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Old 10-26-2007, 01:58 PM   #21
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Here's another pension crisis - reform story.

http://www.sacbee.com/110/story/315785.html
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Old 10-26-2007, 04:24 PM   #22
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How do the citizens "kick in the difference" if the market drops 30% this year? If the market was bad for several years, the DROP interest rate would drop since its based in the avg returns of the previous XX years, but the citizens never kick in more money.

The City contributes a portion of our salaries into the pension fund and that amount never changes no matter what happens.

I guess it would be possible that if there was an extended bear market and the pension fund suffered massive losses that the pension fund could lower benefits but again, Im positive that this wouldnt affect the citizens since they cant be required to contribute more money. I do believe that the citys contributions go down somewhat when the pension fund is fully funded. This DOES affect the citizens a little bit because the fund is required to be fully funded by XX year in the future and since we are way ahead of schedule, the fund keeps raising benefits for us as to not get fully funded too early. Sweet, huh?
"Im no expert in pension funds but everything Ive read about it is very very strong. Its the Dallas Police and Fire Pension . It has $4B in assets, is 89% funded and will be 100% funded within 15 years."

Let's be clear, the pension fund is currently at least 440 million short of the funds. Assuming roughly 5-10K current and future retirees that is about $40-100K of shortfall per person. Now by Government pensions standards that isn't too bad. However, private pension get in trouble when they fall below 100% funding and are often over funded by a considerable margin 10-30%. (When they get to overfunded they become take over targets.)
The only way this shortfall is made up is Police and FireFighters contribute more, the city contributes more or Pension fund earns a better than average return. I would ask for a copy of the Pension fund annual report and see what the expected returns it is projecting are.Despite a 15!!! year plan to have it fully funded, a lot can happen in those 15 years.


The stock market will make you rich but guaranteed 8-10% will KEEP you rich"? " Exactly

The DROP is very generous and I would take full advantage of it. The upside you are giving up a say 15% a year returns in the market over a several years, is small compared to the downside you are avoiding. Just look at the 2000-2002 market especially the NASDAQ index, to get a feeling for what bear market looks like. The fact that interest rates are sticky down is also a big benefit. For example in year 3 of a Bear market the DROP is still offering 9.5% returns!

After digging a bit further, I think you're initial plan to deposit your pension plans in the DROP progam is a good one. However, I would keep a close eye on your pension plan. Force yourself to read all of the written reports and don't hestitate to ask question of the people administrating it and/or the board for anything that seems confusing or fishy.
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Old 10-26-2007, 08:37 PM   #23
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I need to look into this further because i dont understand all of the intricacies but I know that there is some difference between the Dallas Police and Fire Pension and a standard city government pension. For example, the City Of Dallas Employee pension is a totally different pension fund with totally different rules, contributions and benefits than mine. That pension is for civilian employees of the city and their fund is not in good shape at all.

Theyve recently had to raise emplyoee contribitions because they are too far underfunded. Even after raising employee contributions, the employees still contribute less than 1/2 of what we do into our pension so you can see one big reason they they have a problem.

Thanks for the links that were posted.
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Old 10-26-2007, 08:55 PM   #24
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I just sorted thru the annual report..UGH!

The assumed rate of return is 8.5%.

The interest rate paid by the DROP account is the avg real return of the fund over the past 10 years. It must always be between 8-10%.

The actual avg return of the fund over the past 10 years is 10.14%. Pretty good considering the SP500 returned about 6.5% during that period.
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Old 10-26-2007, 09:20 PM   #25
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Utrecht, 10% sure looks attractive but do you really have to play it all or nothing? Can you defer some of yours or some of your wifes or yours and not your wifes etc. etc... In my world a little diversity makes a big difference with being able to sleep at night.
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Old 10-26-2007, 09:32 PM   #26
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I dont pay into Social Security now but did pay in for the 8 years or so that I worked before becoming a police officer, including 4 years in the Army, and I'll get just about nothing in return for that from SS.

I may need a deck hand for my future sailboat. I'll let you know
I'll take the job but you will have to keep the food and
Rum supplies up while we run around the Islands.


I don't think I'll see much of Medicare or Social security
after paying in for 30+ years now. The annual statement they send think it says 1700 a month or there abouts when I get 66.4 yo.

