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Under funded state pensions
Old 04-09-2010, 07:48 AM   #1
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Under funded state pensions

Just because we've gone more than a few days without decrying the situation on state & local government pensions. From the WSJ: States Skimp on Pension Payments - WSJ.com

Nice graphic attached to the story. New Jersey - Ouch!

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Old 04-09-2010, 09:35 AM   #2
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Like many things, there are no easy fixes, but the longer we put it off, the worse it will get. And it's not likely to be addressed until all stakeholders are willing to share the pain.
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Old 04-09-2010, 09:54 AM   #3
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L - that link seems to take me to a summary (maybe you need a subscription?), but I googled and this link seems to present it is in its entirety (at least the text):

States Skimp on Pension Payments - WSJ.com

I thought this was interesting:
Quote:

While funds on average remain close to the recommended 80% funding level, the ratio is expected to decline further unless contribution levels increase, Thursday's study concludes.

(State public pensions are generally viewed as adequately funded at the 80% level because, unlike private corporate pensions with stricter standards, governments generally don't face the same risks of bankruptcy that companies do.)
And I assume even that is based on some expected level of returns?

And based on the thread youbet started on IL pensions, I don't think this is accurate (on second thought, I'll change that to misleading):

Quote:
The state (IL) last month passed bills to scale back pension benefits; the measures are expected to save $100 billion over several decades, according to legislators.
I thought those only affected new hires? Oh, OK - I guess that means they start putting less into the fund as they bring on new hires, as they will have lower benefits to support. I just thought it made it sound like there were actual pension cuts over the next few decades, but the cuts themselves are further out.

A Q for those in the public sector - has your union taken any action to address this issue? I guess all I've heard is "we should not get any cuts", and maybe "raise taxes to pay us". But have they pushed politicians to better fund the pensions, or anything else?

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Old 04-09-2010, 11:01 AM   #4
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A Q for those in the public sector - has your union taken any action to address this issue? I guess all I've heard is "we should not get any cuts", and maybe "raise taxes to pay us". But have they pushed politicians to better fund the pensions, or anything else?
I think most of your interpretation of that article was pretty close to what I had.

To answer your question: Ten years ago it was starting to spin out of control because the city administration was insane and the union was negotiating without regard to the health of the pension fund. Luckily, that was countered before things went too far (I'm knocking on wood here). The pension fund is managed by a independent board that is a mostly separate governmental entity that is legally a division of city government. Which means that the only thing they worry about is the health of the fund, rather than the city's budget or how great a deal the union can negotiate, and they can act independently of both to guard the viability of the fund.

Not that the pension board didn't make some missteps. Ultimately they turned that around when the administration changed to a new regime that was much more concerned about the future impact of pension costs on the city budget. Mostly because they were the guys holding the bag when all of those past "future costs" turned into today's bills.

The results were some almost-immediate changes to pensions for vested employees, some very minor with grandfathering allowed with some more significant for those who continued to work. The new hires all face a very different pension and will be force to work longer, contribute more and receive less. The more significant change was that the union is no longer the sole negotiator on contractual issues. The pension board has a seat at the table and negotiates for its members.

I would say that today everyone has a more realistic attitude about what can and should be done.
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Old 04-09-2010, 11:23 AM   #5
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The one thing that some in the public sector don't know is that pension reductions happen in the private sector all the time... now, there are protections, but I will give an example that is real...

A mega-corp decided to get rid of their defined benefit and start a cash option plan. This is where they just put money aside for your retirement and when you retire you can 'buy' an annuity. When the conversion occured, they calculated a starting balance based on the present value of your DB plan. Well, someone figured out that the starting balance was 'to low' for some people who worked there for a long time. That in reality if they retired now, the money would not be enough to buy a pension they had earned. The company said 'no problem', you will get the higher of the two (per law... not that they were kind)... but that just meant that ANY CASH that was being deposited to their account did not mean anything.... one guy said it would take 10 years before his cash balance account would buy an annuity that was worth what he already had. So in reality, his pension was 'frozen' for those 10 years even though his cash balance looked like it was increasing.

