough to keep paying out the interest rate on total DROP balances what began to take over the fund. AT some point it was destined to come crashing down around them. At one point DROP balances made up over 50% of the total pension fund.

Not that you would really do this, but the pension board couldve put the entire $3.3 billion into Vanguard Wellington and sat back and drank coffee and we would be dancing in the streets right now instead of trying to keep the fund from imploding.

Many public pensions have ridiculous payouts, overtime spiking and other things that make them impossible to remain viable long term. My particular pension has none of that. All they had to do was lower the DROP interest to a reasonable level and make normal conservative investments and funding levels could sustain forever. It wouldnt have needed addition funding from the city. No extra taxes. No pension obligation bonds. Nothing. But they ruined it for everyone.

 

[utrecht]

You (and your employer) also didn't pay into social security.

Gotta keep it apples-apples.

-ERD50

True enough but I wonder if that guy contributed at all to the $17K yearly pension hes getting? I contributed 8.5% which is now going up to 13.5%

If I took the amount of my mine and the Citys pension contributions each year and invested it at 8% return over 25 years....I would end up with a total amount that I could withdraw 4% per year and it would be almost exactly what my pension amount is. So clearly this pension fund was sustainable long term if it was managed anywhere near responsibly.

Also, I wouldve been able to give my self a raise with inflation each year which I wont be getting now so I couldve done much much better investing that same amount of money on my own instead of getting a pension. Not too mention the fact that my personal returns over the last 25 years are higher than 8%.

I also wouldve been able to pass that account on to my heirs. With the pension, my wife will get 50% when I die and when she dies, the pension fund keeps the balance forever. As I said, at this point, it clearly wouldve been better to not have a pension and just been given the money instead of giving to the pension fund.

Im only listing all of that because people with high salaries during their lifetimes always seem to make these same argument about how pensions are unfair. Just give me the money and I would be happy to not have a pension.

The DROP program and the board members unwillingness to lower the interest rate brought the whole thing down.

 

[Texas Proud]

True enough but I wonder if that guy contributed at all to the $17K yearly pension hes getting? I contributed 8.5% which is now going up to 13.5%

If I took the amount of my mine and the Citys pension contributions each year and invested it at 8% return over 25 years....I would end up with a total amount that I could withdraw 4% per year and it would be almost exactly what my pension amount is. So clearly this pension fund was sustainable long term if it was managed anywhere near responsibly.

Also, I wouldve been able to give my self a raise with inflation each year which I wont be getting now so I couldve done much much better investing that same amount of money on my own instead of getting a pension. Not too mention the fact that my personal returns over the last 25 years are higher than 8%.

I also wouldve been able to pass that account on to my heirs. With the pension, my wife will get 50% when I die and when she dies, the pension fund keeps the balance forever. As I said, at this point, it clearly wouldve been better to not have a pension and just been given the money instead of giving to the pension fund.

Im only listing all of that because people with high salaries during their lifetimes always seem to make these same argument about how pensions are unfair. Just give me the money and I would be happy to not have a pension.

The DROP program and the board members unwillingness to lower the interest rate brought the whole thing down.

Some of the things you point out are the same or even worse with SS...

With the money invested in SS and invested like you mention I would have a higher 'pension' than what I will get from SS... some say much higher...

Now, DW will get 100% of mine when I die, but I would think there is an option that your DW would get 100% of yours... not as much as the 50% option, but I bet it is there...

The big difference is that SS does have a COLA.... but a number of the pensions that have problems also have a fake COLA where there are increases of specified amounts... but yea, my mom and two sisters are on pensions that do not have COLA of any kind....


Also, my heirs will not get any money left... SS will keep the money...

 

[utrecht]

The problem is that if my former employer and/or the Government gave everyone the money to invest on their own, 95%+ of them would spend/waste it instead of investing it and society would have to bail them all out in one way or another when they got old.

 

[bingybear]

Was Dallas in the news during the last couple years for pension problems?

 

[Chuckanut]

8-10% guaranteed interest?!?!?!

