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Old 10-26-2010, 12:43 PM   #41
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I don't see the point in such fiddling with DB systems. For one thing, no evidence is given that there is a problem that the change will fix. For another, you probably can't make the change for current workers or retirees, so it's not going to have any effect until 30 years from now (for this particular suggestion). And for still another, it ignores the part the retirement system plays in job recruitment/retention/pay.
The point is that in some states, public pensions are not being fully funded in a timely manner. Using only the last few years of salary data to determine the pension amount aggravates this. See TP's nicely done post above.

If we don't make changes because the impact is years away, are you suggesting that we make changes that affect current employess, even those near retirement?

My proposal would not make it more difficult to retain or recruit employees if pay levels are adjusted to be competitive and adequate to attract plenty of well qualified people.
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Old 10-26-2010, 01:39 PM   #42
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Originally Posted by Nords View Post
I don't think most people join the military for the pension, so salary is probably more of a motivator.
I agree with Nords that most people don't join the military for the pension, but I think the promise of a good pension after 20 years of honorable service certainly influences people's decision to stay in past their initial commitment and make it a career...it certainly did for me. I originally joined the military because:

1) I wanted to serve
2) I wanted an education and did not have the money to pay for it and did not want to go into debt
3) I wanted to see the wider world outside of the small town in which I grew up

In my first 10 years of service, the Army provided me with a very good undergraduate and graduate education as well as a lot of specialized training, clearances and management experience. I have no doubt that with that education/training/experience I could have landed a good job in the private sector after my initial military commitment that would not require me to kill people who are actively trying to kill me and my coworkers, would not require me to live in close proximity to the aforementioned people, and would not require me to literally spend years away from my wife and kids in some of the more awful places on the planet. And in return for not having to do those things, I'd likely receive a 401k with a match.

I chose to stay in the military because:
1) I view the profession of arms to be a noble profession
2) I enjoy the high caliber of people with whom I work
3) there is a promise of a generous pension after 20 years of service

Although I didn't stay for the pension alone, it was a significant factor in my decision...I'm pretty sure that I could find another rewarding profession that had good people with which to work. The promise of a pension after 20 years of service is what convinced me to stay in the military and make it a career...without it, I would not have stayed in this line of work. I suspect that I'm not alone.
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Old 10-26-2010, 02:03 PM   #43
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I don't see the point in such fiddling with DB systems. For one thing, no evidence is given that there is a problem that the change will fix. For another, you probably can't make the change for current workers or retirees, so it's not going to have any effect until 30 years from now (for this particular suggestion). And for still another, it ignores the part the retirement system plays in job recruitment/retention/pay.

why can you not change it now Federal law only says you can not give less than what is already earned... so, we change it now for everybody... then people have to choose if they want to continue to work or not...

Some people will continue to work, but their DB amount will not go up any.. but they will not earn any less than the formula says they would get when the change occured... it has happened to a lot of people in the private sector...

At my mega, they changed from a DB to a DC... and 'converted' the DB to a cash amount... someone with 20 or more years basically was not earning any more pension benefits as the old calculation was higher than their cash account.... even though their cash account was growing by the extra cash that was being deposited in it... they sued and lost... because mega always promised they would not get any less than the formula amount... when it was changed...
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Old 10-26-2010, 02:13 PM   #44
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I agree with Nords that most people don't join the military for the pension, but I think the promise of a good pension after 20 years of honorable service certainly influences people's decision to stay in past their initial commitment and make it a career...it certainly did for me. I originally joined the military because:

1) I wanted to serve
2) I wanted an education and did not have the money to pay for it and did not want to go into debt
3) I wanted to see the wider world outside of the small town in which I grew up

In my first 10 years of service, the Army provided me with a very good undergraduate and graduate education as well as a lot of specialized training, clearances and management experience. I have no doubt that with that education/training/experience I could have landed a good job in the private sector after my initial military commitment that would not require me to kill people who are actively trying to kill me and my coworkers, would not require me to live in close proximity to the aforementioned people, and would not require me to literally spend years away from my wife and kids in some of the more awful places on the planet. And in return for not having to do those things, I'd likely receive a 401k with a match.