BTW, over the years... they reduced the amount they were going to pay based on how long you worked... and also reduced the maximum they would pay into the cash account. Some employees were grandfathered at IIRC about 15% to 18% of their salary... but the maximum for anybody else was reduced to 12%... I think it is now either 10% or 8%...
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Old 04-09-2010, 11:29 AM   #6
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The one thing that some in the public sector don't know is that pension reductions happen in the private sector all the time...
I don't know. I think they do know that, and I suspect many would say they chose govvie work largely for that reason; it's not going to be easy to break promises in the public sector as opposed to the private.
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Old 04-09-2010, 12:32 PM   #7
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I was just reading an article in the OC Register Cutting costs for state's prisons | state, prisons, california - Opinion - The Orange County Register, and it says
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The Legislative Analyst's Office found that correctional officers prison guards account for one in seven state employees and eat up a disproportionately large 40 percent of state personnel spending. The overcrowded state prisons house 167,000 inmates in a system designed for 84,000.
I assume if the prison guards account for ~40% of the state personnel spending, they might also account for a fairly large (if not the entire 40%) percentage of the pension fund draws too. I'm not going to make my usual "free the pot smokers" call here (especially since this is CA and I don't know how many they have in jail), but it seems outrageous for prisons and associated personnel to be costing the state that much. There's a comparison with the TX system in the article, and talk about privatization that seem to make sense to me. I think privatization is the direction we should be heading for many government functions (TSA, education (lunch ladies and other support staff), things like that). But judging by the employment numbers, we're going in the exact opposite direction.
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Old 04-09-2010, 12:37 PM   #8
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I don't know. I think they do know that, and I suspect many would say they chose govvie work largely for that reason; it's not going to be easy to break promises in the public sector as opposed to the private.
Of course they all know that.

I didn't chose government work because of the pension!

I'm not kidding you guys when I say that after the police academy, when I was making a higher salary, that I was a hot mooch about the fact that I was taking home less money than police cadets - because of that damn pension deduction. They laughed at me, but I still went down and questioned about being required to make pension contributions out of every check.

The pension is why I stayed when I could have left and made a lot more money doing something in the private sector.

The fact that I thoroughly enjoyed the work helped a lot - there is no thrill greater than putting your ass on the line every day and not knowing if you're going home or not. It's a weird and twisted thrill, that I grew out of in my early 40's, but the adrenaline rush is unexplainable amazing. But by the time I was in my 30's and had 10-15 years on the job, it was the pension that began to become the more controlling factor.

I turned down opportunities for more money but less thrill and less financial security in retirement. Many of my friends took those opportunities and did well and seem happy (running and gunning is not for everyone) but they all sacrificed future fiscal security for physical safety and a bigger paycheck.

Let's be honest with ourselves. Even though we often couch this argument in terms of governmental fiscal responsibility, there is, at least for some of you, the underlying argument: "it's not fair because I don't have that sweet pension".

There is a counter to that which I didn't much care for when it was used on me in a similar situation. I found myself supervising a conglomeration of state, local and fed law enforcement and military personnel for about five years. Even though I outranked every one of them (GS-14 equivalent to their 9-13 and some O3's and O4's) they all made a hell of a lot more money than me. Some of them were great people, but most of them were so worthless that they made screen doors on submarines look like a great idea in comparison (they almost never send their stars to work in joint task forces). I expressed my feelings to one of those guys one day, "It doesn't seem right that you make almost twice what I do and I'm your boss and have twice as much responsibility". His reply was good-natured, mostly, but he was being brutally honest. "Sounds like a poor career choice on your part, huh, boss?"
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Old 04-09-2010, 12:55 PM   #9
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Let's be honest with ourselves. Even though we often couch this argument in terms of governmental fiscal responsibility, there is, at least for some of you, the underlying argument: "it's not fair because I don't have that sweet pension".
Maybe, but to me it's not even that. It's the apparently limitless future taxpayer liability for pension shortfalls that bothers me. As I've said before, I don't care if someone is paid $50K with no benefits or $40K with $10K worth of retirement benefits. What I do care about is that taxpayer liability is limited to the amount originally contributed to the pension plan (as part of a reasonable compensation package) and that we aren't creating a financial time bomb or a crisis waiting to happen.