That scares me as I don't see how anybody can guarantee that return in today's or even tomorrow's anticipated environment. When I read that the first words that popped into my mind were Bernie Madoff.

 

[ERD50]

...
This isnt a debate as to whether or not a person should have a pension. The issue is working 25+ years under the promise of certain benefits at retirement that are then taken away once you get there. ....

And in my view, this is the problem with 'promises', and a reason why we should NOT have DB-style pensions.

How can anyone know (let alone the average Joe/Jane just starting out in a career and more interested/knowledgeable about their career than financials such as this) if that promise can be kept 25+ years down the road?

Was there an insurance policy to back up the promise, as there is on private pensions (which is ironic - the Feds require insurance on private pensions, but not public pensions!)?

My pension is backed by PBGC, but I can't be certain they could deliver. And I was 'promised' retiree health care, but the value of that promise has dropped a lot. But I have no recourse, it was just a promise. Sorry!

-ERD50

 

[Texas Proud]

And in my view, this is the problem with 'promises', and a reason why we should NOT have DB-style pensions.

How can anyone know (let alone the average Joe/Jane just starting out in a career and more interested/knowledgeable about their career than financials such as this) if that promise can be kept 25+ years down the road?

Was there an insurance policy to back up the promise, as there is on private pensions (which is ironic - the Feds require insurance on private pensions, but not public pensions!)?

My pension is backed by PBGC, but I can't be certain they could deliver. And I was 'promised' retiree health care, but the value of that promise has dropped a lot. But I have no recourse, it was just a promise. Sorry!

-ERD50

The Feds cannot require insurance to be on the public pensions.... separation of powers...

Which is also why they could not force them onto SS....


AND, I hope it is why the Feds will not bail any of them out with our money.... I would much rather they change the BK laws like they did with Puerto Rico and the investors take a hit... it will change what states have to pay in interest since investors will change how they look at those bonds, but that is the price of doing business...

BTW, I think only fools would invest in any Illinois debt right now... I just looked and none I saw were below investment grade... and the yield on some is below 5%....




Edit to add.... I agree that we should not have DB plans... I think all should be converted to DC plans... if they put in a reasonable amount of money then history has shown that there will be enough money to match the DB plan... the problem with the DB plan is many, including spiking, an unreasonable COLA, getting a high paid job at the end and the pension paying like you made that your whole life... but the worst is the gvmt not funding the pension at the correct level... if it were a DC plan all of these go away... there is not gaming the system.... you get what you EARNED over your career.... but that is why it will not happen...

 

[utrecht]

The Feds cannot require insurance to be on the public pensions.... separation of powers...

Which is also why they could not force them onto SS....


AND, I hope it is why the Feds will not bail any of them out with our money.... I would much rather they change the BK laws like they did with Puerto Rico and the investors take a hit... it will change what states have to pay in interest since investors will change how they look at those bonds, but that is the price of doing business...

BTW, I think only fools would invest in any Illinois debt right now... I just looked and none I saw were below investment grade... and the yield on some is below 5%....




Edit to add.... I agree that we should not have DB plans... I think all should be converted to DC plans... if they put in a reasonable amount of money then history has shown that there will be enough money to match the DB plan... the problem with the DB plan is many, including spiking, an unreasonable COLA, getting a high paid job at the end and the pension paying like you made that your whole life... but the worst is the gvmt not funding the pension at the correct level... if it were a DC plan all of these go away... there is not gaming the system.... you get what you EARNED over your career.... but that is why it will not happen...

Or they could just stop doing all of those things and there would be nothing wrong with DB plans. There's nothing wrong with DB plans in theory. There's just too much cheating and / or corruption going on from both sides. The biggest benefit to a DB plan IMO is that if its run properly you should be able receive more money while alive because you will get nothing when no longer alive.

In other words, you can safely collect a bigger pension check than you would be able to safely withdraw from your DC plan because you dont have to worry about running out of money. Plenty enough people die young and never collect anywhere near the amount of money that they put in and that offsets for people who live very long.

 

[samclem]

The biggest benefit to a DB plan IMO is that if its run properly you should be able receive more money while alive because you will get nothing when no longer alive.
.

