Tell me if this makes sense

[wcv56]

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.

 

[Spanky]

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.

 

[wcv56]

A bit short I guess for us common non-gov employees.
I work for myself so no pension or medical benefits either.

 

[Spanky]

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

 

[utrecht]

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.

 

[Maurice]

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.

 

[Texas Proud]

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??

 

[utrecht]

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.

 

[kcowan]

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.

 

[Nords]

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.

 

[utrecht]

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.

 

[RetireeRobert]

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.

 

[Texas Proud]

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...

 

[utrecht]

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?

 

[RetireeRobert]

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.

 

[utrecht]

As Ive said before, Im not an expert in any of this pension fine print and Im trying to educate myself now. There must be something different about my pension and some of these other government pension funds like yours.

Ive read a couple other strories similar to yours and the main difference I see between them and mine is that there is no goverment entity that "runs" my pension fund. Its its own entity as far as I can see.

For instance, the Governor has no jurisdiction to just appoint a new board. The board has a couple City Council members, and then the rest of the members are all either retired or current police or firemen. They have to be elected by members of the pension every couple years just like any other elected position.

How much (in percentage terms) did your pension drop when they "reformed" it?

 

[Helen]

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.

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!

My partner works under Oregon PERS and her retirement health benefit were cut as well as her pension being reduced.

I know of some people who retired under PERS when they saw the cuts coming (there was a massive bailout when news of the cuts came out). Some of the pensions were over 100% of their old salary (with jobs paying over $150k per year) That was reduced and they are collecting maybe 80% of their old salary now. Honestly, I don't know what the board was thinking to offer pensions like that.

 

[RetireeRobert]

That was reduced and they are collecting maybe 80% of their old salary now. Honestly, I don't know what the board was thinking to offer pensions like that.

The pension benefits were always defined by laws passed by the legislature. The PERS only "ever" offered pensions that had been defined by successive legislatures.

The PERS is a separate legal entity from state government--it is a trust fund. The Governor only has power to appoint PERS Board members as specified by law.

The 2003 legislature "reformed" things, so the Guv got a clean shot to name his own people to a reduced in sized board.

As to percent of salary the PERS paid, the average member gets a 54% replacement ratio of pension to old salary. The employers in the reform fever liked to whip up the newspapers with the 4 or 5% of workers, many of whom had worked 35 or 40 years in the system, who got up to 104% replacement ratio. All the while the other 94 or 95% were getting 54%.

 

[RetireeRobert]

the main difference I see between them and mine is that there is no goverment entity that "runs" my pension fund. Its its own entity as far as I can see.

For instance, the Governor has no jurisdiction to just appoint a new board.

How much (in percentage terms) did your pension drop when they "reformed" it?

The Oregon PERS is also a separate legal entity, the PERS Trust Fund.

But the legislature changed the laws about Board appointments which allowed the guv to put new people in to do his bidding. PERS Board appointments are still governed by law, it's just that they changed the law! I presume Texas can change laws to about such things.

My pension dropped 8+%.

 

[Helen]

The employers in the reform fever liked to whip up the newspapers with the 4 or 5% of workers, many of whom had worked 35 or 40 years in the system, who got up to 104% replacement ratio. All the while the other 94 or 95% were getting 54%.

You've got to admit, a COLA'd pension of 54% of your final salary is pretty sweet. Especially when combined with a 403b and subsidized health insurance.

I'm estimating a (Federal) pension worth about 20% of the ave. of my high three working years. I also get a 5% match on my 401k and health bennies. I feel luckier than most.

It seems as though the private sector and the government sector are getting way out of whack in terms of retirement benefits. I'm waiting for the Feds to announce a new retirement system for younger workers.

To the OP, I wouldn't spend down my savings first and trust you will be given what was promised to you in a pension. You have better control over your savings than you do the pension.

That's one of the biggest reasons I am planning on taking SS at 62. If I don't, I will have to spend more of my retirement savings. I don't trust what the Government is going to do with SS.

 

[RetireeRobert]

You've got to admit, a COLA'd pension of 54% of your final salary is pretty sweet. Especially when combined with a 403b and subsidized health insurance.

There is NO subsidized health insurance. State retirees pay it ALL plus 2% administrative fee. I selected the cheapest option available for retirees which has 50% co-pay----for this privilege I pay $876/month for family coverage.

 

[utrecht]

I just got off the phone with one of the pension fund board members who is also an old supervisor of mine.

Here are the main questions I had for him.

1) There was a major pension referrendum on the ballot a few years ago that passed by landslide. What was it?

It was an ammedment to the Texas Constitution that now makes it illegal to lower the benefits of any member of a private pension. Beneftis for future members can be lowered but not current members. A change would require a new election and based on the fact that this one passed 94-6%, I dont see that happening.

2) DROP accounts were subject to early withdrawal penalties just like an IRA but the board was trying to change this. Did anything change?

The age has been lowered to 50. Anytime after 50, withdrawals are unlimited with no early withdrawal penalties.

3) Do the Citys 27.5% contributions drop at any point?

The 27.5% contribution rate was determined during an arbritration process back in 1984. If / when the pension is 100% funded, the City can lower their contributions to 17%. The board member I spoke with doesnt foresee that happening. He thinks the contributions could be lowered but not all the way down to the min of 17%. However, even if it did happen, the new law still prevents any decrease in pension benfefits. Worst case scenario would be that new hires would have a lowered pension package than we currently have.

4) Is there any talk whatsoever of eliminating the DROP system?

