Should publicly funded pensions start later?

[martyb]

No one has entered the CSRS program since 1984. It's a non issue as the program has been closed for 26 years.

You're making me feel REALLY old!

Yes, it's probably more than most taxpayers who fund it get, but we also fund it, and those of us under CSRS did not have a 401K type plan (TSP) for much of our career and we were severly limited as to what we could contribute (with no fed match).

Absolutely. I pay plenty of taxes, and in addition to paying 7% of my income into the CSRS system for my entire career (which will be 36 years when I retire in a couple of years) I'll continue to pay my federal taxes after I retire, until I die, hopefully way past 100 yrs of age!

I kind of think that makes me almost self-employed!

 

[keegs]

This bickering and resentment is all part of the plan.

 

[ERD50]

Ziggy- I am concerned about the increasingly bad deal for the private sector.
...

You really do have a "get even" attitude - pretty simple - you don't have it, so why should I care if someone else has it. Do you say the same thing to people who have cars and homes nicer than yours and are public employees?

I am at a loss as how you tie your response to what ziggy has posted.

He hasn't said anything remotely close to that, IMO. I'll (awkwardly) paraphrase it as: ' don't expect to garner sympathy and support and a willingness to pay higher taxes to support public pensions that are generally more generous than private pensions from those people with the lesser private pensions'.

Big difference between "getting even" or "envy" and resenting someone asking you to pay for what they have, esp when what they have is better than yours.

-ERD50

 

[FinanceDude]

I don't know what's worse, paying for pensions or financial advisors.

Well you don't pay, so quit your whining.........

We could always start alking about car dealers again........

 

[jdw_fire]

You can no longer retire at age 62 with 5 years of service and receive 10% of your salary under CSRS. No one has entered the CSRS program since 1984. It's a non issue as the program has been closed for 26 years. If you retired under FERS at 62 with 5 years of service, I think (as in I'm not sure) you would get 5.5% of your high 3.

under FERS if you only have 5 years of service at age 62 you can/will get 5% (not 5.5%) of the average of your high 3.

If you are talking about the impact on taxpayers from federal civilian pensions, it's a drop in the bucket compared to SS, medicare and medicaid.

the "impact" to the taxpayers from federal civilian pensions is nothing except the agency contribution to the pension fund that is paid every payday for each current employee, just like SS or any other DB plan. that money (both agency and employee contributions) is invested in US bonds which do earn interest. that pension fund is not underfunded and the contributions have been changed in the past to keep it that way.

 

[73ss454]

Well you don't pay, so quit your whining.........

We could always start alking about car dealers again........

Car Dealers, what's that?

 

[FinanceDude]

Car Dealers, what's that?

Just messin' with ya............

 

[clifp]

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

I absolutely am including the employee contribution to arrive at my 25-35% figure. I am assuming that the state or city kicks in 10-12% although in both your and Nun's case the employee contribution is well below that level. We've already discussed the underfunded Seattle pensions in the past.

You are right that people leaving before vesting would help the funding. On the other hand how many of your older co-workers have quit their jobs in the last couple of years to take a private sector> I am guessing the number is quite small. I am also not accounting for the people who start government jobs in their 50s work 10-15 years and then are eligible for 20-40% pension in their early 60s they make the situation worse, especially for health care.

 

[clifp]

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.

I went to the MA pension calculator and filled it out for my hypothetical teacher. If he retired today with 33 years of service at age 55 and a salary of 75K (the average MA teacher earned 68K in 2009) he would be eligible for a $37,125 not to far off from my 40K estimate. If he waited until 60 with 38 years his pension would increase to 57K year.

Of course, I assumed that MA was contributing above 10% year to employee pension funds not a pathetic 5%.

The problem is that the total combined (MA and teacher) lifetime contributions and earning are in the 350-450K range for the 55 year old and probably 700-900K for the 60 year old. If we use the high side of my estimate the TSP annuity calculator shows that an annuity with a COLA-lite increase would provide $35,400 for the 60 year old, and mere $14,800 for the 55 year old. To put it another way in order to properly fund the 55 year teachers retirement he and the state contributions would have needed to save $1.1 millions. The only way to do with employees contributing 9/11% and the state kicking in 5% is to have Warren Buffett as the pension fund manager.