Though you can get the same thing with a DC plan and an annuity. I don't think it's any more logical for employers to be involved with paying retirement income than it is for them to be involved with health insurance. They should stick to making widgets.

 

[evilanne]

Interesting thread. I didn't realize at first that it was an old thread and the issues with the Dallas Pension certainly has created a lot of turmoil https://www.dallasnews.com/news/dal...pension-system-done-big-challenges-stillahead The pension problem is bad across the US https://www.forbes.com/sites/andrew...sions-underfunded-by-5-trillion/#7508ee1b157f The lawsuit outcomes and resulting actions are interesting to me because of current proposals to change/cut federal employee benefits--any changes have historically been applied to only new employees but who knows what the future may hold. Private pensions are covered by the Pension Benefit Guaranty Corporation (PBGC), which is an independent federal agency. Per Wikipedia:

In fiscal year 2015, PBGC paid $5.6 billion in benefits to participants of failed single-employer pension plans. That year, 69 single-employer pension plans failed. PBGC paid $103 million in financial assistance to 57 multiemployer pension plans. The agency's deficit increased to $76 billion. It has a total of $164 billion in obligations and $88 billion in assets.

 

[bingybear]

Private pensions are covered by the Pension Benefit Guaranty Corporation (PBGC), which is an independent federal agency. Per Wikipedia:

Not all private pensions from how I understand it. Only ones that pay into the PBGC.

In other words, you can safely collect a bigger pension check than you would be able to safely withdraw from your DC plan because you dont have to worry about running out of money. Plenty enough people die young and never collect anywhere near the amount of money that they put in and that offsets for people who live very long.

When running a DB plan, companies use actuarial analysis to determine how much to fund the plan and invest it. They make educated estimates of what they will have to payout and over what time frames. So all these pensioners that die young are already accounted for.

I keep hearing how we are all going to live longer. DBP will be in problems as I'd expect that pension plans have not increased required assets to account for this decades in advance.

 

[Closet_Gamer]

True enough but I wonder if that guy contributed at all to the $17K yearly pension hes getting? I contributed 8.5% which is now going up to 13.5%

If I took the amount of my mine and the Citys pension contributions each year and invested it at 8% return over 25 years....I would end up with a total amount that I could withdraw 4% per year and it would be almost exactly what my pension amount is. So clearly this pension fund was sustainable long term if it was managed anywhere near responsibly.

Also, I wouldve been able to give my self a raise with inflation each year which I wont be getting now so I couldve done much much better investing that same amount of money on my own instead of getting a pension. Not too mention the fact that my personal returns over the last 25 years are higher than 8%.

I also wouldve been able to pass that account on to my heirs. With the pension, my wife will get 50% when I die and when she dies, the pension fund keeps the balance forever. As I said, at this point, it clearly wouldve been better to not have a pension and just been given the money instead of giving to the pension fund.

Im only listing all of that because people with high salaries during their lifetimes always seem to make these same argument about how pensions are unfair. Just give me the money and I would be happy to not have a pension.

The DROP program and the board members unwillingness to lower the interest rate brought the whole thing down.

I'm sorry for your personal distress -- my mom lives on a city pension my dad earned and I'm very concerned it could be damaged someday -- but comparing what one could have had if they'd been invested with what what one should get from a defined benefit program isn't an appropriate comparison here anymore than when discussing SS or immediate annuities.

Everyone loves to play the upside of the "what if I was invested?" game but you can here crickets when the markets are in the teeth of a big bear and people are curled up in the warm embrace of guarantees. When Mr. Bear comes along, people take to the TV to excortiate the notion of "invested" social security (and rightly so in my opinion).

Risk, reward and volatility are related. You can't have equity returns, guaranteed payouts and no volatility during hard times. Not gonna happen and a better societal mix of socialized guarantees and personal investing would be better for everyone IMHO. (The evolution of the 401k from a pension supplement to the main retirement savings vehicle has been as much of a disaster as the evolution of SS from "supplemental" to people thinking they can simply retire on it.)