I chose to stay in the military because:
1) I view the profession of arms to be a noble profession
2) I enjoy the high caliber of people with whom I work
3) there is a promise of a generous pension after 20 years of service

Although I didn't stay for the pension alone, it was a significant factor in my decision...I'm pretty sure that I could find another rewarding profession that had good people with which to work. The promise of a pension after 20 years of service is what convinced me to stay in the military and make it a career...without it, I would not have stayed in this line of work. I suspect that I'm not alone.

And my point would be.... their is a salary that would have convinced someone with your skill and rank to stay in the military... without a 'generous pension' (now, learning from Nords, the pension is not as generous as I had thought... but using your words for argument sake)...

IMO, paying the market rate which might include a DC plan, or even a DC along with a savings plan with matching funds would be more cost effective in the long run and most certainly a more known current cost than the current system...


And only a few times has someone mentioned the fact that most public sector jobs (not sure about military, but since we are in a war it still might be) are pretty safe... it is hard to just get rid of someone who does not perform in their job... I hear about if from my sister and my friend... but I am not going there...
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Old 10-26-2010, 02:18 PM   #45
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why can you not change it now
It couldn't be changed here in Hawaii for the state retirement system, and in some other states, because the state constitutions prohibit such a change. In other places, there are laws that could prevent impairing a contract made with current retirees and possibly current workers. I understand there is some litigation going on about this -- don't know the details.
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Old 10-26-2010, 02:21 PM   #46
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It might not be called spiking, but I also think that using final 3 or 5 years of salary is not correct... I have a real life example...

Person worked full time a few years... then went part time for a long time... then went full time at the end... got a great pension that was not based on their lifetime contributions.... someone has to make up for the higher pension....

Another is when someone is a teacher for many years (say 20 to 25)... then either become a principal or goes into admin with a lot higher salary just to increase the pension.... again, the pension is not based on the lifetime contributions...

I would suggest that most people would not call this spiking... some might... but their contributions do not come close to paying for their pension.. that is where I disagree with all the people who say 'I paid into the system and should get my full pension and you don't touch it'.... like the fully paid for the higher pension.... which they did not...

Sure, you got someone like my sister who worked 41 years as a teacher... did not change jobs etc. etc... but those are rare IMO...
I agree that DB plans should use a benefit calculation similar to SS which is based on 35 years of wages. Of course previous wages should be converted to today's dollars.
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Old 10-26-2010, 02:42 PM   #47
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Person worked full time a few years... then went part time for a long time... then went full time at the end... got a great pension that was not based on their lifetime contributions.... someone has to make up for the higher pension....
If that's what happened, then the system is badly designed. In my employer's DB system, if you work 50% for a year, you acquire 0.5 years worth of entitlement at your full-time salary. Thus, your final pension is (all other things being equal) still a function of your contributions.

On the other hand, our layoff package (for when jobs are cut) does have this bug. It was apparently drafted in a hurry, or on the basis that we'd never have to apply it. You get your final paycheck, including more or less all allowances and benefits, times a multiplier for years of service. So people who are working part-time when they hear about their layoff - we usually give lots of notice because layoffs happen in next year's budget - have a huge incentive to go full-time for the last couple of months. That's indefensible (as a policy; I would never criticise anyone who went for it!).
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Old 10-26-2010, 03:00 PM   #48
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That's a good question. I don't think most people join the military for the pension, so salary is probably more of a motivator
They may not join for the pension but they may stay for it. Retaining people is as important as attracting them.
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Old 10-26-2010, 03:13 PM   #49
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They may not join for the pension but they may stay for it. Retaining people is as important as attracting them.
I can certainly see that for the military and emergency "first responder" occupations, and perhaps for teachers. I just don't think that applies to clerical, administrative and technical positions which have clear private sector equivalents, and where the private sector hasn't judged retention to be valuable enough to offer pensions. If retention and longevity really *were* that important to the functioning of an organization, there would be pensions in those positions.
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Old 10-26-2010, 03:22 PM   #50
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I see a lot of federal employees here looking to get into management for the last 3 or 4 years of their career. Since fed pension is based on "high 3" this is a way to bump up your high 3 at the end of your career.

