Should publicly funded pensions start later?

[DallasGuy]

I don't know if this topic has been discussed before but here goes...

With many local, state and national government budgets being stretched and many of them struggling to balance their budgets, would you be in favor of publicly funded pensions (i.e. teachers, public sector employees, military, etc.) starting at an older age. For example, instead of being able to collect a publicly funded pension at age 55, the earliest age to collect that pension would be pushed out to 62 (or later)....similar to social security. Wouldn't this go a long way towards reducing public spending and deficits?

NOTE: I'm assuming that anyone currently collecting a publicly funded pension would be grandfathered in. Also, any changes should be done in a phased approach.

 

[Texas Proud]

There are lots of discussions on this... and this will start a flame war...

I would suggest you go look for the ones out there...

 

[utrecht]

In Dallas, Cops and Fireman have a separate pension from other City employees. The "Non Sworn" employees do have to wait until they are older to collect their pensions. I believe the age is 60.

 

[Sue J]

In Ohio PERS it's already been suggested that changes will be coming. DH would have been grandfathered in but our son is in the same system with 5 YOS and it would apply to him.

This is what's being considered, I don't know if this is the final plan.

Age & Service Eligibility – Add two years to the current plan. **
** Currently 30 years of service, at any age or age 65 with five years of service for an unreduced
pension. For a reduced pension, retirement at age 55 with 25 years of service or age 60 with five
years of service.
** Recommended plan: 32 years of service, minimum age 55 or age 67 with five years of service for
an unreduced pension. For a reduced pension, retirement at age 57 with 25 years of service or
age 62 with five years of service.

Benefit Formula – Maintain the current 2.2% x Final Average Salary (FAS) but increase the time
frame that the multiplier increases to 2.5% from 30 years of service to 35 years.
Final Average Salary (FAS) – Change the FAS calculation from the three highest calendar years of
earnings to the five highest calendar years of earnings.
Cost of Living Adjustment (COLA) – Replace the current 3% simple COLA with a simple COLA
equal to the change in the Consumer Price Index up to 3%. This change would not apply to current
OPERS retirees.
Contribution Rate – No change in the current contribution rates, Members (10%) and Employers
(14%).

 

[kyounge1956]

I don't know if this topic has been discussed before but here goes...

With many local, state and national government budgets being stretched and many of them struggling to balance their budgets, would you be in favor of publicly funded pensions (i.e. teachers, public sector employees, military, etc.) starting at an older age. For example, instead of being able to collect a publicly funded pension at age 55, the earliest age to collect that pension would be pushed out to 62 (or later)....similar to social security. Wouldn't this go a long way towards reducing public spending and deficits?

NOTE: I'm assuming that anyone currently collecting a publicly funded pension would be grandfathered in. Also, any changes should be done in a phased approach.

Are you talking about an across-the-board change for all public pension systems? If so, my answer is "of course not!"

First, such a change would unnecessarily and unjustifiably penalize current and future employees of any system that isn't currently underfunded. OTOH, it might not be enough for a system that's in really desperate straits.

Second, not all employees are able to continue to do their jobs until age 62, and I am not only talking about police and firefighters. For example, I started in City employment at age 29 working on land survey crew, and continued for 17 years or so. I am certain I wouldn't have been able to keep that up until age 62! I was able to transfer to a desk job but that isn't always possible.

I think the determination of whether a pension system has sufficient assets to pay the promised benefits should be up to the actuaries, and if it is determined that the system is underfunded, then the decision as to how to remedy the situation should be up to the governing body of the pension system, the employees and the relevant legislative body—which ultimately puts it up to the citizens of the jurisdiction. Find out from the actuaries what it will take to bring the system into a financially sound condition, and keep it that way. Then let the people who will be affected by the changes make the choice between the available options.

I assume that all pension systems are required to have a periodic actuarial audit. If they're not, they should be. Maybe there should also be a requirement that if funding falls below a certain percentage of the necessary amount, the system should be required to decide on corrective measures and put them into effect within a certain time.

Imposing a blanket solution on multiple systems that offer a variety of benefits, with different funding mechanisms, and have gotten into problems for a whole gamut of reasons, doesn't make any sense.

One size doesn't fit all.

 

[GregLee]

... would you be in favor of publicly funded pensions (i.e. teachers, public sector employees, military, etc.) starting at an older age.

Sure. Provided that the older age corresponds in some reasonable way with increasing life- and work- spans, and provided it doesn't violate any previous understanding or contract.