 

[msully76]

Hi, I am one of those from Ma. that has just received his first retirement check after 34 years of service. It is true that we pay 11% of our salary to our retirement but the state only has to kick in 2% and most of us are not eligible for SS and those who are it is reduced dramatically. Love this retirement thing

 

[youbet]

I'm surprised you didn't blame global warming, cooling or movement of the Earth's crust on public employees also.

Actually, after my trip to the local license bureau (DMV) this past spring to title my RV, I was more tempted to blame the spread of sleeping sickness on public employees! But that's another story.........

 

[youbet]

The Republican candidate for governor is serious about putting in a toll road to make money from all those rich Illinois folks that travel to their places up north. If we do that then we could COLA those pensions..........

Ya know FD, those toll-less interstate highways you have are confusing for us Illini. When I'm driving up there, I always roll my window down and toss out a handful of coins every few miles since I'm so used to it!

BTW, we've now modernized. the Precinct Captain now accepts credit cards for payola (to get services such as garbage collection or to have the police chase the hookers and drug dealers from in front of your home) instead of the usual plain brown bags of small denominated bills. Bet ya can't say that about Wisconsin!

Wisconsin - Illinois' biggest state park!

 

[beowulf]

You're all going to love this article from today's Washington Post :

Federal Eye - Federal salaries fall behind private sector, panel says

I just can't imagine the reactions

 

[martyb]

You're all going to love this article from today's Washington Post :

Federal Eye - Federal salaries fall behind private sector, panel says

I just can't imagine the reactions

You oughta be ashamed of yourself.....

 

[RAE]

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.

What you are asking for is exactly what the federal FERS retirement system already does. The cost-of-living-adjustment (COLA) is based on the CPI minus 1%. In times of little or no inflation (like the last 2 years), when CPI has been flat, the COLA has been zero. So, it certainly does decrease with bad economic times. What other changes to the FERS system do you think are needed?

 

[clifp]

You're all going to love this article from today's Washington Post :

Federal Eye - Federal salaries fall behind private sector, panel says

I just can't imagine the reactions [/QUOTE

You oughta be ashamed of yourself.....

I googled this all kinds of ways, has anybody actually seen the report rather than just 3 paragraph summary of the summary. I'd be interested in reading it.

 

[martyb]

Ya know FD, those toll-less interstate highways you have are confusing for us Illini. When I'm driving up there, I always roll my window down and toss out a handful of coins every few miles since I'm so used to it!

BTW, we've now modernized. the Precinct Captain now accepts credit cards for payola (to get services such as garbage collection or to have the police chase the hookers and drug dealers from in front of your home) instead of the usual plain brown bags of small denominated bills. Bet ya can't say that about Wisconsin!

Wisconsin - Illinois' biggest state park!

I suppose I shouldn't mention that I used to leave Janesville, WI, headed south past Rockford, and most of the time I just blew on by the tolls. Of course the ones that were manned, I had to stop, but some of those honor system ones...well...what can I say?

 

[kyounge1956]

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.

I absolutely am including the employee contribution to arrive at my 25-35% figure. I am assuming that the state or city kicks in 10-12% although in both your and Nun's case the employee contribution is well below that level. We've already discussed the underfunded Seattle pensions in the past.

Well, I guess I was reading too fast. But I still think, based on the statements highlighted in blue, you may be overestimating the amount of savings required.

• ...2.2% annual merit increase if by "merit increase" you mean an increase in pay over and above cost of living adjustments, not all employees get these every year. Of course, things will vary from place to place, but in the system I work in there are a certain number of these annual increases for each position title, but after that the only way to increase your pay (over and above COLA) would be either to apply for and get hired in a position at a higher ranking, or request a reclassification, for which you must demonstrate that the work you are doing is that of a higher job title than you currently hold.
  
• ...would require the teacher to have saved up 50K x 25 or 30 years Isn't this what would be required to fund a fully COLA'd pension? If the pension is partially- or non-COLA'd, less would be required.
• ...Pension funds and investors can look forward to 7-8% real returns (The average public pension fund assumes 7.5%.) I've just looked at the most recent actuarial report on my pension system. It uses an expected rate of return of 7.75%, but I think this is 7.75% nominal, not real (see pg 29 of link). If I've understood the report correctly, with an assumed inflation rate of 3.5% (also on pg 29), the pension fund is only counting on a real growth rate of 4.25%. An actual real return of 7 or 7.5% would enormously improve the system's funding level, wouldn't it?