A lot of them stay on tho, and don't retire after their 3 or 4 years. Maybe they get used to the increased salary?
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Old 10-26-2010, 03:23 PM   #51
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Originally Posted by av8er View Post
I agree with Nords that most people don't join the military for the pension, but I think the promise of a good pension after 20 years of honorable service certainly influences people's decision to stay in past their initial commitment and make it a career...it certainly did for me. I originally joined the military because:
...

I chose to stay in the military because:

1) I view the profession of arms to be a noble profession
2) I enjoy the high caliber of people with whom I work
3) there is a promise of a generous pension after 20 years of service

...

The promise of a pension after 20 years of service is what convinced me to stay in the military and make it a career...without it, I would not have stayed in this line of work. I suspect that I'm not alone.
Hey - this is on topic!

So getting back to the OP, it does seem that this would still hold if the pension wasn't paid out until a later age (65, reduced if taken earlier) . There would still be motivation to earn it. And I imagine there are plenty of jobs for these people in their later years, ones not requiring the same level of physical demands. Why wouldn't we want to keep these trained people on for another 5, 10 or more years?

And if I understand it, most of these pensions are a "gate" little/nothing at 19 years, the whole enchilada at 20 years? If that's the case, it's not good (I think "gates" are bad in almost all cases). There clearly are people (I know some of them), who did what they needed to to 'hang on' for those last few years. I'm sure they weren't performing at their peak (and I don't blame them, it the way it goes sometimes). It's a "golden handcuffs" situation. We'd be better of with a more linear "earn as you go" system - some people would leave earlier and that might be best for all, and some would stay longer and that might be best for all.

-ERD50
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Old 10-26-2010, 03:30 PM   #52
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It might not be called spiking, but I also think that using final 3 or 5 years of salary is not correct... I have a real life example...

Person worked full time a few years... then went part time for a long time... then went full time at the end... got a great pension that was not based on their lifetime contributions.... someone has to make up for the higher pension....
You are absolutely correct. Their career contributions do not match their pension payments - it does cause underfunding of the system which is bad for all. I don't know if there are enough cases to be significant, but it does seem like it should be based on lifetime contributions, not a short snapshot.

BTW, out of pure coincidence, DW will probably hit the 'sweet spot' of getting the most out with the minimum in (though it will be a small pension anyhow). She worked part time long enough to vest, then the position went full time, and she may very well retire just as she hits the max X out of Y years with X being the full time years. No planning on her part and no intentional spiking, it just will work out that way. But it isn't good for funding the system.

-ERD50
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Old 10-26-2010, 04:50 PM   #53
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It couldn't be changed here in Hawaii for the state retirement system, and in some other states, because the state constitutions prohibit such a change. In other places, there are laws that could prevent impairing a contract made with current retirees and possibly current workers. I understand there is some litigation going on about this -- don't know the details.
I agree... and the politicians were the ones who got those laws put in place that do not allow them to be changed... but then again, you can change a state constitution...

Also, it is not impairing a contract... unless you are in a union... I do not know of very many people who have a long term contract to work in the public sector... but, you put it out there... this is what is going to change and when it is going to change... the employees get to look at it and then decide if they want to continue their employement or not.