 

[Nords]

With many local, state and national government budgets being stretched and many of them struggling to balance their budgets, would you be in favor of publicly funded pensions (i.e. teachers, public sector employees, military, etc.) starting at an older age. For example, instead of being able to collect a publicly funded pension at age 55, the earliest age to collect that pension would be pushed out to 62 (or later)....similar to social security. Wouldn't this go a long way towards reducing public spending and deficits?

NOTE: I'm assuming that anyone currently collecting a publicly funded pension would be grandfathered in. Also, any changes should be done in a phased approach.

Everyone wants cheap teachers, police officers, firefighters, and military! I suspect you'd get exactly what you paid for.

Or maybe you wouldn't get anybody. The military tried this approach in the 1980s with REDUX. It was grandfathered and there was plenty of warning to the new members.

By the early 1990s, retention sucked so badly that the Joint Chiefs of Staff put away their back-stabbing tools and sang four-part harmony to Congress begging them to repeal REDUX. I can't remember the last time the JCS cooperated so strongly on a single issue.

The original REDUX has been replaced with a modified version that retains the features of the previous pension plan. Retention promptly rose before being affected by new issues.

Throughout the years, the only effective way to improve military retention has been with money. Quality of life, sure, but money talks louder than any other initiative.

 

[nun]

I don't know if this topic has been discussed before but here goes...

The diversity of public pensions is so large that there's no single answer to the question.

Many 401ks allow withdrawals at age 55 so why not public pensions too - if you've worked there for 30 years. It should be noted that many public pensions replace both SS and 401ks (lots of states opt out of SS) and that they are also contributory eg in MA the employee earning over $35k MUST contribute 11% of salary to the pension and the state kicks in 5%. That's a good match, but there's a 10 year vesting cycle.

I'd ask the question "Should the vesting period in public pensions be removed?"

 

[ziggy29]

Throughout the years, the only effective way to improve military retention has been with money. Quality of life, sure, but money talks louder than any other initiative.

Agreed. But I'd ask a different followup question to this: Does the "money" have to come in the form of a pension or could it come in higher base pay and/or an "employer match" to something like TSP?

I know I personally would rather pay more now and lock in cost certainty than face unknown and possibly crippling liabilities in the future. Probably not possible for all public sector occupations, but certainly some -- especially for occupations where there are private sector equivalents that rarely get the pension deal.

 

[youbet]

I know I personally would rather pay more now and lock in cost certainty than face unknown and possibly crippling liabilities in the future. .

Agree 100%!

I fully understand that we taxpayers are going to have to foot the bill for compensation for public employees with the necessary skills to provide the services we want. But I don't understand why politicians are not forced to recognize these costs as current expenses but rather are allowed to hide them by making a large part of the compensation package pensions and then under-funding those pensions.

BTW, I live in Illinois where crooked politicians reign and we now rank #1 on the list of states with under-funded pension problems.

 

[ziggy29]

But I don't understand why politicians are not forced to recognize these costs as current expenses but rather are allowed to hide them by making a large part of the compensation package pensions and then under-funding those pensions.

Because not paying now and underfunding them allows them to kick the can down the road to become someone else's crisis in the future. Meanwhile they look like heroes for making big promises to public pensioners while not raising taxes in the present.

 

[MichaelB]

Everyone wants cheap teachers, police officers, firefighters, and military! I suspect you'd get exactly what you paid for.

Or maybe you wouldn't get anybody. The military tried this approach in the 1980s with REDUX. It was grandfathered and there was plenty of warning to the new members.

./.

Throughout the years, the only effective way to improve military retention has been with money. Quality of life, sure, but money talks louder than any other initiative.

Would it be fair to say you don’t always get what you pay for, but you almost never get what you don’t pay for. I’d agree with that.

The total cost of employment is what counts. Whatever the combination of active years, age, retirement years, percentage of salary, and COLA, they should be evaluated on total net present cost and then compared with current market costs for the desired labor profile. No reason to pay more, paying less would attractive the right talent mix.

Salary spiking and other such gimmicks should be eliminated – and that’s not hard to do.

This is not a difficult issue to fix - and I think it's the elected officials that are are not standing up to it even as they point elsewhere to blame.

 

[youbet]

Because not paying now and underfunding them allows them to kick the can down the road to become someone else's crisis in the future. Meanwhile they look like heroes for making big promises to public pensioners while not raising taxes in the present.

True, true..... But here in Illinois those of us not personally benefitting from this tactic prefer to think of it as a strategy of the liars and crooks we elect to office again and again.......

 

[youbet]

The total cost of employment is what counts. Whatever the combination of active years, age, retirement years, percentage of salary, and COLA, they should be evaluated on total net present cost and then compared with current market costs for the desired labor profile. .

