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State Pension Question
Old 09-13-2013, 11:59 AM   #1
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State Pension Question

Brother in law asked for help with a PA state employee pension system question. He retired early (18 yrs ago) from the PA system when he switched jobs. Now he is back in PA and has to decide whether or not to repay the retirement pay he has received over the years. The net difference in his future retirement pay if he decides not to repay, is 2k per month. Cost to repay is 165k. It looks like it might make sense to repay what he can (100K) using 401k money. But PA retirement system has a 41B shortfall and changes are being proposed. COLAs have occurred but must be passed by the PA legislature...His old pension is now frozen, if he doesn't repay it remains frozen until he retires again. He will then receive an adjusted retirement pay based on his new years of service. He wants to retire in 10 yrs, he is eligible to buyback one year of service for every year he works, which he is planning to do. What I'm afraid of is having all his retirement eggs in the PA retirement system.

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Old 09-13-2013, 12:34 PM   #2
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Diversification is good.
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Old 09-13-2013, 12:36 PM   #3
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There's no way I'd voluntarily put money into a pension system with a huge shortfall, no matter what the system's math suggests.

My DH is in the same situation in our home state (Ohio). After switching jobs a few times, he can buy back years and theoretically get a cushy retirement, but has decided not to because Ohio's PERS is in sad shape and we all know what happens to "promises" if the money isn't there. And pension shortfalls are such an emotional topic. Yes, promises were made, but taxpayers' retirement savings have been hit hard repeatedly over the last 15 years, and most people will revolt before they cough up extra money to give cushy pensions to others when they themselves do not get pensions.
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Old 09-13-2013, 12:49 PM   #4
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A lot of variables at play, with most beyond his control. If he was retiring tomorrow, it would be very tempting. $24k yearly return off of $165k would beat the heck out of anything "Mulligans Investment Firm" could generate. Chances are he would have worst case scenario got his money back shortly even if things went south. But paying now and hoping 10 years down the road things will be fine when you want to draw, all while there is a major shortfall? I would be very hesitant. This is coming from a guy who spent about $100k myself to buy 4 years. I believe my system is in good shape and am not worried, for the time being anyways....
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Old 09-13-2013, 12:59 PM   #5
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How the world has changed. This type of conversation about public pensions would never have happened a couple of years ago.
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Old 09-13-2013, 01:09 PM   #6
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How the world has changed. This type of conversation about public pensions would never have happened a couple of years ago.
How true, it changes and then changes...I remember reading an article in Forbes or Fortune magazine around the turn of the century implying how people who worked for a pension were basically getting screwed or stupid as the money returned from that system couldn't compete with the returns earned from a 401k. The reason I remember it is because I have a pension and they were showing all these projections that really made the pensions look like crumbs compared to the projections of a 401k and match. Of course that was from the stock market go-go days, too.
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Old 09-13-2013, 02:34 PM   #7
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What I'm afraid of is having all his retirement eggs in the PA retirement system.
I agree completely.
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Old 09-13-2013, 03:29 PM   #8
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I'm leaning towards recommending that he wait to see what happens with the PA legislature to see if they pass any pension reforms. I believe he has a few years to make the decision, the drawback is that he has to pay 8% interest on the payback amount. Thanks for all the feedback.
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