That's not to say these things can't be better managed by all parties.

Public unions need to stop demanding impossible payouts. No doubt being a cop/firefighter is really hard, and thank you for doing that, but we just can't afford for people (incl teachers, etc) to retire at 50...we need to find a way to rotate them into another productive service and have them continue to contribute both financially and practically. This same physical stress issue applies in many jobs. I was watching an older construction worker slamming a pick into some concrete the other day. He had my sympathy for sure.

Cities and politicians need to stop promising impossible results with no accountability (I know, a dog sees a fire hydrant...). The populace bears responsibility as we've also demanded high quality city services without always a willingness to pay the piper. Like every other job in the world, without the promised compensation, talented people would choose other careers. Good policing requires good people. Cut the pension and then pay cops $85k per year or get worse cops.

Finally, the actuaries who audit these things need to start screaming from the roof tops. Enron was a a failed Christmas club account compared to what's going on here. I participate in a "guaranteed" 529 program ... but I read the actuary report every year to ensure they're not living beyond the guarantees.

In truth, this is not fixable at this point. A lot of pain is imminent.

I don't have a pension and yes, at this point in my life, a higher income makes it easier to save. Flip side of that is the 25 years I've spent crawling the megacorp ladder and squirreling away nuts. It's the squirreling that creates comfort more than the income. Millions on high income people are SOL b/c they ate all they earned.

Again, I'm glad you personally will be ok, but I do think it's important to have these discussions. Thanks for posting your situation and having the discussion.

 

[ERD50]

True enough but I wonder if that guy contributed at all to the $17K yearly pension hes getting? ....

Yes, he did. But not in a way that you see in a financial statement.

Picture Company A that on average offers $100,000/year for a certain level job, and they offer a pension.

If Company B wants to attract those same people, but offers no pension, they will need to offer more than $100,000 to be competitive with Company A. That's just how markets work.

So yes, he did contribute to his pension with a reduction in salary.

-ERD50

 

[Sirka]

Originally Posted by samclem
Though you can get the same thing with a DC plan and an annuity. I don't think it's any more logical for employers to be involved with paying retirement income than it is for them to be involved with health insurance. They should stick to making widgets.

+1
Employers are already paying into SS and DC plans. That should be enough

 

[utrecht]

Yes, he did. But not in a way that you see in a financial statement.

Picture Company A that on average offers $100,000/year for a certain level job, and they offer a pension.

If Company B wants to attract those same people, but offers no pension, they will need to offer more than $100,000 to be competitive with Company A. That's just how markets work.

So yes, he did contribute to his pension with a reduction in salary.

-ERD50

Dallas PD pays considerable less than the 15 or so departments in the DFW metroplex. They've always still attracted people because its a big city with lots of opportunities and they've always offered an excellent pension. That's how markets work.

Except now, people worked for 25+ years at a lower salary are now getting a good portion of their pension benefits yanked out from underneath them.

 

[ERD50]

Dallas PD pays considerable less than the 15 or so departments in the DFW metroplex. They've always still attracted people because its a big city with lots of opportunities and they've always offered an excellent pension. That's how markets work.

Except now, people worked for 25+ years at a lower salary are now getting a good portion of their pension benefits yanked out from underneath them.

I don't know the full details and history behind the Dallas PD pensions, I'm just offering up a counterpoint to some specific statements that were made.

And it is a bad situation when someone is counting on a pension, and 'stuff happens'. It's why I said earlier in this thread (and previously over the years), that I wish these sorts of promises were never made. There are just too many ways they can be broken, and people get hurt.

I hope something works out in this case, for all involved.

-ERD50

 

[Surewhitey]

You may want to check out the Dallas Police and Fireman's pension DROP plan. Been renegotiated due to its viability. Bad management took some risky bets that really put the hurt on them.

 

[utrecht]

You may want to check out the Dallas Police and Fireman's pension DROP plan. Been renegotiated due to its viability. Bad management took some risky bets that really put the hurt on them.

I may want to check it out? What do you think Ive been talking about this entire time...for 5 years now?