Should publicly funded pensions start later?

[youbet]

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Originally Posted by nun 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]

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Originally Posted by youbet 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]

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Originally Posted by ziggy29 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]

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Originally Posted by nun 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]

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Originally Posted by nun 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...

[kyounge1956]

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Originally Posted by MichaelB (snip)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. (snip)

Is that a valid comparison? Aren't current treasury rates very low, making the price of an annuity equivalent to the pension a lot higher now than it would have been in the past? I don't know what the long term averages are, but I just took a quick look on the U.S. Treasury website, and the interest rate on long-term Treasuries is only about half of what it was 10 years ago (as far back as the data went on that web page). That's got to affect the price comparison.

[ERD50]

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Originally Posted by youbet ...Of course, I live in Illinois, the worst of the worse, ... If the politicians are playing games with the funding or if tax payers disagree, then we need changes.

Of course, some people will say that the voters are responsible for these problems. Later today, I'll print out the ballot for my area and study it. Maybe one of those people could help me to find the correct boxes to check to fix this problem?

-ERD50

[Emeritus]

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Originally Posted by ERD50 Of course, some people will say that the voters are responsible for these problems. Later today, I'll print out the ballot for my area and study it. Maybe one of those people could help me to find the correct boxes to check to fix this problem? -ERD50

You do know, of course, that the word "responsible" does not mean "able to control". You can in fact be fully responsible for people or actions over whom you have no control.

[Emeritus]

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Originally Posted by youbet 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.

I'm not sure what you mean by "tax payers agree". Voters elect politicians in a republican form of government.

I Agree otherwise.

[nun]

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Originally Posted by Texas Proud 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.... .

I had the choice of a DC or DB plan and chose DC because I knew that I would be retiring before I'd worked for the state for 10 years. It takes 10 years to vest in the DB plan.

Spiking is gaming the system and should be stopped. The bad behaviour of some should not be used as a criticism of the DB pension system. Spiking is just another example of greed and we know that that happens across society.

[Texas Proud]

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Originally Posted by nun I had the choice of a DC or DB plan and chose DC because I knew that I would be retiring before I'd worked for the state for 10 years. It takes 10 years to vest in the DB plan. Spiking is gaming the system and should be stopped. The bad behaviour of some should not be used as a criticism of the DB pension system. Spiking is just another example of greed and we know that that happens across society.

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...

[MichaelB]

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Originally Posted by kyounge1956 Is that a valid comparison? Aren't current treasury rates very low, making the price of an annuity equivalent to the pension a lot higher now than it would have been in the past? I don't know what the long term averages are, but I just took a quick look on the U.S. Treasury website, and the interest rate on long-term Treasuries is only about half of what it was 10 years ago (as far back as the data went on that web page). That's got to affect the price comparison.

You have a point. Public Sector accounting standards recommends funded liabilities be discounted “using the long-term expected rate of return on plan investments to the extent that current and expected future plan net assets available for pension benefits are projected to be sufficient to make benefit payments, and a high-quality municipal bond index rate beyond the point at which plan net assets available for pension benefits are projected to be fully depleted.” Unfunded liabilities should be discounted using a rate that is “based on an index rate for governmental bonds of a high quality commensurate with the quality of the pension liability.”

IOW, for funded pension liabilities, discount rate = expected return. For unfunded liabilities, discount rate = government bond rate of similar risk profile

The potential for abuse is quite high – as seen by years of pension fund manipulation by business. This just makes a greater case for DC plans for non-vested employees.

[ziggy29]

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Originally Posted by nun Spiking is gaming the system and should be stopped. The bad behaviour of some should not be used as a criticism of the DB pension system. Spiking is just another example of greed and we know that that happens across society.

I agree. But I also think that if pensioners and those supporting the current model of public DB pensions want to eliminate some of the outrage then they need to join the fight against spiking as well. It's not only in their best interest to help alleviate some of the anger out there, but also because spiking makes the pension plans less solvent for those who aren't abusing the system.

[dex]

Considering that a large majority (see the info I posted in a previous thread) of private industry can attract the workers they need without offering a pension; the real question is:
Should government pensions be eliminated? (It could be phased out over time.)

[GregLee]

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Originally Posted by Texas Proud 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....

That's pretty much what I did, except I didn't go back to full time at the end. But the DB formula apparently uses base pay, not the part time fraction of it, so going full time at the end doesn't have to be part of the strategy.

Of course, my pension is not based on my lifetime contributions (7% of salary). Since it's a DB pension, why would it be?

[youbet]

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Originally Posted by Texas Proud 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... ...

These are excellent examples TP. And, yes, it does seem imprudent to use only the final few years of employment to determine the pension amount.

I'd suggest that they do it like SS and use the highest 30 years, wage growth adjusted. Then, like with SS system, if someone was part time for the first 20 years, they couldn't get a full time pension by switching to full time work at the end.

However it comes out, the system must be fully funded. And this is not possible when employees contribute at part time or low grade level rates but later collect at full time, high grade level rates.

[youbet]

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Originally Posted by Emeritus I'm not sure what you mean by "tax payers agree". Voters elect politicians in a republican form of government. I Agree otherwise.

That's a good point Emeritus. Silly me, I keep craving a system where there is a positive correlation between what the tax payers want their money to be spent on and what it is actually spent on. Just dreaming I guess......

[GregLee]

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Originally Posted by youbet I'd suggest that they do it like SS and use the highest 30 years.

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.

[youbet]

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Originally Posted by ERD50 Of course, some people will say that the voters are responsible for these problems. Later today, I'll print out the ballot for my area and study it. Maybe one of those people could help me to find the correct boxes to check to fix this problem? -ERD50

There are candidates on the ballot in Illinois who want to aggressively reduce salaries and pensions for public employees. My wife is retired on a public pension in Illinois and belongs to the retired member category of her union. You should see some of the emails from her union flying in here bashing the "lower wages and and lower pensions" candidates! Real venom, shocking really, but interesting reading in interesting times.

[ziggy29]

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Originally Posted by GregLee For another, you probably can't make the change for current workers or retirees

I feel I must preface these remarks by saying that I do not advocate changing the deal for those already in the system... but it was certainly "changed" for the worse on many of us (myself included) in the private sector.

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Originally Posted by GregLee And for still another, it ignores the part the retirement system plays in job recruitment/retention/pay.

If recruiting/retention were as important as you say here, the private sector would still be handing out pensions to encourage it. To use (not intending to pick on) a random occupation, if it's not important enough to retain a Megacorp filing clerk by dangling a pension in front of them, why is it that important to retain a public sector filing clerk?