Risk Factor for Public Pensions?

[Jpg1717]

erd50 No, I did not say the same thing earlier.I was commenting on the fact that some other members of our early retirement community stated that this specific pension and 700k may be cutting it a bit close, and maybe I should work a little longer . Thanks for your interest in my past questions. I appreciate all of our members contributions in trying to help everyone reach and maintain early retirement.I also appreciate all those that keep a civil discussion without cute side comments. I will take a break and only read the forum for a while. Thanks.

[ERD50]

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Originally Posted by rodi ERD50 - The question isn't directed at me but I'd like to point out they are not mutually exclusive. As I posted about my friend... Firefighters can come from a variety of backgrounds. My friend was a navy seal and an investment banker for Goldman Sachs before becoming a firefighter. He's also an entrepreneur who recently sold one business and has started another, while being a firefighter. Again - the question wasn't directed at me - but I'm sure you do not want to be perceived as stalking the guy... but that is a perception you are giving to me. I'm sure that is not your intention.

No intention to stalk, though I can see how it might look that way, if one looked hard enough. I was just looking for his intro thread, for a bit more context, and for his age, if listed, as that is relevant to the pension/portfolio comparison. Then I happened to see Attorney for occupation. Just was curious at that point.

Yes, I realize that someone could be both an Attorney and a Firefighter. But in this thread, there was also a reference to high school graduates with pensions... not sure he was talking about himself or not, but it did seem at odds (and yes, technically an Attorney would also be a 'High School graduate', but context usually means, no further than HS.).

-ERD50

[Chuckanut]

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Originally Posted by utrecht I'm not sure I understand your question, but I think you're asking if our pensions were free? I contributed 8.5% to my pension. I believe SS taxes are something like 6% right? So the answer could be No, or I could say I contributed 2.5% to the pension plus another 6% to the pension to make up for missing SS benefits and the answer would be Yes.

My question was not in regards to 'free' pensions. Presumably you worked long for your pension and earned it. However, If you got a pension for doing nothing, please tell us how that is done!

What I am wondering is if those entities that do not belong to the SS system are adequately structuring and funding their pension plans so as to make up for the lack of a SS check for their retirees. Presumably, some or all of the money saved by not paying SS taxes would go into the pension fund so that their retired workers have adequate benefits for retirement even without a SS check. Or, maybe I am being naive and both parties just spent it.

I need to see if somebody has facts and figures comparing pensions from non-SS employers versus SS paying employers. One would think that some academic researcher has looked into this.

FWIW, I realize these comparisons are tough since pension plans vary so much in terms of required contributions and benefits. And, of course, the pension must be considered in light of the total compensation package.

[Teacher Terry]

NV has a pension system that does not pay into SS. The average person gets a pension of $20,000. The only way to get a higher pension is to have a professional position & work 30 years. I did the first one right but only had 15 years of service. Lower paid workers need to work 30 years to get the $20,000. Recently I was reading about the reasons that firefighters & police officers get their pensions younger & with less years of service. It is because they suffer many health condition that shorten their life spans directly related to their jobs. Firefighters suffer from all sorts of respiratory & lung diseases, cops get many illnesses from their job due to adrenaline flowing significantly when things are happening. This causes many different physical problems in addition to all the physical injuries they suffer on the job.

[nun]

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Originally Posted by Chuckanut What I am wondering is if those entities that do not belong to the SS system are adequately structuring and funding their pension plans so as to make up for the lack of a SS check for their retirees. Presumably, some or all of the money saved by not paying SS taxes would go into the pension fund so that their retired workers have adequate benefits for retirement even without a SS check. Or, maybe I am being naive and both parties just spent it. I need to see if somebody has facts and figures comparing pensions from non-SS employers versus SS paying employers. One would think that some academic researcher has looked into this.

State and public pension plans are so varied that it makes comparisons difficult. However, I remember reading somewhere that if a state opts out of SS there is a requirement from the Federal Government that the state pension plan meet certain criteria....not sure what those are....some Googling is probably required.

In MA the employee state pension contribution is mandated, but the state was lax in its contributions so that the fund lagged for a while and when 2008 hit the deficit got big. However, MA did take quick action. If you are interested in what I think in a thorough and sensible analysis a of MA's state pension plan follow the link below. After reading it you might understand why I have no worries about my MA state pension. FYI I can get my state pension at 55, but the earliest retirement age for new employees has been changed to 60.