Many dead beats on it already in there 40's and 50's
living the happy life overseas. Matter fact i feel a back problem coming on myself.
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Old 10-26-2007, 10:53 PM   #27
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I don't think I'll see much of Medicare or Social security
after paying in for 30+ years now. The annual statement they send think it says 1700 a month or there abouts when I get 66.4 yo.
bummer - That's far from $55K per year.
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Old 10-26-2007, 11:07 PM   #28
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A bit short I guess for us common non-gov employees.
I work for myself so no pension or medical benefits either.
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Old 10-26-2007, 11:47 PM   #29
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This is old news that pensions from public sectors are far more superior than those of the private sectors.

Pension gap divides public and private workers - USATODAY.com
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Old 10-27-2007, 07:20 AM   #30
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Heres what confuses me the most about how these pension funds work. Cut and pasted from this article
Pension gap divides public and private workers - USATODAY.com

"The taxes needed to pay for these promises would push many of these states' economies into a death spiral," Chicago bankruptcy lawyer James Spiotto says.
He says public employee unions should not overestimate legal protections for pension benefits. Localities can shed their obligations in a bankruptcy filing, and states, as sovereign governments, can ignore the requirements, he says. "Unions can win all the litigation and still lose because the judgments can't be enforced," Spiotto says.

I dont know if all of these pensions are the same but in my case, the City doesnt own the pesnion fund and isnt responsible for the debt associated with the future benefits. They have nothing to do with it other than the fact that they contribute a percentage of my salary and have 3 City Council members of the pension board.

The pension fund is a seperate entity altogether. If somehow the pension fund got into trouble and had problems paying out all benefits, it wouldnt affect the City at all as far as I know. They wouldnt have to kick in any more money. The pension fund would have to lower benefits I guess (although it has never happened). The only thing they have ever done in that regard is to lower benefits for future members. We have a 4% annual cost of living raise but anyone hired after 2006 doesnt get the 4% automatically. It has to be approved by the board year by year.

So based on that, how can "localities shed their obligations in a bankruptcy filing"? The "locality" isnt the one with "obligations".

Also, the writer makes that statement as if localities are filing for bankruptcy all over the place. The odds of the City of Dallas ever filing for bankruptcy has to be a million to one and as I said, I dont think that would affect my benefits at all, although Im sure the pension fund would have to cut benefits to future retirees since the City would most likely default on their contributions in the future.
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Old 10-27-2007, 07:47 AM   #31
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The odds of the City of Dallas ever filing for bankruptcy has to be a million to one ....

Thats probably true, but then again the citizens of Orange County probably thought the same prior to 1994.
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Old 10-27-2007, 08:39 AM   #32
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To the OP...

My sister had the option of going into a DROP program as a teacher... the numbers did not work.. it sounds good, but there are a few items that made it look worse..

IIRC (and it was a few years ago)... what you are really doing is retiring right now and still working... so, they figure out what you pension payment is right now... the checks that you would receive go into the program... but, the money that you would be putting into the old pension also goes there without being additive...

So, for hypo case... you have worked 30 years and that would be 60% (my numbers, I know it is higher)... then you start DROP... so, you 60% is now fixed for life... yes, you do have a bunch of cash.. but if you worked 5 more years your pension would be 70% of you last few years (with probably higher pay)... when I ran the numbers for my sister, it was at best a wash and actually was worse withe the DROP... the reason worse?? She did a number of things at work to get a higher salary to increase her pension amount forever..

You might not have the same program, but it is not a slam dunk investment... and remember.. they started this to REDUCE COSTS.. how can you get more money if it reduces their costs??
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Old 10-27-2007, 09:32 AM   #33
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Our system is similar (percentages are different as we get 3% per year), but for everyone Ive ever seen the numbers run for, DROP is much better than the extra benefits you get by stayer in the standard pension system longer.

For instance:

Bob goes into DROP at 50 with 25 years of service. He gets 75% pension. He continues to work so he still gets paid by the city. His paycheck is now 8.5% higher because thats what our pension contributions are. His 75% pension checks go into DROP and start accumulating at 8-10% interest. He works for 5 more years. His 75% pension plus the amount that he can draw from his DROP account, which will be several $100,000, is higher than what Jim will have.......

Jim...who continues to work and stay in the pension until 55. Jim stayed in the pension plan for 30 years (5 years longer than Bob), so he gets $90% pension.

Jims 90% is lower than Bobs 75% plus withrawals from DROP.

