Should publicly funded pensions start later?

[nun]

Quote:

Originally Posted by 73ss454 Pensions are not the problem, abuse of the pensions are. Just an example, and I do have envy. A buddy of mine retired from a police dept on Long Island NY. He worked in an office his entire career and somehow became a detective. When he did he stayed in the same office and never once made an arrest or hit the street. His last 3 years he worked untold amounts of over time which he never did before. At 41 he retired and is collecting a full COLA pension of 129K a year. Oh yeah, don't forgete the health ins, dental and he has to have free eye glasses. They get away with this fraud and laugh all the way to the bank. Not a bad scam. Another good one, DW's boss was the superintendant of schools in a small town on Long Island. After 25 years he retired with a pension of about 160K a year. The next day he was sitting in the same seat collecting $1200 a day. Does this make sense?

Of course not, that's why I suggest the modifications to the current system. However, while the individual incidents you describe are very annoying they are a vanishingly small percentage. The issue I have is when people take such incidents and assume that public employees do the same; that they are lazy and dishonest and that everyone gets a big pension. It's simply not so.

[ERD50]

Quote:

Originally Posted by nun It's ironic that getting a pension at 55 is an issue on an ER forum. If the arguments were solely financial I could understand it, but there is a streak of envy and outrage that mystifies me.

It is an 'issue' to the extent that:

1) If anyone wants to compare public to private pensions, they need to take into account that very few private pensions can be collected before age 55. And there is normally a huge reduction in benefits to take it before 65. In my case, taking at 55 cuts it in half. That can be a huge delta in total value of the pension and cost to the payers.

2) Early pensions (esp COLAd) are certainly a financial 'issue' as it will cost a lot to fund those pensions.

If you're mystified by the outrage, I don't think you've been reading the posts here. It's been explained ad nauseam.

-ERD50

[ERD50]

Quote:

Originally Posted by nun The issue I have is when people take such incidents and assume that public employees do the same; that they are lazy and dishonest and that everyone gets a big pension. It's simply not so.

And a BIG issue I have is when people tell ME that I hear of an incident and assume that means everyone is the same. I'm not stupid, please don't paint me as such. Don't accuse others of using a broad brush when that is exactly what you are doing.

So, when are we going to get some data that actually shows us what the averages and means are for public pensions?

-ERD50

[beowulf]

There is a lot of misinformation floating around about the size of federal pensions. I won't address state and local pensions as there are so many different types that any all in one average is useless - plus I know nothing about them .

When you Google "average size of federal pensions," you get lots of hits that address Congressional pensions only. There is a lot of understandable outrage about those and they are calculated on a different formula than regular feds. We are talking about a total of 535 people - out of 2.75 million civilian federal employees in 2010 (not counting military). Given the net worth of your average congressman or senator, I'm not sure anyone, including themselves, would complain about doing away with their share .

Let's just look at non-congressional feds. Feds whose salaries are above $150,000 make up only 2.8% of the federal workforce (higher step GS-15s and above). Most of these folks are highly educated professionals with masters degrees in critical jobs. If you take a look at the salaries if the top 2.8% income earners in the private sector it's easy to see there is no comparison to the income of the top 2.8% of the federal workforce. For the feds, these are the most visible people to the public and those who earn the highest pensions.

As of 2006 (latest official OPM stats), the average federal salary was about $65K. There have been 4 small increases since then. The trend of wage grade employees (those who earn the least), those who work with their hands, not just their brains, has steadily decreased over the past 20 years, concentrating federal pay in the higher paying grades. The number of CSRS (older and more generous program) is now less than 20% of all feds, the other 80%+ of whom are covered by FERS. The average age of feds at retirement is currently 60 years of age and rising, as FERS employees, who will depend on SS for a larger portion of their retirement income, start to leave. For 2007, The average monthly benefit for CSRS retirees was about $2,600 and for FERS retirees about $950; survivor benefits average about $1,200 and $400, respectively.

The highest retirement benefits go to those who receive the highest salaries and work the longest - which is as it should be. It's not unusual for an SES with 35 years for service to receive over $100K a year in retirement (under CSRS) - note that there are less than 7,500 SES positions in all of government and about 40% of those are political in nature - those folks do not generally serve long enough to even receive a pension.

All this leads to the fact that, while federal pensions may seem high to those to have no pension or lost one becaue their companies went bankrupt, the average federal pension, to include the fact that 75% of people currently drawing them are from the older CSRS system, is about $32K a year and will drop as more FERS retirees join the retired roles.

