Should publicly funded pensions start later?

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ERD50 said:
Interesting. Off the top of my head, that still seems pretty generous. Maybe later I'll see if I can dig out the old formulas Mega-Corp used, just for comparison. 'Course, those will be from "the way it was", I guess a 2011 employee at most mega-Corps there gets, what? zippo? Anyone have summary data for this, a quick google got me a lot of unrelated stuff?


-ERD50
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The Northwestern study agrees with you.
For example, at the state level, Illinois and New Jersey have contribution requirements which at some point they promised they would meet. But Illinois is now paying them with borrowed money, and New Jerseyis only paying a small fraction of the “required” amount. The city of Chicago has actually received a funding holiday in the context of a recent reform that affected new workers in Illinois state plans....

For example, each household in Chicago owes $42,000 just for the Chicago plans, plus an additional $29,000 for their share of the Illinois state plans, for a total of $71,000 per household, or around $76 billion. On the other hand, it seems infeasible that Chicago, a city with approximately $0.3 billion in annual sales tax revenue and $0.8 billion in annual property tax revenue,can come up with payments for legacy liabilities of this magnitude. It seems more likely that the state of Illinois will end up bailing out Chicago, in which case all Illinois households will end up owing around $42,000. In turn, if that would bankrupt Illinois, then the federal may have to backstop the Illinois
liabilities.
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According to the study both the Chicago and Cook county teacher pension funds are in severe trouble. By 2019 they will run out of money, consume 76% of Chicago's revenue and on a pay as you go system (cause the fund is exhausted) only be able to pay 53% of promised benefits.
 
I know that there has been talk of salary etc. of feds vs private sector.... and this does sound like it is not true...

But Rand Paul stated on a political show that the avg fed make about $120K and the avg private sector job is $60K (maybe he said $66)... said that an across the board 10% salary cut should be looked at....
 
Texas Proud said:
I know that there has been talk of salary etc. of feds vs private sector.... and this does sound like it is not true...

But Rand Paul stated on a political show that the avg fed make about $120K and the avg private sector job is $60K (maybe he said $66)... said that an across the board 10% salary cut should be looked at....
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But Texas Proud, this is another case where averages don't tell us much. Some people have pointed out that the average govt job may be a higher level than the average private sector job.

I have no idea if that is true or not, but we don't have enough information to determine that just by average salaries.

I gotta side with the public sector on this issue (that the data is meaningless, not about any conclusions one might draw from it).

-ERD50
 
Texas Proud said:
I know that there has been talk of salary etc. of feds vs private sector.... and this does sound like it is not true...

But Rand Paul stated on a political show that the avg fed make about $120K and the avg private sector job is $60K (maybe he said $66)... said that an across the board 10% salary cut should be looked at....
Click to expand...

And the reason that anyone should believe Paul Rand is:confused::confused:? I can find anyone to say anything about any situation. His statement is his opinion - no where is it backed by fact :mad:.

We get it. You don't like DB plans. You don't like paying for public employees salaries or retirement benefits. You don't like the fact that you lost a lot of money in your 401K a few years ago. You didn't want to be a government employee and you still have no interest in becoming one. Yet you have several close relatives who do work for government entities. Do they still talk to you :flowers:?
 
clifp said:
I have a question did you spreadsheet include the income lost by the pension due to paying out the pension earlier? If so what rate of return did you assume for the pension fund?

For example assume at age 52 you collected a pension of $25,000. If that $25,000 had remain in the pension fund and earned money at 8% it would have generated an additional $21,273 income for the pension fund
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no, I didn't try to take that into account. Maybe I will see if I can re-create the spreadsheet tonight.

Even without the spreadsheet, though, I think there is either something wrong with your math or I'm not understanding you. $25K x 8% is $2000, not $21K+. In any case, given the very large difference in both percentage and nominal dollars between pension at 52 (34.5% of base salary) and pension at 60 (60% of a larger base salary), I don't think the earnings of the non-paid pension would change the overall outcome. The earnings of the non-paid pension, plus the additional contributions of the employee who continues working until age 60, might tip the balance the other way. The 20-year employee who keeps working has a higher salary and larger contributions, than the new employee who would fill that slot if the long-time employee retired at 52. (Any effects of non-paid pensions and earnings from contributions would be slightly smaller than you have calculated, because this particular pension system uses an assumed return of 7.75%, not 8%. As I posted elsewhere—I think it was on one of my polls—I'm pretty sure this is nominal return, not real return.)
 
beowulf said:
And the reason that anyone should believe Paul Rand is:confused::confused:? I can find anyone to say anything about any situation. His statement is his opinion - no where is it backed by fact :mad:.