It works out that way in almost every case. In fact, most of our guy are now going into DROP at 48 even though by doing so , they only get 2.75% per year of service instead of 3% because that 2 years accumulated money in DROP outweighs the higher pension benefits unless you live to be like 80+.

Anyway, none of that really applies to me because Im leaving at 50 anyway. My pension benefits are locked in at that point. I cant accumulate higher benefits. What Im comaring here is the difference between living off of my pension money and 4% withdrawals from 401K and IRAs....to....withdrawing more like 12% from 401k and IRAs knowing full well that the money will run out is 10-15 years, but letting the pension money accumulate in DROP at 10% compounded.

I ran a variety of numbers last night and heres what I came up with.

I assumed 10% return on the DRP account and 7% on outside investments (401k, IRA and taxable accounts). Taxes are not taken into account in any of this as Im too stupid to be able to figure that part out.

I can withdraw 12% from outside investments and give myself a 3% raise every year. The money will run out in 10.5 years. At that point, I can begin withdrawing 10% from the DROP account and start also withdrawing the pension checks as oppossed to letting them go into DROP. This gives me approx the same income I was taking before the outside investments ran out.

By doing this my income is about 15% higher than if I used my pension checks as income and withdrew the standard 4% from outside investments.

The only downside is after the 10.5 years, I have no money to my name except for the pension checks and DROP account, which is very sizeable, but would obv be a disaster if there was some catastrophe which caused the pension fund to be unreliable.

There is the possibilty of doing some of both, but the problem is that withdrawals from the DROP account are just like an IRA so I would have to set up SEPP payments until 59 1/2 which is a pain in the butt. By draining my non pension accounts first I will be over 59 1/2 before I need to touch the pension.

I keep referring to a 401k but I actually have a 457k, which is not subject to the same IRA type withdrawal rules. There are no penalties for early withdrawals so I dont have to set up equal payments or any of that crap.
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Old 10-27-2007, 01:40 PM   #34
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When I was offered a buyout at 49, one of the options was immediate pension. Most of my peers chose to delay receiving their pension because they were planning to keep working (so was I). I ran the numbers and the best NPV deal was to take the pension immediately. So I did.

They had another buyout 2 years later, and no longer offered the immediate pension option. I concluded that it was indeed too good to be true. The kicker was that they added a topup equal to the government pension to "bridge to 65" when the government pension kicked in. So there was 15 years of free money that disappeared for every year of delay.

So just because the "common wisdom" indicates to take the pension now, stick with your numbers.
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Old 10-27-2007, 05:02 PM   #35
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So just because the "common wisdom" indicates to take the pension now, stick with your numbers.
It would seem eminently sensible for a business to offer lowball buyouts to facilitate the departure of their employees who can't do math. If the worst workers take the money and run then the company benefits twice!

Sort of a capitalistic version of Darwinism.
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Old 10-27-2007, 05:32 PM   #36
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If anyone gets off on reading thru annual reports and wants to browse a couple of these for pitfalls or comparisons to their own pension, here are the annual reports for the past 6 years
DPFP.org | Annual Reports

I found this little nugget in 2002 report.

I'll paraphrase.....

"On a state level, the board adopted a resolution supporting an amendment to the State Constitution to protect pension benefits in Texas. Texas is one of only 9 states thats doesnt protect benefits. As a result of depression era court ruling, pension benefits can be reduced or even eliminated. The amendment would protect vested and accrued benefits by preventing a plan sponsor from reducing benefits."

As i said earlier there was something put to the voters 2 years or so ago and after reading this passage from 2002, I think that this vote did pass the amendment to protect Texas pensions. I will be calling the pension board 1st thing Monday mornig to verify this.
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Old 10-27-2007, 07:42 PM   #37
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If anyone gets off on reading thru annual reports and wants to browse a couple of these for pitfalls or comparisons to their own pension, here are the annual reports for the past 6 years
DPFP.org | Annual Reports

I found this little nugget in 2002 report.

I'll paraphrase.....

"On a state level, the board adopted a resolution supporting an amendment to the State Constitution to protect pension benefits in Texas. Texas is one of only 9 states thats doesnt protect benefits. As a result of depression era court ruling, pension benefits can be reduced or even eliminated. The amendment would protect vested and accrued benefits by preventing a plan sponsor from reducing benefits."

As i said earlier there was something put to the voters 2 years or so ago and after reading this passage from 2002, I think that this vote did pass the amendment to protect Texas pensions. I will be calling the pension board 1st thing Monday mornig to verify this.
Read through the latest actuarial valuation report. I can only compare it to Oregon PERS. Oregon's PERS fund is 110% funded. Your Texas P&F is 86% funded.