Maybe you consider $32K for a 30 year or more career a lot - I don't. CSRS is gone, FERS is much less generous and has been in place for 26 years. Federal pensions do not need more changes. They are no longer generous by any means. And, not to belabor the point, each of us has made their own bed and has to lay in it. Trying to pull the covers off others because we are unhappy with the decisions we made is petty and motivated by sour grapes. You can deny it all you want, but, when things were booming in the '90s, most people didn't give a hoot about what fedes earned or retired with. In fact, friends I knew under FERS boasted regularly that they made more in their TSP every month than they did in salary earnings. They could not understand why most of us did not switch when we had the chance. Other friends in private industry thought I was nuts for sticking with the fed when I could have easily made a LOT more working for defense contractors. Now they know why .

[ERD50]

Quote:

Originally Posted by beowulf The highest retirement benefits go to those who receive the highest salaries and work the longest - which is as it should be. It's not unusual for an SES with 35 years for service to receive over $100K a year in retirement (under CSRS)...

I had to strike my comment on this, realizing you didn't give a salary estimate for the position, I have no basis for comparison.

Quote:

Maybe you consider $32K for a 30 year or more career a lot - I don't.

Well, if this $32K is available at age 55, and it is COLA'd, and maybe comes with other benefits - then it may indeed be "a lot" relative to what the private sector would get under similar conditions. Again, we need to know more than just the $ - devil's in the details (though I hardly consider full pension at 55 versus 65, and COLA to be 'details').

Quote:

Trying to pull the covers off others because we are unhappy with the decisions we made is petty and motivated by sour grapes.

I wish people would stop making accusations like this. Again, this same group sure doesn't like the broad brush applied to them. Goose-gander?

FYI - I am concerned not because I "missed out" - you are correct, I made my bed, I sleep in it. I'm OK with that. What concerns me is when people try to play down the impact of these pensions on the taxpayers who need to fund them, and/or try to minimize just how good these pensions are relative to what the public sector gets.

I have not found the data yet, but I outlined what I thought would be useful in another post to kyounge1956 - something along the lines of quintiles of pensions received, relative to years served, etc. It would require a normalization factor for COLA, and the value of other benefits. Don't have time to search or repeat it right now.

-ERD50

[Texas Proud]

To the people who keep saying that the average pension at so and so location is only $X... is meaning less without also stating how many years they worked and what was the salary... also, when did they start to get paid their pension... 55...

IOW, say it is $26K... but that there are a LOT of people who only worked 5 years and theirs in only 15% of average salary of $50K... so they get $7,500 per year for life... (we know some get 3% per year... most are in the 2% to 3% range... at least the last time I looked at the poll)... now if they can start to getting that at 55 (probably not, just saying).... then 25 years X 7.5 = 187,500 with a total paid salary of $250,000... sure, the time value of money changes the ratio a lot...

But, just saying the average is X is meaningless...

[ERD50]

Quote:

Originally Posted by Texas Proud But, just saying the average is X is meaningless...

+1,000,000.01 (on average).

Whenever I see meaningless statistics thrown around as 'proof', I sense an agenda.

-ERD50

[FinanceDude]

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Originally Posted by GregLee I don't care for being called a soulless zombie, however.

I think we mistakenly thought you worked at the DMV or the IRS..........

[MichaelB]

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Originally Posted by FinanceDude I think we mistakenly thought you worked at the DMV or the IRS..........

Wait a minute. The folks at the IRS are not zombies. But they are soulless.
As for the DMV, be they people or zombies, I didn't know they worked - I thought they just shuffled around and called out random numbers. Kinda like bingo...

[nun]

Average MA state pension is $26k a year and state employees don't get SS.
Pension can be taken at 55 with at least 10 years service. There is a 10 year vesting schedule. Employees contribute 9% of salary and 11% on earnings above $30k. The state contributes 5%.

The issue with state pensions is the same as with many private pensions. Risky investments and poor returns. The criticism should not be for the workers, but the treasurers and wall street con artists who have lost the money workers have earned and invested with the promise of income in retirement.

[ziggy29]

Quote:

Originally Posted by nun It's ironic that getting a pension at 55 is an issue on an ER forum. If the arguments were solely financial I could understand it, but there is a streak of envy and outrage that mystifies me. I have yet to read a comment that starts " It's great that you can get a pension at 55, if there are problems with funding we should fix them while protecting the availability at 55".

Maybe as soon as those who have pension plans start caring about the increasingly raw deal the private sector "have nots" are getting, that can be arranged.

I don't exactly read many comments from someone who has a nice pension for ER who says they are concerned for the raw retirement deal those without pensions are increasingly getting. Instead most of what we hear from that side is something to the effect of - "it's your fault for choosing the wrong employer." You blame us for bad choices and we're supposed to jump all over "fixing it" for you when no one cares to fix it for us??

Two-way street. And the strife comes when people are trying to make it a one-way street, regardless of which direction they are coming from.

How about we defend retirement security for everyone regardless of where their paycheck comes from??