I'd add that the pension component of the total compensation package should be kept small since it is extremely difficult to reduce pension formulas in the public sector. If demand for some specific job category falls while supply increases, it's near impossible to reduce pension packages but fairly easy to hold salaries constant over time effectively reducing real pay.

 

[Nords]

Agreed. But I'd ask a different followup question to this: Does the "money" have to come in the form of a pension or could it come in higher base pay and/or an "employer match" to something like TSP?

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.

I also don't know how many have signed up for the TSP. Heck, I don't even know if it's done by default or if people still have to opt in. But the matching has been a popular request for years and the military has yet to work out the enabling legislation.

I know I personally would rather pay more now and lock in cost certainty than face unknown and possibly crippling liabilities in the future. Probably not possible for all public sector occupations, but certainly some -- especially for occupations where there are private sector equivalents that rarely get the pension deal.

I think the biggest issue here is that, until the new FASB rules were implemented, nobody had to quantify the future liabilities-- let alone have to face them or be held accountable. Now that people have to identify the problems and track them, we can ignore them on a much more informed basis.

Even DoD doesn't complain about pension obligations as much as they complain about the cost of retiree healthcare. I wouldn't be surprised to see retiree Tricare premiums double or even triple in the next 5-10 years.

 

[MichaelB]

I'd add that the pension component of the total compensation package should be kept small since it is extremely difficult to reduce pension formulas in the public sector. If demand for some specific job category falls while supply increases, it's near impossible to reduce pension packages but fairly easy to hold salaries constant over time effectively reducing real pay.

Business has moved from DB to DC for a reason. No disagreement with what you propose, but I have little confidence in public sector governance. If retirement commitments are fully expensed the cost of of a DB cola pension (at current treasury rates) would be so high that the public would scream for change.

On second thought, maybe we're better off with just DC retirement schemes for everybody but those jobs with high risk profile - military, police, firefighter.

 

[ziggy29]

Even DoD doesn't complain about pension obligations as much as they complain about the cost of retiree healthcare. I wouldn't be surprised to see retiree Tricare premiums double or even triple in the next 5-10 years.

Not surprising. For all the gnashing of teeth about Social Security, for example, it's still a minor and relatively painless "fix" compared to what Medicare faces in the years to come.

 

[youbet]

maybe we're better off with just DC retirement schemes for everybody but those jobs with high risk profile - military, police, firefighter.

I think so. The mis-handling of public DB pensions here in Illinois has us in such a horrible situation I can't see how the scenarios generated by DC pensions could be worse.

And I like the Wisconsin system. Fairly generous DB pensions but mandated current 100% funding and a cola linked to investment portfolio performance, not inflation. The cola amount can be negative but can never take you below your original amount.

However it goes, the current underfunding of DB pensions here in Illinois has to stop. It's hilarious really. Despite our ranking as the worst in the nation, local, long time, machine politicians still are singing the "everything will be OK" tune. This despite the fact the public pension funds are scheduled to be completely out of money in 8 yrs and public DB pensions will consume 32% of tax revenues after that.........

 

[nun]

Business has moved from DB to DC for a reason. No disagreement with what you propose, but I have little confidence in public sector governance. If retirement commitments are fully expensed the cost of of a DB cola pension (at current treasury rates) would be so high that the public would scream for change.

On second thought, maybe we're better off with just DC retirement schemes for everybody but those jobs with high risk profile - military, police, firefighter.

Most people who talk about public pensions seem to believe that they are all DB and are no-contributory. This is wrong.

In MA there are DB and DC plans. I chose the DC plan as I started working for the state at 43 and wanted immediate vesting. Both plans require the employee to pay 11% of their salary into the plan and state employees don't pay the SS component of FICA so we don't get Federal SS when we retire.

Reports of pension abuse have focused on outliers. In truth, most public employees receive very modest pensions. The average pension for retired MA state workers is about $26,000 per year and $23,000 for municipal workers.


Most public sector employees do not pay into Social Security and will not receive any Social Security benefits. All these seniors will have to rely on as they age are their public pensions. Obviously state employees want to see public pensions funds fully funded and well managed, but we do not get pensions that are outrageous and we fund the majority of them from deductions form our salaries.

 

[ziggy29]

Reports of pension abuse have focused on outliers. In truth, most public employees receive very modest pensions. The average pension for retired MA state workers is about $26,000 per year and $23,000 for municipal workers.

Yes, that is probably true. But that is no reason to not seek legislation that puts a stop to these "outliers" -- the shenanigans we saw in Bell, California, or the practice of spiking. And it should be easier to yank or reduce the pensions of those who are terminated for gross misconduct (admittedly there would need to be some arbitration system in place for this).