No. He said that most private pensions have "dropped" DROP because it was a liability to them. They were paying out too much in interest and it was costing too much in administrative costs. Our DROP program is set up differently from everyone elses and its actually an asset to our overall pension mainly because of this:

The City pays the 27.5% contributions in one giant lump sum check once per year. Its based on the total payroll of the police and fire department. The higher the payroll, obviously the higher the 27.5% check is. The people in DROP are the highest paid people on the dept because they have the most seniority so the more people staying around longer (because of DROP), the more money the City pays into the pension with its 27.5% check. He says that DROP will never be "dropped" but even if it is, the DROP money belongs to the individual person and each member could withdraw his entire DROP balance as needed. There is $54M in the DROP system and over $4B in the entire pension fund so even if every person withdrew their entire balance it would not have much of an impact.

I asked him about the State of Oregon and he said (pardon me)..."They are ****ed. So is the state of Ohio."

 

[RetireeRobert]

I just got off the phone with one of the pension fund board members who is also an old supervisor of mine.

Here are the main questions I had for him.

1) There was a major pension referrendum on the ballot a few years ago that passed by landslide. What was it?

It was an ammedment to the Texas Constitution that now makes it illegal to lower the benefits of any member of a private pension. Beneftis for future members can be lowered but not current members. A change would require a new election and based on the fact that this one passed 94-6%, I dont see that happening.

2) DROP accounts were subject to early withdrawal penalties just like an IRA but the board was trying to change this. Did anything change?

The age has been lowered to 50. Anytime after 50, withdrawals are unlimited with no early withdrawal penalties.

3) Do the Citys 27.5% contributions drop at any point?

The 27.5% contribution rate was determined during an arbritration process back in 1984. If / when the pension is 100% funded, the City can lower their contributions to 17%. The board member I spoke with doesnt foresee that happening. He thinks the contributions could be lowered but not all the way down to the min of 17%. However, even if it did happen, the new law still prevents any decrease in pension benfefits. Worst case scenario would be that new hires would have a lowered pension package than we currently have.

4) Is there any talk whatsoever of eliminating the DROP system?

No. He said that most private pensions have "dropped" DROP because it was a liability to them. They were paying out too much in interest and it was costing too much in administrative costs. Our DROP program is set up differently from everyone elses and its actually an asset to our overall pension mainly because of this:

The City pays the 27.5% contributions in one giant lump sum check once per year. Its based on the total payroll of the police and fire department. The higher the payroll, obviously the higher the 27.5% check is. The people in DROP are the highest paid people on the dept because they have the most seniority so the more people staying around longer (because of DROP), the more money the City pays into the pension with its 27.5% check. He says that DROP will never be "dropped" but even if it is, the DROP money belongs to the individual person and each member could withdraw his entire DROP balance as needed. There is $54M in the DROP system and over $4B in the entire pension fund so even if every person withdrew their entire balance it would not have much of an impact.

I asked him about the State of Oregon and he said (pardon me)..."They are ****ed. So is the state of Ohio."

Interesting. So the constitutional amendment prevents "private" pensions to lower benefits for existing memebers. But isn't your City P&F pension fund a "public" pension? SDince when were "cities" considered "private"?

If I were you I would read for yourself what that constitutional amendment says. Not take some dude's word for it. And does it really say it prevents cuts for "exisiting" members? Or does it only prevent cuts in already accrued benefits, but not in future benefits to be accrued by "exisiting" members? Read and study that amendment for yourself.

As to his explanation of why the DROP system is actually an "asset" to the overall pension---that explanation made NO sense to me. Maybe something got lost in translation, but if I were the overall pension fund manager and I had to be convinced DROP was an overall asset, I wouldn't buy it from the above explanation.

So what lessons, if any, did your friend draw from Oregon's and Ohio's experiences?

 

[RetireeRobert]

Random Googling

found this about Dallas P&F pensions fund:


• <SPAN style="COLOR: black; mso-bidi-font-size: 9.0pt">The Dallas Police and Fire fund is short $750 million, the highest dollar amount of the three local plans on the state list.

 

[RetireeRobert]

If Houston Can Exempt Themselves, then?

Voters Release Houston From Pension Law

By Mary Williams Walsh, The New York Times

May 17, 2004​

Houston residents voted decisively on Saturday to exempt their city's pension plan from a state requirement that pension promises be kept.

About 73 percent of the ballots cast in the special election were in favor of opting out of the pension requirement, which became part of the Texas Constitution in 2003, according to the clerk for Harris County, which includes Houston.

Houston put the matter to the voters amid growing concern about the solvency of the city's pension fund. Pension officials added an unusually generous package of benefits to the plan in 2001. The package attracted little notice at the time, but the cost has since climbed.

Similar problems have cropped up in other cities and counties that set up the same type of benefits package in the last few years. The package is usually called a DROP, for deferred retirement optional program.

In Houston, taxpayers learned this year that their city's DROP had left them on the hook for pension benefits far richer than those offered by private-sector companies, or by other cities of comparable size.

An actuarial study commissioned by the city in February showed that hundreds of public employees would qualify for special, one-time payouts of more than $1 million each when they retired and that some public workers stood to earn more as retirees than they did when they worked.

The study was done by Joseph Esuchanko of the Actuarial Service Company in Troy, Mich., who also calculated that the city pension fund had fallen about $1.5 billion short of the amount it needed to pay all the benefits it owed. He said the shortfall would grow in the next few years.

The Harris County district attorney, Charles A. Rosenthal Jr., has been looking into possible wrongdoing in the sweetening of Houston's pension benefits. Mr. Rosenthal declined to discuss the inquiry before the election, saying he did not want to prejudice the vote. The constitutional amendment gives municipalities in Texas a single opportunity to opt out of the pension requirement, by holding a referendum.

Mayor Bill White has said he does not want to reduce city workers' pensions. But he said Houston needed more flexibility to keep the benefits affordable.