Oregon averge employer contribution rates are now 17-18%. Up until 2000 or so the employer rate was 11-12%, then started climbing and were headed to a projected 27%. A literal revolution of cities/counties/school districts/state government occurred, and Oregon PERS legislation "reformed" the system. Employer rates dropped back to the now 17-18% and are still dropping. How pay for dropping those employer rates? That's right---retirees/members took it in the shorts in reduced benefits for *current* retirees (yes that can happen and *federal* courts looked the other way), and dropping projected future benefits for current workers.

I see your Texas P&F has employer contribution rates now at 26-27%. Hope those Texas employers stay happy paying that much. They may stay happy until bad economy/bad budget times beset them, then watch out.

Maybe there is a whole other political atmosphere in Texas compared to Oregon. I know I never expected to be blindsided by my state pension, last thing in the world I thought would ever happen, but cut my pension they did---now they have the balls to be sending out bills to retirees for prior "overpayments" after 2003. Not only cut pension, they want money back!

So, I would say don't put all your eggs in one basket. As *safe* as you think that basket is today, the handle may drop right off of it tomorrow.
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Old 10-27-2007, 07:57 PM   #38
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Utrecht,

Are you sure they do not take out any more from your paycheck? This was something they would do with my sister... you did not get an 8% 'pay raise' due to not contributing to the pension..

If so, then maybe it is better (I have not done the math).. but again, with my sister is WAS better because she got higher salary the last few years to raise her pension... if you KNOW your salary will not go up at all, then you are right also...

I am surprised at 3%.. that is way high... more than I would be willing to pay as a citizen... but then again, maybe I am...
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Old 10-27-2007, 08:26 PM   #39
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We contribute 8.5%. If we go into DROP, we stop accruing higher benefits and stop contributing the 8.5% so if we continue to work while in drop, our check is 8.5% higher.

Robert,

I do believe there is a clause in our pension that says the employer contributions drop when we are 100% funded. Im not sure how low they go but I had heard it went to zero. That doesnt sound possible though. (Its 27.5% right now and has been the entire 18 years Ive been on the police dept).

Im surprised to hear they cut your benefits. In what way did they cut them?
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Old 10-28-2007, 01:13 AM   #40
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We contribute 8.5%. If we go into DROP, we stop accruing higher benefits and stop contributing the 8.5% so if we continue to work while in drop, our check is 8.5% higher.

Robert,

I do believe there is a clause in our pension that says the employer contributions drop when we are 100% funded. Im not sure how low they go but I had heard it went to zero. That doesnt sound possible though. (Its 27.5% right now and has been the entire 18 years Ive been on the police dept).

Im surprised to hear they cut your benefits. In what way did they cut them?

@@@@Not as surprised as I was!!

Anyway, in 2003 when all the employers were complaining about employer contribution rates, the legislature passed reforms. The Governor appointed a new PERS board. In 2005, the new board decided the old board had credited too much earnings to member accounts for 1999. They cut the rate they said "should have" been credited by over 8%. Yes, 5 years after the fact, they decided , "oh the old board was too generous. We are going to change it".

So, for everyone who retired 2000-2004, the new board said your pensions need to be recalculated based on the now 8% lower balances. And since this didn't happen until AFTER those folks had retired (and given up their careers), these folks got "some pension payments based on the original 8% higher balances. Voila, the new board says not only do we cut your pension, you owe back to PERS some "overpayments".

That's the main thing they did to retirees. They also adopted new actuarial tables with lower factors that have hit people retiring 2003 and later. And numerous other things affecting mainly still working folks, mainly creation of a "new" system with lower benefits, and not letting them stay in the old system.

Last I counted, 16 lawsuits related to various reforms. About half are done and about half of those the reforms stuck. The other half of lawsuits are still ongoing. Then they get appealed to higher courts. So my 2003 retirement may be finalized as to amount somewhere around 2012.

Maybe Texas is different. If the P&F there has had employer contribution rate of 26% for 18 years and none of the employers have yet complained, maybe that won't be an issue down there. Unless some of those employers start looking at precedents set in Oregon at what they can get away with.

Hopefully, that stuff you mention about amending Texas constitution to put in something about pensions might create something of a firewall down there.

I would still be nervous about putting 100% of my eggs in one basket myself.
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