Demystifying the State Pension System - MassBudget

[nun]

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Originally Posted by Teacher Terry NV has a pension system that does not pay into SS. The average person gets a pension of $20,000. The only way to get a higher pension is to have a professional position & work 30 years. I did the first one right but only had 15 years of service. Lower paid workers need to work 30 years to get the $20,000. Recently I was reading about the reasons that firefighters & police officers get their pensions younger & with less years of service. It is because they suffer many health condition that shorten their life spans directly related to their jobs. Firefighters suffer from all sorts of respiratory & lung diseases, cops get many illnesses from their job due to adrenaline flowing significantly when things are happening. This causes many different physical problems in addition to all the physical injuries they suffer on the job.

This sound similar to MA. Firefighters and police have separate pensions from other state and public workers and bargain through their own unions rather that the general state worker's union.

[hnzw_rui]

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Originally Posted by Chuckanut What I am wondering is if those entities that do not belong to the SS system are adequately structuring and funding their pension plans so as to make up for the lack of a SS check for their retirees. Presumably, some or all of the money saved by not paying SS taxes would go into the pension fund so that their retired workers have adequate benefits for retirement even without a SS check. Or, maybe I am being naive and both parties just spent it.

The retirement benefits are supposed to be better than SS. Typically, the benefit is around 2-3% per year of service (average of high 1-5 years, some systems use base salary only, others are based on total compensation). I reckon most have COLA (although unlike SS, some that are CPI-based have a cap of 2-3.5% max per year).

Employee contributions tend to be fixed and are automatically taken from the employee's paycheck (ours is 10%). The employer contributions, however, vary and are sometimes cut or deferred if budget is tight or investments are doing good.

I think there have been actuarial studies for some municipalities and they've found moving to SS+401k match will cost more. Also, with SS, they can't just cut/delay/defer funding at will.

[nun]

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Originally Posted by hnzw_rui The retirement benefits are supposed to be better than SS. Typically, the benefit is around 2-3% per year of service (average of high 1-5 years, some systems use base salary only, others are based on total compensation). I reckon most have COLA (although unlike SS, some that are CPI-based have a cap of 2-3.5% max per year). Employee contributions tend to be fixed and are automatically taken from the employee's paycheck (ours is 10%). The employer contributions, however, vary and are sometimes cut or deferred if budget is tight or investments are doing good. I think there have been actuarial studies for some municipalities and they've found moving to SS+401k match will cost more. Also, with SS, they can't just cut/delay/defer funding at will.

In MA the state only contributes 3.2% of salary, so just SS would be more expensive.

[Walt34]

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Originally Posted by utrecht Salaries for police officers and deputies vary wildly around the country depending mostly on cost of living, but I can guarantee you that there is no large county in Texas where the avg deputy sheriff makes $128K.

Nor where I worked. Unfortunately.

Education levels nationally are all over the map too. Where I worked they require a minimum of a two year degree to hire but in practice they want to see a four year degree or a lot of relevant experience in the military. And no one is eligible for any promotion without a four year degree. Recruit training was 5 1/2 months in the academy followed by six months of close supervision/training by a senior officer who rated him/her daily. So essentially new officers are in training for a year before they are out on their own.

Oh, and we had one guy who was both a physician and an attorney admitted to the bar. Why he preferred police work I have no clue.

There were several other jurisdictions nearby that had similar requirements. The citizens wanted an educated police department and were willing to pay for it. That's going to cost more than a starting pay of $17k/year that I've seen elsewhere. And looking in the news, I can certainly see the difference it makes.

[utrecht]

There are very few cities in populated areas that hire police officers without at least some moderate amount of college. Lots of cities mandate a degree. It appears lots of people are unaware of the requirements of becoming a cop. This isnt the 50s-70s where any tough guy with a HS diploma can become a cop. Its not easy at all. I dont know exact figures but my former employer hires less than 1% of applicants and they are seriously hurting for people. They give tests every month, month in and month out. Most cant meet the requirements. No drugs other than mild marijuana use, no thefts at all including a pack of gum, driving record must be respectable, min 45 hrs of college, no convictions for anything above a Class C misdemeanor (speeding ticket), physical test, vision test, psychological test, polygraph, oral interview.