We get it. You don't like DB plans. You don't like paying for public employees salaries or retirement benefits. You don't like the fact that you lost a lot of money in your 401K a few years ago. You didn't want to be a government employee and you still have no interest in becoming one. Yet you have several close relatives who do work for government entities. Do they still talk to you :flowers:?
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Getting a little snide here are we:confused:


I said that I did not believe what he said... maybe you missed that point...

But if the politicians are going to be throwing out these numbers and people start to believe them.... well, people who are working for the gvmt have a lot more to worry about than me....

And you also state my beliefs wrong... so let's get that straight....

I do not believe we should have a DB plan that puts all the risks on the taxpayer...

For the rest, you are just wrong... read a bunch of my posts... I said that if this means we have to pay MORE today, so be it... so stop trying to make me out as someone who doesn't want gvmt employees at all...

I could care less if I lost money or made money... my opinion is based on the facts as I see them...

How do you know what I did or did not want to do:confused: Again, making statements without facts...

And yes... I have a very close family... my sister is coming into town today and we are talking our mother out to dinner... that will be two of the people who worked for the gvmt...
 
beowulf said:
.

In the end, it still all comes down to the same thing, regardless of anything else and it applies to everything we do. It's called "free will." We, in the US, have this marvelous advantage that most of the world's population doesn't have. The ability to make decisions of our own free will. And then we have to live with those decisions. Whether they are economic or social or personal, they are our decisions and they are our responsibility.
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So you say. Of course, there is no evidence that there is free will. :)
 
ERD50 said:
But Texas Proud, this is another case where averages don't tell us much. Some people have pointed out that the average govt job may be a higher level than the average private sector job.

I have no idea if that is true or not, but we don't have enough information to determine that just by average salaries.

I gotta side with the public sector on this issue (that the data is meaningless, not about any conclusions one might draw from it).

-ERD50
Click to expand...


Forgot to respond to this post...

I agree... it IS meaningless without any context and I also stated I did not think it was correct... (then again, maybe they are including the full cost of pensions and benefits... since there is no backup for the statement I do not know)...

But if politicians are throwing it around in order to try and get something changed (cut everybody's salary), it is a big issue...

I just put down this information as I saw it this weekend...
 
beowulf said:
And the reason that anyone should believe Paul Rand is:confused::confused:? I can find anyone to say anything about any situation. His statement is his opinion - no where is it backed by fact :mad:.
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Still a large difference - and the info below is just salary. The difference gets larger when employer paid taxes, health ins, retirement etc is factored in.


USATODAY.com
The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector.
 
dex said:
Still a large difference - and the info below is just salary. The difference gets larger when employer paid taxes, health ins, retirement etc is factored in.


USATODAY.com
The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector.
Click to expand...


Say it ain't so......firsr Rand Paul is lying and now the USA Today? Must be more untrue facts..........
 
Martha said:
So you say. Of course, there is no evidence that there is free will. :)
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beowulf said:
Well, you did voluntarily respond to my post :cool:. You didn't have to.
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Scott Adams (Dilbert) says that we're programmed to respond to stimuli like little moist robots running around in some higher species' version of Sim City.

So... no free will.
 
dex said:
Still a large difference - and the info below is just salary. The difference gets larger when employer paid taxes, health ins, retirement etc is factored in.
USATODAY.com
The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector.
Click to expand...

The number for feds is pretty accurate. The number for private sector workers is meaningless. The press and people manipulate facts to agree with the results they are seeking. Liars figure and figures lie (remember that old saw?). There are no burger flippers, car wash attendents, or the many millions of people earning minimum wages in the government. Federal employees are far more educated than the average non-gov employee and many work in positions requiring security clearances and specialized skills. The roughly 1,700 DoD employees earning $150K or more is no surprise. DoD is top heavy in technology workers and lot of people with masters degrees and PhDs. A GS-15, step 10, which many are, makes over $150K pretty much no matter where they work - actual pay depends on geographical location. The number of employees alone in that pay range is meaningless without showing their educations, years in service, occupation, etc. Most have a minimum of 20 years of service, some substantially more.

The pay is not the issue - the retirement benefits are. And they are far less than they used to be. The current system may be more generous than many companies, but others requiring high levels of education, like Mitre, the Aerospace Corporation, CNA and many more now offer benefits that eclipse those of feds. Plus, feds pay more for health benefits while working than employees of large companies. Should the age be raised - sure, it has been under the FERS system. Higher? If the SS age is raised, then so should the fed retirement age. Should benefits be cut? Maybe - but only for people with at least 20 to 25 years to go until full retirement. That allows them to continue to stay or go elsewhere and plan for the future.