In other words, it's not that my taxes go to pay for pensions that I don't get -- it's that we're already seeing private sector wages not keeping up with inflation, we're seeing our own retirements look more and more improbable due to private sector employer cutbacks and a lousy decade of stock returns, and we're told we have to pay higher taxes to make up a shortfall to "save" someone else's retirement when no one is "saving" ours in return.

That, not the mere fact that some people have good pensions, is the issue for me. If people want part of their compensation in the form of a future pension, that's fine as long as the overall compensation is reasonable -- and as long as it won't create future unknown liabilities for us.
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Old 04-09-2010, 01:28 PM   #10
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I turned down opportunities for more money but less thrill and less financial security in retirement. Many of my friends took those opportunities and did well and seem happy (running and gunning is not for everyone) but they all sacrificed future fiscal security for physical safety and a bigger paycheck.
What did they end up doing in terms of jobs? What kind of positions? Are they related to law enforcement in the private sector?
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Old 04-09-2010, 01:45 PM   #11
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I was just reading an article in the OC Register Cutting costs for state's prisons | state, prisons, california - Opinion - The Orange County Register, and it says


I assume if the prison guards account for ~40% of the state personnel spending, they might also account for a fairly large (if not the entire 40%) percentage of the pension fund draws too. I'm not going to make my usual "free the pot smokers" call here (especially since this is CA and I don't know how many they have in jail), but it seems outrageous for prisons and associated personnel to be costing the state that much. There's a comparison with the TX system in the article, and talk about privatization that seem to make sense to me. I think privatization is the direction we should be heading for many government functions (TSA, education (lunch ladies and other support staff), things like that). But judging by the employment numbers, we're going in the exact opposite direction.
It seems a prison reform is in order.
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Old 04-09-2010, 01:47 PM   #12
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I can echo just about everything that Leonidas said. As for people leaving for better paying jobs; we just had one person leave to become head of security for JC Penney. We've had two leave in the past year to work for the Dallas Mavericks (Mark Cuban). One now heads the security for the brand new American Airlines Center (where the Mavericks and Dallas Stars play). A couple left to work for Ross Perot Jr. Several have left to work some sort of security positions at Texas Insturments.....ect. So, yes, people leave law enforcement for much higher paying jobs in the private sector related to security in some way.
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Old 04-09-2010, 02:11 PM   #13
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Maybe, but to me it's not even that.
You're not one of the people that I would lump in that category. But I knew I would hear from you when I decided to relate that little story.

And I think we mostly agree on this subject. Hey, I'm a taxpayer as well and I don't want to see my local government agencies foundering because of fiscal stupidity.
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In other words, it's not that my taxes go to pay for pensions that I don't get -- it's that we're already seeing private sector wages not keeping up with inflation, we're seeing our own retirements look more and more improbable due to private sector employer cutbacks and a lousy decade of stock returns, and we're told we have to pay higher taxes to make up a shortfall to "save" someone else's retirement when no one is "saving" ours in return.
Now, here, is where I don't think we necessarily agree. Or we're looking at it from different perspectives.

To me, don't look at this as "someone else's" pension, like I was just another guy who worked at some other company and am now expecting you to bail me out. I would say look at me as your loyal and faithful employee who worked for you, doing a job you wanted done well, and I did that for 27 years. While doing that job I risked life and limb for lot less than I could have made in a regular job, was there when you called me, and did what was required. Rain, snow, sleet, bullets, and zombie-like crack heads never deterred me. And now all I want is what you, through the elected officials that you put over me, promised to give me during my retirement.

Now, I know that you support giving current retirees what they were promised, and that is the ethically correct thing to do. And we do agree that if we can't afford pensions any more, that we have to attract the kind of quality people to do the job well with a competitive overall compensation package.

Just for fun, I spitballed the numbers to see what I would expect in salary if my job had been more like you'all's jobs. No pension, just a 401K with the maximum legal matching of 5% (IIRC). If I just wanted to equal the contributions that were going toward my pension and put them into a 401K, it would mean I would have to get 25% more in salary, and the employer's matching would be about another 2%.