As an example... they changed the Texas system... it went from the top 3 to the top 5 years... the age you could start to get 100% of benefits went up... etc. etc... if you were at a certain level, you stayed under the old system.... if you were not there... well, tough... I did not see a lot of teachers running for the door when their benefits were reduced (and to be quite frank, they were really not reduced that much)...

I also don't think there would be a mass exit of workers from the public sector if their benefits were reduced... as mentioned by someone else, a file clerk is already paid a lot more than a private file clerk without the pension... at the end of the day... we (in meaning the taxpayers) would have a true cost of our gvmt and then we can decide if we want to tax ourselves more to pay for it or live with less... as it stands today, even if we got rid of 100% of the workers, we would still be taxed to pay for benefits long into the future... or at a minimum be on the hook for any underfunding of the pension plan...
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Old 10-26-2010, 04:57 PM   #54
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You are absolutely correct. Their career contributions do not match their pension payments - it does cause underfunding of the system which is bad for all. I don't know if there are enough cases to be significant, but it does seem like it should be based on lifetime contributions, not a short snapshot.

BTW, out of pure coincidence, DW will probably hit the 'sweet spot' of getting the most out with the minimum in (though it will be a small pension anyhow). She worked part time long enough to vest, then the position went full time, and she may very well retire just as she hits the max X out of Y years with X being the full time years. No planning on her part and no intentional spiking, it just will work out that way. But it isn't good for funding the system.

-ERD50

The person I knew did not do it on purpose.... they went part time for 'the kids' in the middle of her career... and after the kids were in college went back full time... then got laid off just about the time she got the X years.... she would be working today if she had not been laid off.. I was just using her as an example of getting more than you paid for...
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Old 10-26-2010, 05:00 PM   #55
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If adjustments are needed (not sure if it is needed), I would not vote for raising the early retirement age to 62... but reducing the payout at a steeper rate for ER.

Most pensions reduce the payout if someone retires at 55 already. Some reductions are very steep.

Most private retirement plans (Defined Contribution and Defined Benefit) allow ER at 55 with a certain number of years of service. I see no reason to change that feature of public retirement plans.

People sometimes need the flexibility to get their money early because of life's circumstances.

Bottom line: It is owed to them and if the ER reduction is based on a reasonable actuarial model for a large pool of people... it should not matter assuming it is fully funded.... (large numbers and mortality).


There are two questions that might be more appropriate:

  1. Is the pension underfunded, therefore needs some sort of adjustment to keep it solvent.
  2. Is the pension paying more than it should and some reduction is needed.
If the age were raised to make the adjustment... it might be raised for full retirement and a steeper reduction for taking it earlier.
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Old 10-26-2010, 05:21 PM   #56
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The point is that in some states, public pensions are not being fully funded in a timely manner.
Perhaps you should make that "all states".
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Old 10-27-2010, 05:43 AM   #57
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Perhaps you should make that "all states".
Except that the issue is NOT with all states. Some actually have fully funded public pension systems.
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Old 10-27-2010, 09:20 AM   #58
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Except that the issue is NOT with all states. Some actually have fully funded public pension systems.
And the problem isn't always the current funding. As often as not there's also the issue of unrealistic ROI expectations. If you promise benefits based on assumed 8% returns as far as the eye can see, this is what you get in a prolonged lousy market. Assumptions like those are getting a serious reality check.
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Old 10-27-2010, 10:56 AM   #59
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With an aging population, increased lifespan, better than 50% of people working for the gov't, 45% of households receiving some sort of gov't pension or assistance, 1.5 trillion dollar budget deficit this year...it would only be logical to decrease pensions in a non productive society like ours..but, as long as people from around the world will loan us the money-let's all enjoy the free ride.
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Old 10-27-2010, 11:05 AM   #60
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Except that the issue is NOT with all states. Some actually have fully funded public pension systems.
That surprises me, but I guess it's right:
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In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.
The Trillion Dollar Gap - The Pew Center on the States

(I looked around a bit but failed to find any update of the 2008 figures.)
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