Then almost an entire year in the academy followed by 4 months of training with a training officer being graded every day, followed by 2 more months riding with another officer (non graded). Then 10 more months of probation when you can be fired for just about anything controversial or questionable with no right to appeal. The job by definition puts you in controversial situations on almost a daily basis. You better hope the political winds are blowing your way if something goes wrong even when acting in the best of faiths.

[youbet]

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Originally Posted by Texas Proud a good number of people that have pensions from a private company....

Yes, lots of folks here have private pensions. Someone who worked for the MegaCorp I toiled at and was, say, a white collar professional of some type (It, engineering, finance, etc.) did very well. A DB pension. Generous profit sharing and 401k matching. Stock options. Company contribution to their SS. Retiree medical. Other ongoing benefits. Many of these have been dropped or reduced for the younger crowd but for those at or nearing retirement today, it was a pretty sweet deal.

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I will not have a fixed monthly check unless I buy the annuity they offer... and that is not that much money... so even though I have a pension, I do not feel like I do....

Oh, we all like to think of ourselves as the underdog, but your cash balance pension and company contribution towards your SS alone puts you out of the "sympathy range." If you get any kind of 401k match and/or retiree med benefits, you're in sweet shape.

[youbet]

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Originally Posted by hnzw_rui The retirement benefits are supposed to be better than SS.

The new state retiree plan in Illinois (called Tier II) is apparently very close to failing the "better than SS test." It's hard to make direct comparisons since SS offers an array of benefit coverage that the state pension doesn't (spousal benefit, death benefit, benefit for minor children, etc.) but an article I read says that Illinois may face the pain of allowing employees membership in SS. That's not something Illinois legislators want. In the past they typically either skip annual payments to the pension fund or make the payment and then borrow it back. With SS, the feds would probably make them pay. Apparently there is some dancing going on in Springfield to defer the comparison study and ensure that the pension system indeed is equal to or superior to SS.

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Employee contributions tend to be fixed and are automatically taken from the employee's paycheck (ours is 10%). The employer contributions, however, vary and are sometimes cut or deferred if budget is tight or investments are doing good.

The failure of Illinois to fund the pension system is notorious so I'll not beat a dead horse. But the current 40%+ level of funding is representative of the state having contributed (or contributed and borrowed back) a net of nothing. The funding level is about what it would have been if the employee 9.5% was the only inflow. Now they want to cut the pensions of people who generally funded their own pensions 100%.

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I think there have been actuarial studies for some municipalities and they've found moving to SS+401k match will cost more. Also, with SS, they can't just cut/delay/defer funding at will.

It is a problem. An editorial in our local paper stated that it would be painful to lose the flexibility of having optional annual funding by going to SS and having to fund on schedule every year. I'm not sure of what would happen when employees pay their half of SS but the employer decides to take yet another "pension holiday" and does not fund their half of SS. Would the feds step in?

I was only a state employee for a short time many years ago (no vested pension), but if I were a state employee today, I'd be pressing for SS even at the cost of the current Tier II pension.

[youbet]

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Originally Posted by Tekward I believe people with pensions are lucky, and luck is when opportunity intersects with preparation and hard work. People on this board would do the math and make informed life decisions. Many paths, many variables and many end results.

It depends. In the cases where building a pension was considered part of current compensation, today's situation for many public employees is that they are being asked to give back part of paychecks they worked for decades ago. I imagine it's kind of aggravating. The books never close on whether you've been paid what you thought you were making until you die.

Personally, I'd rather that everything I bargained for in exchange for my time and effort is given to me real time and not withheld to be given to me later......... if it is convenient. I'll manage my retirement funding myself, thank you, rather than trust a pension fund to follow the rules of a contract. This is especially true of public pensions where, at least in Illinois, it's routine to promise a lot up front with no intention of actually paying it later.

[Walt34]

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Originally Posted by youbet I'll manage my retirement funding myself, thank you, rather than trust a pension fund to follow the rules of a contract.

This works fine if one has the knowledge and self-discipline to start saving enough at an early age. But as has been discussed on the board before, only a small percentage of the population is capable of doing that, many even after middle age when the "Oh, crap!" light bulb should be going on.

[Chuckanut]

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Originally Posted by hnzw_rui Also, with SS, they can't just cut/delay/defer funding at will.

A good point I had not considered.