"I do not believe we should have a DB plan that puts all the risks on the taxpayer..." (from TP)

And the federal system we have now does not. A FERS employee must depend on their TSP and SS as well as their relatively small DB. The 3 legged stool theory. But where do we draw the line? Based on what I have read on this thread, there is no DB for public employees that would be satisfactory. Any risk to the taxpayer is unacceptable.

So much worry about others getting too much and someone else having to pay for it. Just remember Herbert Hoover who refused to allow a full blown welfare program in 1930 for fear that people who didn't "deserve" the money would get it. Single handedly made the depression far worse than it needed to be. To get out of this recession, we need people to spend money so other people will have jobs. You should be happy that the retiress don't have to eat dog food :angel:.
 
Dilbert is my role model. That explains a lot about me :LOL:. Being Wally would be far worse. And I am a ham radio operator :cell:. But I am far too argumentative, contentious and non-conforming to lack free will :D.
 
kyounge1956 said:
no, I didn't try to take that into account. Maybe I will see if I can re-create the spreadsheet tonight.

Even without the spreadsheet, though, I think there is either something wrong with your math or I'm not understanding you. $25K x 8% is $2000, not $21K+. In any case, given the very large difference in both percentage and nominal dollars between pension at 52 (34.5% of base salary) and pension at 60 (60% of a larger base salary), I don't think the earnings of the non-paid pension would change the overall outcome. The earnings of the non-paid pension, plus the additional contributions of the employee who continues working until age 60, might tip the balance the other way. The 20-year employee who keeps working has a higher salary and larger contributions, than the new employee who would fill that slot if the long-time employee retired at 52. (Any effects of non-paid pensions and earnings from contributions would be slightly smaller than you have calculated, because this particular pension system uses an assumed return of 7.75%, not 8%. As I posted elsewhere—I think it was on one of my polls—I'm pretty sure this is nominal return, not real return.)
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Remember it is the income the pension fund loses at 8% or 7.75% compounded at 8 years 60 to 52, plus the income from next years distributions compounded over 7 years etc. That is how I came up with the 21K+ in lost earnings. Now if we assume 0% percent earning than you are correct sometimes in the mid 80s the higher payments for a late retirement are more expensive than longer lower payments for early retirement.

For simplicity lets just consider taking a pension at 52 at 34.5% of base vs taking it at age 60 at 46% of base.

If we use the 7.75% assumed earnings rate my spreadsheet shows that a $25,000 pension started at age 52 will have cost the pension fund $332K+ in total distributions (200K) and lost income by age 60. The person who waited until age 60 will see a 33% increase pension to $33,333/year but with any reasonable interest the pension fund could easily pay the increase from the $332K that would have remained in the fund from the early retiree. In fact the difference in cost from the pension fund is huge at age 85 the early retiree cost the fund over $4 million in total distributions and lost income vs $870K for the pension taken at 60.

Now you are correct that having older worker retire to be replaced by younger lower paid employees maybe helpful to the overall city budget. However, from viewpoint of the pension fund early retirees are extraordinarily expensive.
 
clifp said:
Remember it is the income the pension fund loses at 8% or 7.75% compounded at 8 years 60 to 52, plus the income from next years distributions compounded over 7 years etc. That is how I came up with the 21K+ in lost earnings. Now if we assume 0% percent earning than you are correct sometimes in the mid 80s the higher payments for a late retirement are more expensive than longer lower payments for early retirement.

For simplicity lets just consider taking a pension at 52 at 34.5% of base vs taking it at age 60 at 46% of base.

If we use the 7.75% assumed earnings rate my spreadsheet shows that a $25,000 pension started at age 52 will have cost the pension fund $332K+ in total distributions (200K) and lost income by age 60. The person who waited until age 60 will see a 33% increase pension to $33,333/year but with any reasonable interest the pension fund could easily pay the increase from the $332K that would have remained in the fund from the early retiree. In fact the difference in cost from the pension fund is huge at age 85 the early retiree cost the fund over $4 million in total distributions and lost income vs $870K for the pension taken at 60.