But let's complete the picture on this "what if" exercise. If you're going to make my compensation package look more like yours - then let me be mobile just like you guys. Let me move from this job to one just like it at another employer - hey it works, because the biggest barriers to entry and transfers in LE jobs are pension entry age and membership time requirements. Today I could go do the same job I was doing for another employer, and not even have to leave the city, and I would be getting almost double the salary for doing the same job (99.1%). And at that salary they still give a pension - not quite as good, and I would have had to work a few more years, but they had 453 look alike program and up to 5% matching in addition.

I know, poor career choice on my part. But when I started my career their pay sucked (the pension was really great though!).

While we're doing this, let's consider the fact that I would not have been eligible to retire at 40, or actually retired at 45, but I would work to 55 or longer. How much more would I want for that? 10%, 20% - I don't know, but the fact that I would not have the same early retirement possibilities would have to be compensated to me before I would take the job.

It's like I've said consistently when this question comes up. It's all a matter of competitive compensation. You can pay me now or pay me later, it all depends on when you want to pay the bill. If you're not competitive, you're not getting my labor. And if you don't want to pay me what I am willing to accept, just decide which lesser qualified individual you want to arm and put amongst you with arrest powers and the responsibility to make life changing (or ending) decisions.
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Old 04-09-2010, 02:53 PM   #14
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It's like I've said consistently when this question comes up. It's all a matter of competitive compensation. You can pay me now or pay me later, it all depends on when you want to pay the bill.
Understood. My point, I guess, is that I'd rather pay now and have cost certainty.
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Old 04-09-2010, 03:00 PM   #15
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What did they end up doing in terms of jobs? What kind of positions? Are they related to law enforcement in the private sector?
Two pilots - one flying a news helo and the other flying jets for Delta. God knows how many lawyers in everything from criminal law to maritime law. Politicians - a mayor, several city council members, a comptroller, judges, elected District Attorneys, and a boat load of sheriffs and constables. Teachers - college professors and K-12 teachers and - a surprise find on the internet - an English language teacher in Wuxi. Two physicians. At least one veterinarian. An amazing number of preachers, ministers and priests. Several guys who went back into the military after 9/11 (one SEAL and a guy who wound up commanding a company of Marines during the invasion of Iraq). A general in the national guard (actually he retired, but I thought his new career interesting). A guy that owns a chain of dry cleaners, another who owns at least 4 Italian restaurants (pretty good ones actually), another who owns a popular beach front seafood place on the east coast (at least he said it was popular last time I talked to him). A couple of computer programmers. At least a dozen taxidermists, hunting guides, fishing guides and related fields. Owners of various business including fire/flood disaster recovery/cleanup, home remodeling, home construction, home inspection, police supply, plumbing supply, retail auto parts, automotive locksmith, insect exterminator, tournament golf pro (he came back to work though), real estate, "grease rendering" (apparently makes a good bit of money selling old restaurant oil/grease overseas) security and PI firms, motor vehicle accident reconstruction. Others include wife of a pro football player (that's a job I guess) who has since retired from football and likely to run for the House (Politician's wife - I know that's a job), a professional (or maybe semi-pro) softball player of all things (which apparently pays better than police work), a film-maker / piano playing comedian (there's a combo for you) who has opened for Aretha Franklin, a few state senators and representatives (including one who was the chair of the House Jurisprudence Committee’s subcommittee on white collar crime while the FBI was investigating the company he owned for running a "pump and dump" penny stock scam ) and a few too many like him whose new job-title is "inmate" or "convicted felon" (some of 'em screwed up on the job and others after they left - or were asked to leave).

These are just the ones that I could remember along with a couple that I got off the internet, and it doesn't include all of the guys doing PI work for some law firms, working for other PI firms, or the various VPs of security for every kind of company and professional sport you can imagine, or the guys who are cops or feds someplace else. At one time there were so many exes in high positions at one federal agency that there were inside jokes about the "Texas Mafia" that ran the place.

Like Utrecht said in an earlier thread - not everybody that enters law enforcement stays around to collect the pension.
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Old 04-09-2010, 04:28 PM   #16
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Leo...

I am not trying to be flip or anything, but it was your career choice.

Like ziggy, I am a taxpayer who would rather not have these unfunded future liabilities out there. I want something that is more 'sure'.