[kyounge1956]

Quote:

Originally Posted by Texas Proud Quote: Originally Posted by kyounge1956 I'm amazed that there have been Idunnohowmany pension threads on this forum without my realizing until now that not all posters meant the same thing by "defined contribution plan". To the best of my knowledge, beowulf is in the right on this one. I've never heard any sort of plan other than 401k, 457b, 403b and the like called "defined contribution" plans. I think what Texas Proud is describing is a Cash Balance Plan. WOW.... Who knew Yep, that is what I was calling a DC plan... never knew that it was considered a DB plan... hmmmmmm..... what is the DB

If I understand a Cash Balance Plan from the wikipedia article, the defined benefit is this: the balance in each individual account is calculated based on the employee contributions and a fixed interest rate. If the pension fund's investments returned less than that fixed rate, the retirement system would still be required to pay a benefit based on the employee's calculated account balance. Any shortfall between that calculated balance and the actual amount in the pension fund would have to be made up by the employer.

According to the linked wikipedia article, conversion from a standard DB pension to a Cash Balance plan hits older employees harder than younger ones. If that's accurate information, conversion of existing DB plans to Cash Balance would go against what I think has been the consensus in these discussions—that long-time employees closer to retirement should be "grandfathered in" and shielded from the impact of any changes made to their pension system.

[keegs]

you've all been mugged... and they're coming after your social security next.

[kyounge1956]

Quote:

Originally Posted by clifp I'm too lazy to find my old posts on the subject, but earlier when I was researching pension in some depth I did a fair amount of calculations. The basic problems is that most public pension plans allow employees to work 30+ years and than retire at 55 with only a modest reduction in benefits from the 62 years 'normal' retirement. So a kid who goes to work right out of college as a teacher at say 36K and than retires at 33 years later at age 55 with a final salary of say 75K (all numbers ignore inflation) (which represents a 2.2% annual merit increase), is often eligible for 2/3 (2%/year) of their final salary or 50K/year. They will be collecting a pension on average between 25-30 years or almost long as they worked. Lets assume the worse case and assume that we are like Japan and capital has 0% percent real return. (10 Years TIPs are about .3% 30 years aren't much higher). This would require the teacher to have saved up 50K x 25 or 30 years or 1.25-1.5 million. Over 33 year working career that is 40K per year combined contribution. Clearly this difficult when you are making 75K and down right impossible when you are making 36K year as a starting teacher. Even if we give early retires a 25% penalty and reduce the pension to 40K/year we are still talking about needing a million+ dollars in assets to fund a 25-30 year pension. It is true that currently the average pension is lower 25K-30K is typical but even that require $500K - $750K in today interest rate environment for an early retirement. This amount is roughly twice the amount of assets that typical public pension has per retiree. Now lets assume that world returns to normal and we go back to 2002 (without the real estate bubble) Pension funds and investors can look forward to 7-8% real returns (The average public pension fund assumes 7.5% down about 1% from the pre crash assumptions). In order to fund a pension that allows somebody to retire in the 55-62 year range with between 60-80% of their final salary the combined contribution (i.e. the employee and the state) needs to be in the 25-35% range. Most public pension fund require an 8% employee contribution ( Nun's 11% is above average but still not enough), it is a very very rare state or city that consistently contributes more than 15% with most averaging in the 10-12% range. So basically for decades we have been funding public pension in the 18-20% range when we needed 25-35%. You throw in the financial crisis, with the 20-25% decrease equity values (although I am sure some pension sold stocks at the bottom), much lower bond yields, and a disaster for any real estate investment and we have a real crisis. Finally let me note that at the root of the problem is that the most valuable contribution to any savings plans are the earliest, but that is when the public employees salary is the lowest. Yet the benefit is typically based on the final few years salary which are always the highest. The only way to have DB work in the long run is the base the pension on the average lifetime salary because that corresponds with the contributions.

Unless I am reading too fast, you have left two important factors out of this calculation:
1) employer match. My contribution to the pension system is 8.03% and my employer puts in an equal amount so the total contribution is 16% of each employee's salary. Of course the amount of contribution and the extent of the match varies from system to system. Does your "total contribution of 10-12%"include employer match as well as employee contributions.
2) people who leave the system before vesting. Employees who leave the City of Seattle retirement system for another employer before vesting (at 5 years of service) receive their contributions back with accumulated interest calculated at an assumed value, but the employer match that was put in the system for their salary stays in the Seattle system. Employees who leave after five years of service have the option of leaving their contributions in the system and receiving a pension when eligible based on age and years of service, or withdrawing their contributions and interest. In the latter case, their employer match stays in the system as well.