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 (snip)

You are right that people leaving before vesting would help the funding. On the other hand how many of your older co-workers have quit their jobs in the last couple of years to take a private sector> I am guessing the number is quite small. I am also not accounting for the people who start government jobs in their 50s work 10-15 years and then are eligible for 20-40% pension in their early 60s they make the situation worse, especially for health care.

It's true that the younger a person is when they leave City employment, the smaller their total contributions, but also assumed (see pg A-11 of linked report) that the younger they are the more likely they will withdraw the contributions, leaving the employer match behind. Another factor also enters in here which I didn't have time to include this morning, which is the assumed interest rate on contributions. For calculating the amount to be withdrawn, an annual interest rate of 5.75% is assumed. If the fund actually performs better than that, any excess stays behind, which would also tend to improve the picture. Lastly, although systems vary, it would not be possible to start a job with the City of Seattle at age 50, work 10 years, and be eligible for a pension of 40% of your best salary. In our system at any rate, 20% is the upper, not the lower, limit of what a retiree would receive with 10 years of service, and if they retired any younger than 65, it would be less than 20%. A retiree would also be eligible for just over 20% at age 62 with 11 years of service, but by that time (age 62 to 65) we are no longer talking about "starting later", at least not as far as the original post on this thread—which suggested a minimum age of 62—is concerned.

 

[kyounge1956]

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

You asked for it, you got it.

 

[stoutboy]

I honestly do feel for the private sector worker. I think it's a true shame that we as Americans generally bought into the BS begun during the Reagan years that benefits (like pensions, health care, holidays, etc) are somehow wasteful. Greed is god. Or 'good'.

Of course, if the wealthy are in danger of losing their fortunes, (S&L crisis in the 80s, real estate bubble burst in 2009), then of course we as Americans owe it to our captains of finance to save them--but if the shoe is on the other foot--hah! Suck it up. Work harder. You're to blame for your poverty. "Privatize the gains and socialize the losses" where the wealthy are concerned is what we've become as a nation.

The disparity of wealth is at the highest in our history and is increasing still. The typical CEO makes 300x the salary of the employee. In 1965? 24x. But this is what Americans have chosen for themselves. It is very sad--a race to the bottom.

There is an answer: restore top marginal tax rates to pre-1980s levels, for one.

 

[clifp]

I honestly do feel for the private sector worker. I think it's a true shame that we as Americans generally bought into the BS begun during the Reagan years that benefits (like pensions, health care, holidays, etc) are somehow wasteful. Greed is god. Or 'good'.

Of course, if the wealthy are in danger of losing their fortunes, (S&L crisis in the 80s, real estate bubble burst in 2009), then of course we as Americans owe it to our captains of finance to save them--but if the shoe is on the other foot--hah! Suck it up. Work harder. You're to blame for your poverty. "Privatize the gains and socialize the losses" where the wealthy are concerned is what we've become as a nation.

The disparity of wealth is at the highest in our history and is increasing still. The typical CEO makes 300x the salary of the employee. In 1965? 24x. But this is what Americans have chosen for themselves. It is very sad--a race to the bottom.

There is an answer: restore top marginal tax rates to pre-1980s levels, for one.

It isn't just CEO pay that has gone up nor is it just in America. Across the world top performers are earning a many times more than those on the bottom. For example baseball.

In 1931 Babe Ruth made $80,000 (five thousand more than Herbert Hoover and yes Babe had a better year). That is $1.10 Million in today's dollar. In 1964 Mickey Mantle made 100K/year (equal to 705K in 2010 dollars) that was 8 times more than the Major league average and equal to the President's salary. In contrast A Rod makes $33 million dollars a year which is about the same as the entire payroll for teams like the Pirates and now days the League minimum is 400K equal to the President's salary.

The same thing is true of salaries of movie/tv stars, and probably singers. Not long ago they may have earned 50 or 100 times more than the average worker now days 500-1,000 times is not unusual.