Now you are correct that having older worker retire to be replaced by younger lower paid employees maybe helpful to the overall city budget. However, from viewpoint of the pension fund early retirees are extraordinarily expensive.
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It doesn't seem possible to me that the difference between the two is that great, but we have gone past my depth of both math and spreadsheet-writing skills. There are three possible scenarios, one of which I think is not very likely to occur in actual practice:

  1. Employee retires at age 52 and immediately begins to draw pension of 34.5% of base salary (assuming 23 years of service which is how many I had at age 52). Pension fund immediately starts to get contributions from the replacement employee, call it 8% of replacement worker's salary (although this will most likely increase to 10% over the next 2 years and stay at least 10% for the foreseeable future). In your spreadsheet, did you take the replacement employee's contributions into account? Just for "what if" purposes, maybe the replacement employee's contributions are about 1/5 of the retiree's pension benefit. (This is just a guesstimate—if the new hire's salary were the same as the retiree's, 8% of salary would be a little under 1/4 of the pension, but assuming the new hire is paid less to start off, their contributions would be a smaller fraction of the pension.)
  2. Employee retires at age 52, but does not begin to draw pension until age 60. The benefit would then be 46% of the employee's base salary—the same base salary as scenario #1. Contributions from the replacement worker would start immediately, and for 8 years, neither the employee who left nor the replacement employee would be taking any money out of the fund, and the replacement employee's contributions would be producing an assumed return of 7.75%. I think this is the ideal scenario from the pension fund's viewpoint (and also those worrying about bailouts), but IMO it's very unlikely to happen (can't afford to quit without a replacement income). For those who do leave the City, it's possible for them to remove their accumulated contributions from the pension system altogether. The actuarial report had an estimate of how likely that is to happen. I don't recall the exact percentages, but it's less likely for an employee with 20+ years of service than for one with fewer. Is the loss due to some of these employees taking their money out of the fund greater or less than the savings from those who leave their money in but delay benefits? Heaven only knows!
  3. Employee continues to work until age 60, then retires and begins to receive a pension immediately. This employee (if it's me anyway) will have over 30 years of service, and so be eligible for a pension benefit of 60% of base salary, and it will be a bigger base salary than it would have been 8 years ago, because of COLA increases. The replacement employee will immediately begin to make contributions to the pension fund, but these will probably be a smaller fraction of the retiree's pension than would have been the case in either of the first two scenarios. I don't know whether the replacement will make a higher starting salary under this scenario than the two earlier ones. It depends on whether entry level salaries go up too when current employees get a COLA increase, and I don't know if they do or not. In this scenario the pension fund gets to retain the not-paid pension and its earnings for 8 years, but after that must pay a much higher pension. I have two estimates from the retirement system: one at age 52, and one at age 57. Pension at age 57 was 1.56 times what I would have received at age 52, and that doesn't include COLA increases in my base salary between 52 and 57. At age 60, the difference would be even greater. The 8 years from 52 to 60 are about 1/4 of life expectancy for black women age 50 in 2006. So if the minimum age for benefits were increased, but employees simply continued to work until the new eligibility age, the fund would, in my case, be paying out somewhere between, say 1.75 and 2 times the benefit, but for only 3/4 as many years. The fund would also retain 8 years worth of my 52-year-old pension, plus its earnings.
I give up! I am sure the fund would pay out more under scenario #3 than #1, but whether the retained 8 years of non-paid pension would more than make up for it, I can't say. There are too many variables for me to get a grip on. I will just leave it at this: if the success of the OP's original suggestion depends on scenario #2 happening more frequently than #1 & #3, IMO the idea is a non-starter. If scenario #3 really does cost much less overall than #1, then the way to save the pension fund is to make it attractive for employees to stick around longer than 30 years—make the top benefit (say) 70% with 35 years of service or something along those lines.
 
kyounge1956 said:
How do you know? Maybe Martha's reply wasn't freely willed but her inescapable destiny—the inexorable workings of FATE. ;)
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It could all just be a coincidence, but there are no coincidences :cool:.
 
beowulf said:
Federal employees are far more educated than the average non-gov employee and many work in positions requiring security clearances and specialized skills.
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Is that soapbox getting a little wobbly? :LOL: Aren't USPS workers considered federal employees? I don't think a lot of them have a college degree........;)
 
FinanceDude said:
Is that soapbox getting a little wobbly? :LOL: Aren't USPS workers considered federal employees? I don't think a lot of them have a college degree........;)
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I've been told by more than one USPS employee "hell no I'm not a Civil Servant, I'm a POSTAL EMPLOYEE!" They don't consider themselves in the same boat as ordinary federal employees, so I guess maybe they're not...
 
beowulf said:
Dilbert is my role model. That explains a lot about me :LOL:. Being Wally would be far worse. And I am a ham radio operator :cell:. But I am far too argumentative, contentious and non-conforming to lack free will :D.
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My dad has been a ham radio operator for over 55 years.............:)
 
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