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Old 08-06-2013, 10:50 PM   #41
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From your source, I saw the contribution of $3.6B employee + $7.8B employer = $11.4B. Checked. That's what I could not find.

However, the benefits were $15.4B retirement + $6.9B health benefits = $22.3B.

That works out to 4.5% WR. Not as bad as I thought, but more than you computed.
The $6.9b for health is premiums (not benefits) and is separate from the pension plan. The numbers on page 3 are complete and roll forward from year to year. The numbers I showed all came from page 3.

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Old 08-06-2013, 10:53 PM   #42
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I will admit I do not understand any of this accounting. A portfolio running into short fall for spending 1.9%? How am I going to survive with 3.5%?

Please explain. I am seriously worried.
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Old 08-06-2013, 11:05 PM   #43
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What is the basis for your conclusion that the plan is in trouble?
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Old 08-06-2013, 11:09 PM   #44
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Let me google that for you: CalPERS Pension Fund Underfunded
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Old 08-06-2013, 11:18 PM   #45
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But as I pointed out, these funds are active funds. What if the entire US buys into these funds? Would that mean that 100% of people would be better than the average?

Isn't there a concurrent thread about Wellington closing to new investors? CalPERS itself is 3.5 times the size of Wellington, let alone other pension funds.
As that feller from Minnesota pointed out, it's entirely possible for everybody to be above average
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Old 08-06-2013, 11:38 PM   #46
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Well, many posters here weren't sure of that. So, they flocked to get in before these funds close. Have you seen those posts?

I don't know. I really wonder now.

You see, I had Dodge & Cox Balanced Fund for a long time. I tried to sell my friends on that, but they thought it was too stodgy, not fast climbing as they wanted. Then, the fund closed, and I felt so smug.

It kept climbing until the Great Recession, and crashed hard because of heavy overweighting in financial stocks. Man, I was hurting. But I did not sell, and the fund has rebounded.

By the way, the fund reopened while it was tumbling down. I guess the fund manager wanted to get some fresh money to replace the redemption.


PS. The last 12 months, DODBX trounced Wellington, let alone Wellesley. So, I was curious and looked to see what they were doing. While people were still hanging on to their bonds, afraid to let go, these guys were shorting the 10-year Treasury.

Could you believe that? Gutsy! Whoo Wee! I am just going along for the ride.

PPS. DODBX (Balanced Fund) is more the more conservative fund of Dodge & Cox. Their more gung ho fund is DODGX, which I do not have. Check that out! The animal spirit is back!
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Old 08-07-2013, 12:06 AM   #47
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Sorry for going off-topic, but I just looked and compared Wellington/Wellesley to Vanguard S&P 500 Index (VFINX), because of ejman's previous post.

What I saw was that most of the lead of Wellington and Wellesley over the period of 2000-2013 happened during the 2000-2003 period. That was because their managers sidestepped the tech stocks that crashed hard back in 2003. These stocks and some dubious dotcoms were a big part of S&P back in 2000.

For the period of 2003-2013, Wellesley is about the same as the S&P 500, while Wellington is a bit better. So, when you get in makes all the difference.
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Old 08-07-2013, 01:30 AM   #48
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OK. I have done a bit more searching on the Web, and have learned a bit more about CalPERS.

Sorry that I was such an ignoramus to compare the operation of a pension fund to that of a single person's retirement fund, namely for myself.

The answer can be found here: http://www.calpers.ca.gov/eip-docs/a.../cafr-2012.pdf.

Basically, the fund's current expense, after subtracting contributions, is indeed 1.9% as pb4uski stated. So, why the problem?

What happens is that when they project the growth of the liabilities, namely future expenses to be paid or promised to retirees, they will run short. They are not short now.

The projection of future expenses is based on actuarial valuations, using retirees' expected life spans, promised benefits, etc...