China is another country which has seen massive increase in inequality with more than 128 Chinese billionaires in country where the per capita GDP is still only $3800. Yet as anyone who has gone there in the last few years can tell you despite this huge rise in inequality hundreds of millions have moved out of poverty into Chinas growing middle class.

Raising taxes up to 70% like they were in 1980 is pretty much a recipe for insuring that the entrepreneurs and companies flee the US. Why would anyone stay in the US and pay 70% on their income when they can move to Singapore and pay 20%?

 

[stoutboy]

Raising taxes up to 70% like they were in 1980 is pretty much a recipe for insuring that the entrepreneurs and companies flee the US. Why would anyone stay in the US and pay 70% on their income when they can move to Singapore and pay 20%?

That is the uber-wealthy's argument. "Tax us and we won't create jobs for you." It's a lie. We have historically the lowest tax rates in our history--corporate and individual. Where are the jobs? They are investing in factories alright--in China and Vietnam. Those jobs are gone for good. The decent wage service jobs they promised us are increasingly overseas now as well. Western Europe has higher tax rates than the US and their unemployment rate is equal or even lower to ours. But they do not have to worry about going bankrupt due to illness or descending into poverty in their later years.

Ask 10 people when the Golden Age of America was--I bet at least 6 of them will say the period from WW2 until the assassination of JFK. Care to postulate what the income tax rate was then? But things worked. The schools were better, the roads and bridges weren't falling apart.

I'm telling you, it is this increasing disparity of wealth that is destroying the social and economic fabric of our nation. But I do honestly believe we have chosen this for ourselves. It's what people appear to want.

 

[beowulf]

"Why would anyone stay in the US and pay 70% on their income when they can move to Singapore and pay 20%?"

Maybe they like living in a country where there is true democracy? But really, even when the highest tax rates were 90% in the US, no one actually paid at that level. Anyone earning enough to be subject to such a high level of taxation has several good lawyers and accountants to take care of the problem.

"I'm telling you, it is this increasing disparity of wealth that is destroying the social and economic fabric of our nation. But I do honestly believe we have chosen this for ourselves. It's what people appear to want."

I have to agree with this. Americans seem to vote against their personal economic interests all the time. I'm not taking about Warren Buffet and his raise taxes position. I'm talking about blue collar workers (all 7 of them left in the US ) who believe unions are there to screw them and allow companies to treat them like dirt. No matter what your opinion of unions is now, they were a driving force in creating the middle class in the US.

I consider the golden age in the US to be from the end of WWII to about 1970 - because that's when skule was over and I had to go to w*rk .

 

[keegs]

"Why would anyone stay in the US and pay 70% on their income when they can move to Singapore and pay 20%?"

Maybe they like living in a country where there is true democracy? But really, even when the highest tax rates were 90% in the US, no one actually paid at that level. Anyone earning enough to be subject to such a high level of taxation has several good lawyers and accountants to take care of the problem.

"I'm telling you, it is this increasing disparity of wealth that is destroying the social and economic fabric of our nation. But I do honestly believe we have chosen this for ourselves. It's what people appear to want."

I have to agree with this. Americans seem to vote against their personal economic interests all the time. I'm not taking about Warren Buffet and his raise taxes position. I'm talking about blue collar workers (all 7 of them left in the US ) who believe unions are there to screw them and allow companies to treat them like dirt. No matter what your opinion of unions is now, they were a driving force in creating the middle class in the US.

I consider the golden age in the US to be from the end of WWII to about 1970 - because that's when skule was over and I had to go to w*rk .

Singapore has had essentially a one party system for the past fifty years. I suppose you could call it a democracy. Its universal healthcare system is run by the government and costs about 3% of GDP. Ours costs 16% of GDP.

I'd really like to know the answer to your question regarding what drives voting patterns in the US.

 

[FinanceDude]

You're all going to love this article from today's Washington Post :

Federal Eye - Federal salaries fall behind private sector, panel says

I just can't imagine the reactions

I am not surprised. Overall, private sector pay is higher, but private sector BENEFITS? That's the issue of this whole post. There are overpaid folks in the public and private sector, the real issue it seems is that private sector has been seeing a steady erosion of medical and financial benefits over the past 20 years, and it is making private sector folks more and more unsure of retirement. Throw in SS and Medicaid problems, and there's your answer..........