I think both of these factors would tend to improve the funding insufficiencies you point out, but no time now for calculations, I have to go to w@rk

[nun]

Quote:

Originally Posted by ERD50 +1,000,000.01 (on average). Whenever I see meaningless statistics thrown around as 'proof', I sense an agenda. -ERD50

Good that you can make an argument without reference to them, I sense an adherence to received dogma.

FYI
MA average state employee salary $46k

The length of employment for retiring employees was

less then 10 years = 10 % (not vested in program)
10 to 19 years = 45%
20 to 29 years = 34%
+30 years = 11%

These number indicate that the majority of retirees don't have a service length long enough to truly benefit form the curve of the DB plan. Also 96% of retirees had a salary under $60k.

Remember MA state workers don't get SS.

[nun]

Quote:

Originally Posted by ziggy29 Maybe as soon as those who have pension plans start caring about the increasingly raw deal the private sector "have nots" are getting, that can be arranged. Two-way street. And the strife comes when people are trying to make it a one-way street, regardless of which direction they are coming from. How about we defend retirement security for everyone regardless of where their paycheck comes from??

+100000

See the threat on protecting SS. 401k etc have been rthe biggets con perpetrated on the US worker ever. They have shifted retirement funding onto the employee without commensurate salary increases and lined the pockets of fund managers who charge outrageous fees for terrible returns,

[Texas Proud]

Quote:

Originally Posted by kyounge1956 If I understand a Cash Balance Plan from the wikipedia article, the defined benefit is this: the balance in each individual account is calculated based on the employee contributions and a fixed interest rate. If the pension fund's investments returned less than that fixed rate, the retirement system would still be required to pay a benefit based on the employee's calculated account balance. Any shortfall between that calculated balance and the actual amount in the pension fund would have to be made up by the employer. According to the linked wikipedia article, conversion from a standard DB pension to a Cash Balance plan hits older employees harder than younger ones. If that's accurate information, conversion of existing DB plans to Cash Balance would go against what I think has been the consensus in these discussions—that long-time employees closer to retirement should be "grandfathered in" and shielded from the impact of any changes made to their pension system.

When my mega convered to a cash balance account... a number of older workers sued... they said that the starting cash balance was to low for how long they had worked. IOW, it was not enough to buy an annuity for their benefit when they retired... however, it was enough to buy an annuity right now for what they had earned up to that day... based on retiring when they turned 65... SOOO, if the continued to work their received 'new cash' in their account, but in reality it was not enough to make up for the higher benefit they would have received under the old plan... so in effect, their pension was frozen the day it was converted...



But, I still do not see how it is a DB... let's say I have $100K in my account... they can buy an annuity for me that pays X per month... but that X is not based on my years of service nor final salary... just how much cash is there.... that is why I always have assumed it was a DC plan....


Finally, this is still what I envision that a plan should be based... if you want to take a certain amount from the employee to fund part of it along with some kind of matching etc. etc. etc... fine... but when it comes time to retire there is a 'balance' that is known... and they can calcualte an annuity on that balance... if you take it early, you get less per month, but for longer... if you take it later... the opposite...

The funding is pretty fixed... the rate is 10 year treasuries, so it is easy to invest.. not a lot of investment risk... also, no spiking of salary... either by getting a higher paid job or working overtime... you balance is your balance which determines your annuity...


Edit to add:

If you had $100K... at 55 the annuity is $6,120 per year (not COLA)
at 65 it is $7,512
at 70 it is $8,508

based on immediate annuity web site...

[youbet]

Quote:

Originally Posted by GregLee I have glasses on. There is no such statement in RAE's post.

No you don't. It's quoted.

[youbet]

Quote:

Originally Posted by beowulf Federal pensions do not need more changes.

Actually they do need more changes. They need to be more flexible so that they increase with good economic times and decrease with bad. We need to be assured that tax payers never see a day when their children are hungry because past promises to gov't employees cause increasing taxes while current employment opportunities are in the dumpster.

I like the Wisconsin system. It has 100% current funding (tax payers take the pain up front) and the cola is based on market performance. Their pensions can actually decrease (and recently did) in times of poor investment performance. They share the pain along with the folks who are paying the bills.

[FinanceDude]

Quote:

Originally Posted by youbet Actually they do need more changes. They need to be more flexible so that they increase with good economic times and decrease with bad. We need to be assured that tax payers never see a day when their children are hungry because past promises to gov't employees cause increasing taxes while current employment opportunities are in the dumpster. I like the Wisconsin system. It has 100% current funding (tax payers take the pain up front) and the cola is based on market performance. Their pensions can actually decrease (and recently did) in times of poor investment performance. They share the pain along with the folks who are paying the bills.

Please don't move to Wisconsin, we CAN'T AFFORD the pension payouts we're paying now. We have one of the highest tax rates in the country, so that's how we're "funding" it...........