But since the current expense is only 1.9%, which is very low, what are the expected investment return and inflation? CalPERS uses an expected nominal return of 7.5%, and an expected inflation of 2.75%.

The above means CalPERS expects its fund to grow at the current rate of 7.5%-2.75%-1.9% = 2.85%. For an individual, if I just want my stash to keep up with inflation, then I can spend 7.5%-2.75% = 4.75%. Heck, that's a lot better than my planned 3.5%. I wish!

Obviously, they expect that the expense will grow beyond 1.9%, in fact beyond 4.75%, and they will be in trouble in 30 years. They project a short fall of $87B on top of the current asset of $247B, looking 30 years ahead.

Wow! I have learned a lot. That is, a pension that currently spends only 1.9% will still be in trouble, because of its future liabilities that keep on growing. For a single retiree, he would be happy just to maintain the same expense with inflation adjustment.

In summary, the fund is not in shortfall now, but will be, based on actuarial projections.

So, what kind of promises have been made? Obviously lots of gravy!
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Old 08-07-2013, 08:21 AM   #49
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You're doomed NWB! Time to look for a job.

You're still being way to simple about it and it doesn't make sense to try to analogize a pension fund to an individual's retirement fund - unfortunately, its a lot more complicated than that. A pension fund continually has inflows (contributions) and outflows (benefits paid) whereas an individual retirement fund only has outflows (living expenses) because there is no savings.

Page 128 shows the history of the funding status. The main plan has actuarial funding gradually declining from 87% in 2003 to 83% in 2011. The funded status based on asset market value, which is a better measure, grew from 2002 to 2007 when it exceeded 100% and then declined to 61% in 2009 and then has increased to 74% in 2011. Given the rally since mid 2011 to now, I suspect that funded status is significantly better today than it was back in 2011. Remember, anyting over 80% is pretty good.

I didn't find the sources you provided suggesting that the plan is in trouble to be very credible. Any moron can write a blog and have an opinion.
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Old 08-07-2013, 01:04 PM   #50
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Much of the problem is that when the markets were rising, states weren't putting in the full amount they should have been contributing, arguing that market gains allowed their fund to remain above some threshold that keeps it viable. The problem is, that assumes the gravy train keeps on rolling, because if it doesn't, you may have to "double down" and put in even more in a market downturn. And since those often correspond with recessions, a state is faced with contributing more at a time when it can least afford it (tax revenues down, need for social services is up).
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Old 08-07-2013, 01:06 PM   #51
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I should not have gotten drawn in, nor tried to "analogize" a pension to my own situation by reading this. I should have known better.

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How long are we going have to listen to this excuse? Unless they panicked and bailed, shouldn't they be ahead by now? I know I am.

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...Most of the rest have been scrambling to make up investment losses inflicted by the 2008 market collapse...
Yes, perhaps we should all go find something else better to do. That aside, I have learned a thing or two from this exchange.

By the way, CalPERS has been criticized for assuming a real return of 4.75% in their projection. They used to have an even higher assumption.

Additionally, I have found and read this article, which tells the history behind all this, for people who follow this thread so far: The Pension Fund That Ate California by Steven Malanga, City Journal Winter 2013.

With that, I am bowing out of this thread.
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Old 09-04-2013, 09:11 PM   #52
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I just started reading a financial book. Don't ask me the name. I think it was free on Amazon. It is talking about Pensions and the real reason companies are freezing them. They say most are just "electing" to eliminate them, because of the current long life expectancy, and wanting to be out of the risk game and leave that to the employees. It goes on to say that "most" of these companies are financially sound and are making big profits. It's just that by eliminating a "promised" pension takes the burden of success off of them and puts it on the employee's back, and gives them more money to be competitive in business.