[Chuckanut]

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Originally Posted by Tekward Many paths, many variables and many end results. A favorite, "Comparison is the thief of joy." Teddy Roosevelt.

A good point. We all make certain decisions and sometimes the results are not known for decades. I gave up the chance to more than double my earnings about 10 years into my teaching career. So... I could gripe that it's not fair that others here have millions invested in mutual funds, second homes in resort towns and a new Tesla in the driveway. Maybe, had I taken that job, I would also have the same.

OTOH, maybe I would have been another terminated middle aged tech worker struggling to survive until SS kicked in.

Or, I might have ended up about where I am now, but with a somewhat different assortment of income sources.

Who knows for sure? Maybe The Shadow?

[youbet]

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Originally Posted by Walt34 This works fine if one has the knowledge and self-discipline to start saving enough at an early age. But as has been discussed on the board before, only a small percentage of the population is capable of doing that, many even after middle age when the "Oh, crap!" light bulb should be going on.

A tough choice huh........ ?

You learn enough about investing to put some current compensation into some funds and rebalance every year.

Or you put your fate into the hands of some politicians with a track record of mismanagement and prison to keep a promise given today many years from now.

If I were a young person looking to start a public job in Illinois like, say, teaching, I'd only consider the net pay I receive each paycheck as compensation and would assume the promised Tier II pension would never be paid. (Tier II is similar to SS +/- a bit) I'd compare the job and pay to alternative jobs and pay plus add SS benefits to the alternative job.

Stated another way, and trying to answer OP's original question, I'd consider a new hire to an Illinois public job as having neither a pension or SS (or any matching, bonus, etc.). If the base pay (minus the forced contribution towards a pension you'll not receive) is satisfactory, take the job. If you're counting on any post-career perks, even a nickel, you'd be making a huge mistake.

[Walt34]

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Originally Posted by youbet Stated another way, and trying to answer OP's original question, I'd consider a new hire to an Illinois public job as having neither a pension or SS (or any matching, bonus, etc.). If the base pay (minus the forced contribution towards a pension you'll not receive) is satisfactory, take the job. If you're counting on any post-career perks, even a nickel, you'd be making a huge mistake.

Oh, absolutely agreed on that!

Every state isn't Illinois though. Some are actually fairly well run by generally honest people. It gets better at the city or county level where there is more citizen oversight over the details. Well, some of them anyway.

Generally I'd agree that one should behave as if a promised pension wasn't going to be there. That simply isn't possible for a lot of people though.

[hnzw_rui]

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Originally Posted by youbet An editorial in our local paper stated that it would be painful to lose the flexibility of having optional annual funding by going to SS and having to fund on schedule every year. I'm not sure of what would happen when employees pay their half of SS but the employer decides to take yet another "pension holiday" and does not fund their half of SS. Would the feds step in?

There are hefty penalties for not submitting payroll taxes on time. Also, I believe for large employers, contributions have to be submitted on a monthly or semi-weekly basis. I don't think they'll be taking any "pension holidays" as I highly doubt they'd want to piss off Uncle Sam.

[youbet]

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Originally Posted by hnzw_rui There are hefty penalties for not submitting payroll taxes on time. Also, I believe for large employers, contributions have to be submitted on a monthly or semi-weekly basis. I don't think they'll be taking any "pension holidays" as I highly doubt they'd want to piss off Uncle Sam.

That's what I was thinking. And, if that's the case, all the more reason for prospective new Illinois employees to want to be on SS, even if it means dropping the current Tier II pension. Then they'd have their salary plus SS, period. No pension. No matching. No profit sharing. No stock options. No bonuses. It would be easy to understand the true value of your compensation. The state could set wages to attract and retain who they want. Employees could accept the simple terms (salary + SS and nothing else, nothing) or not. Employees could also leave if a more attractive situation presents itself leaving nothing behind. Everything they earned would be in their pocket when they walked out the door.

I know the politicians are against this. They don't want to pay into SS. And they want to be able to offer promises today that they don't have to pay until far in the future. But this "if you do this for me today, I'll give you a hamburger tomorrow" routine has certainly come to the point where we can see it doesn't work.

The folks in real limbo are the folks who are already retired or are deep into their careers and foolishly thought deferred compensation and post retirement perks would be honored. So far the courts are backing the retirees, but the politicians can always win by simply continuing to not fund the system.