Here is an extreme case that someone can use. If you substitute teach for 90 days, you get one full year or worker's credit. I don't know if you pay into the system or not... that is not that much in my example. You earn say $100 per day. That is a grand total of $9,000. Let's take out inflation, but if you include it, my example is worse for the taxpayer. This substitute continues to do this for 30 years. So now 'her' (or his) total salary is $270,000. She now decides to become a full time teacher... or principal, or some other job that is in the system. Say she makes $65,000 per year. It could be more. With the current system, she has to work 5 years at this rate. So, an additional $325,000 of wages. Now, she decides to retire. She has 35 years of credit at 2.2% per year, so she is eligable to have a pension of 77% of her average. Her PENSION is $50,050 per year.

There is NO WAY she paid anywhere near enough to earn that pension. But the rules are that she will get it. And if she is like my mother and lives into her 90s.. well, lets see.. she started to sub at 20... plus 35 years of work (not sure if she can retire at 55 now... this can be a hole.. so I will say she can not until she reaches 60)... so, 60 to 90 is 30 years at $50K per year... or $1.5 million to her. this is over twice what she earned when she worked.

Now, if there were a cash account that had her put money into it... and the govmt put some in... and when she retired she got an annuity based on what was invested... then I am happy to have this money put aside.



And we all know that people game the system. Not everybody, but enough to make us cringe. I think you know about Houston.. and the police chief that got a raise the last day of his work (or close, not sure exactly)... and the pension liability grew by over $1 million (IIRC)...



I don't begrudge you your pension... and I think that we need to keep our promises... but I also know that we need to promise LESS to the new people.

BTW, I was promised a pension by my mega corp... it was taken away... and the 'cash' I got was not even close to making up for what the promise was... I was promised that if I worked until I reached 50 I would have cheap medical insurance until medicare... it was taken away when I was 49. This is not swaying my thinking about what was promised you and what we owe. I have always thought the system was flawed and should be reduced. Pssst... I think SS is flawed and should be reduced also...
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Old 04-09-2010, 05:08 PM   #17
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Here is an extreme case that someone can use. If you substitute teach for 90 days, you get one full year or worker's credit. I don't know if you pay into the system or not... that is not that much in my example. You earn say $100 per day. That is a grand total of $9,000. Let's take out inflation, but if you include it, my example is worse for the taxpayer. This substitute continues to do this for 30 years. So now 'her' (or his) total salary is $270,000. She now decides to become a full time teacher... or principal, or some other job that is in the system. Say she makes $65,000 per year. It could be more. With the current system, she has to work 5 years at this rate. So, an additional $325,000 of wages. Now, she decides to retire. She has 35 years of credit at 2.2% per year, so she is eligable to have a pension of 77% of her average. Her PENSION is $50,050 per year.
..
If she became a principal, her salary would be $80,000. Her pension will be $61,600. It makes sense to take on a job that pays well in the final years (3 or so) in the public sector.
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Old 04-09-2010, 05:14 PM   #18
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Two pilots - one flying a news helo and the other flying jets for Delta. God knows how many lawyers in everything from criminal law to maritime law. Politicians - a mayor, several city council members, a comptroller, judges, elected District Attorneys ..
Wow, that's amazing that so many law enforcement workers that have switched successfully to other professions.
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Old 04-10-2010, 07:29 AM   #19
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Hey Leonides, were you by chance with the US Marshals Service (don't answer if you consider the question intrusive)? The reason I ask, is that I did some grievance examinations for the Service after I retired and came to like many of the Deputy Marshals I dealt with. Good sense of humor coupled with dedication and maybe a touch of cowboyism
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Old 04-10-2010, 09:20 AM   #20
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Join Date: Oct 2006
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The problem isn't excessive pensions. It's signing contracts with those pensions, then under funding them. (I'm sure the situation is worse in some states than others, so I don't want to claim that all states have done outrageous things.)

IMO, most of the blame lands on elected officials who are supposed to be smarter than the average voter and think about things like pension funding. Some of the blame goes to voters who don't watch closely enough. Some of the blame goes to union officials, as they should be able to see that they're complicit with the elected officials in hiding the full cost from the voters.
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