They do site certain companies (GM) and states who are underfunded, but say this is the exception, not the rule. Can't say I know it's correct, but it sounds right.
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Old 09-05-2013, 09:55 AM   #53
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I just started reading a financial book. Don't ask me the name. I think it was free on Amazon. It is talking about Pensions and the real reason companies are freezing them. They say most are just "electing" to eliminate them, because of the current long life expectancy, and wanting to be out of the risk game and leave that to the employees. It goes on to say that "most" of these companies are financially sound and are making big profits. It's just that by eliminating a "promised" pension takes the burden of success off of them and puts it on the employee's back, and gives them more money to be competitive in business.

They do site certain companies (GM) and states who are underfunded, but say this is the exception, not the rule. Can't say I know it's correct, but it sounds right.

It is probably right.... but what is wrong with that

IOW, the company wants to know their costs.... having a pension with an unknown cost associated with it is not good business.... that is why most of the big firms have gone to the cash balance account... put a fixed amount aside for the employee and let it grow.... sure, the employee has the risk, but shouldn't they
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Old 09-05-2013, 10:08 AM   #54
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sure, the employee has the risk, but shouldn't they
Perhaps. If that's what they were told up front.
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Old 09-05-2013, 03:34 PM   #55
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Perhaps. If that's what they were told up front.
Or if they have a time machine and can get back a few decades of life.
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Old 09-05-2013, 05:49 PM   #56
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Perhaps. If that's what they were told up front.
Your bride tells you up front that she will stay with you in sickness and in health, for richer, for poorer- but those of us over 6 know that things change, and usually there is very little that you can do about it.

Though government pensions may be an exception to this. Over time, we shall see.

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Old 09-05-2013, 06:59 PM   #57
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Sometimes it's best to say "let it go".
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Old 09-06-2013, 11:06 AM   #58
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Perhaps. If that's what they were told up front.
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Or if they have a time machine and can get back a few decades of life.

The problem with that is things do change... the employee has not made a 40 year commitment to the company.... they can 'change' the employment dynamic by just quitting... as long as the company pays what it has promised to pay up until they changed, I see nothing wrong with that...

Business is cruel.... I remember some people who accepted a job out of college... back in the early 80s... they were let go before they even started!!! I think they got two weeks pay, but that does not help if they had passed up other opportunities when they accepted that job...

Another one that I heard or read about.... HP cut everybody's pay by 10% when this latest crisis started... they changed things that were promised..... and to me something that is more important to most people... their paycheck...

Is it 'fair'? Well, I do not think that is the right question.... but no, it is not...



Edit to add: I do not think that the pensioners of Detroit will be treated fairly... they were promised something and had earned it... but now will have to pay a price... I do think that the cut they receive should be the same as the other debt... not more....
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Old 09-06-2013, 12:12 PM   #59
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It is probably right.... but what is wrong with that

IOW, the company wants to know their costs.... having a pension with an unknown cost associated with it is not good business.... that is why most of the big firms have gone to the cash balance account... put a fixed amount aside for the employee and let it grow.... sure, the employee has the risk, but shouldn't they
Because many people may have worked an entire career on the basis of receiving a pension and planned financially accordingly. To pull the rug out form under people at the end of the career is fundamentally unfair. It is one thing to change it going forward for new employees. It would be something else entirely to change it for those who perhaps worked in a field with a lower salary in part because of the pension plan.
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Old 09-06-2013, 12:21 PM   #60
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Because many people may have worked an entire career on the basis of receiving a pension and planned financially accordingly. To pull the rug out form under people at the end of the career is fundamentally unfair. It is one thing to change it going forward for new employees. It would be something else entirely to change it for those who perhaps worked in a field with a lower salary in part because of the pension plan.
I agree with you Kat, and I am currently drawing a pension, so I have a bias toward that viewpoint. In referring to Texas's post he is correct, also. Just a generalization, but I think people who work (ed) in private industry are a little more savvy to the expectation of possibly being "screwed over" sometime. Government workers tend to be more trusting of what is promised, thus more likely to get caught with their financial pants down. I know if my pension went "poof" today, I would have to go back to work full time again until God knows when.
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