Of course, an 'average' state worker pension of $26K tells us little about the details of their state career -- what was their position, their working base salary and their years of service. $26K to a teacher with 30 years of service is entirely reasonable. A $26K pension for a clerical worker with 12 years of service would probably be excessive (especially when there are many private sector equivalents, most of which don't get a pension or retiree health insurance at all). The proverbial devil, as they say, is in the details.

 

[youbet]

Reports of pension abuse have focused on outliers. .

While it's true that reports of abuse focus on states where there is abuse, I'm not sure those are the outliers. Of course, I live in Illinois, the worst of the worse, so I see things as generally mis-managed at best and downright corrupt at worst. But, yes, there are many states where public pensions are funded and reasonable, I just don't live in one.

My bottom line is that if the pensions are treated as a current expense and are fully funded by conservative actuarial standards, and if the tax payers agree, they're fine. If the politicians are playing games with the funding or if tax payers disagree, then we need changes.

 

[FinanceDude]

And I like the Wisconsin system. Fairly generous DB pensions but mandated current 100% funding and a cola linked to investment portfolio performance, not inflation. The cola amount can be negative but can never take you below your original amount.

Our system works because we have had hight taxes forever..........

 

[nun]

Yes, that is probably true. But that is no reason to not seek legislation that puts a stop to these "outliers" -- the shenanigans we saw in Bell, California, or the practice of spiking. And it should be easier to yank or reduce the pensions of those who are terminated for gross misconduct (admittedly there would need to be some arbitration system in place for this).

Of course, an 'average' state worker pension of $26K tells us little about the details of their state career -- what was their position, their working base salary and their years of service. $26K to a teacher with 30 years of service is entirely reasonable. A $26K pension for a clerical worker with 12 years of service would probably be excessive (especially when there are many private sector equivalents, most of which don't get a pension or retiree health insurance at all). The proverbial devil, as they say, is in the details.

Abuse in any context should be stopped. However, people get outraged when a state employee gets $100k pension. They fail to realize that most of that payment has been funded by salary deductions. In MA the highest pensions go to people like cardiac surgeons/professors at UMass medical School and they are not out of line for what they do.

Once again there is a knee jerk reaction to a very small number of abuses that is applied across the spectrum of state workers. The initial reaction is to see them as "the other" and not doing much much for us as that's what we read in the media.....it just isn't true.

 

[ziggy29]

Abuse in any context should be stopped. However, people get outraged when a state employee gets $100k pension. They fail to realize that most of that payment has been funded by salary deductions.

Actually, to the extent I have "outrage", it's not because of the cost of funding the pension at the time the service was accrued -- I consider that a part of regular compensation.

The "outrage" above and beyond the issue of abuses and spiking and such is that when these plans are in "crisis mode," the government entities have to come back and ask taxpayers (many of them with no pension, or had pensions taken from them) to pay more to secure the retirement of others when no one gives a damn about our greatly diminished retirement security. The outrage is that it makes the rest of us feel like second class citizens whose retirement isn't important enough to secure, but who will have to dig deeper to protect it for others.

I'm not against public pensions. I'm against a system that keeps raising benefit levels when times are good, sometimes allows abuses like spiking, writes a blank check in terms of future liabilities and then when things are bad, expects pensionless taxpayers to accept paying higher taxes to prop up other people's retirements as our own 401Ks suck and are causing retirements to be delayed by many years (when it remains feasible at all).

When the powers that be decide to start caring to protect the retirement prospects of "the rest of us" I'd probably be more willing to backstop public pensions with more tax dollars, and I doubt I'm alone in that sentiment.

 

[Texas Proud]

Abuse in any context should be stopped. However, people get outraged when a state employee gets $100k pension. They fail to realize that most of that payment has been funded by salary deductions. In MA the highest pensions go to people like cardiac surgeons/professors at UMass medical School and they are not out of line for what they do.

Once again there is a knee jerk reaction to a very small number of abuses that is applied across the spectrum of state workers. The initial reaction is to see them as "the other" and not doing much much for us as that's what we read in the media.....it just isn't true.

Having a DC plan means that their contributions along with their earnings are theirs... if their contributions do not earn, it is their problem...


But with the DB plan... their contributions is all they have to put in... they are 'guaranteed' to get their pension no matter what happens with earnings... no matter what spiking occurs (which, BTW can not happen in a DC plan).. no matter what happens with final salary games (working as a clerk for 20 years and then get a great job for the last 5)...


SOOO, everybody who keeps talking about how they put their money into the system and wants to get their money out should be willing to convert to a DC right now.... yep, I thought not....


BTW, I put in my money to SS and I bet you that I will get less than is being promissed... I have already had some taken away when they raised the age... but I think they will take away more going forward... so I can say the same...