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Old 12-24-2014, 10:39 PM   #41
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... Congress created the PBGC to see to it that pensions are protected. ...
This is a government funded program, much like SS (or the USPS, or Amtrak, or ...). ...

Sorry, but that is not correct. PBGC was created by Congress, but it is funded by payments made by the participating companies (so indirectly, paid by the employee in lower wages in exchange for pension benefits), From wiki:

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The PBGC is not funded by general tax revenues. Its funds come from four sources:

Insurance premiums paid by sponsors of defined benefit pension plans;

Assets held by the pension plans it takes over;

Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates;[4] and

Investment income.
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Old 12-25-2014, 05:24 AM   #42
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I assume a 1/3 (ie 33%) haricut to SS when I enter numbers into planning/modeling tools. This is based on a somewhat conservative assumption that you mentioned about being able to pay 75% of current benefits for the long term (ie 75 year horizon).

I do not see this as a worst case scenario however. Congress could easily means test (either income based, or perhaps even asset based) and give some of us a much more severe haircut in an attempt to protect the many individuals in the lower income/asset category.

...

-gauss
Thought of something else regarding worst case scenario of means or income based testing for SS. Neither were mentioned in the Simpson-Bowles recommendations or in the extensive analysis I read (think it may have been on EBRI site at Boston College, but too lazy to look it up). Also think SS isn't in as bad a shape as pension plans given the many alternatives, so a 33% cut is too conservative for me. Impression I got from a recent Bogleheads thread was the majority were using the 25% trustees figure. Of course many factors would come into play: how early one's ER is (i.e., how many years spent in retirement), older one is, size of PF, etc. It's a complicated question, and one that won't be answered unfortunately until reform are enacted.

Still, I agree conservatism is warrranted no matter what estimate you're using. Again, I'm surprised more aren't concerned. I see this law as significant, particularly raising the age of mpacted individuals to those 75 and older. If I had a pension of any kind, I would be concerned. If you're lucky enough to be excluding your pension and SS in your calculations, then no concern. What's that saying, PF for essentials, pension and SS for lap dances?
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Old 12-25-2014, 07:34 AM   #43
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I wonder what they will do with pensions like the one for illinois public workers that is so far in the hole there looks to be no way to fund it except bankrupting the taxpayers. It has a huge deficit now and keeps growing every year.
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Old 12-25-2014, 07:48 AM   #44
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Pensions are at risk but the risk varies considerably by who has been managing them. Teamster and UMW mismanagement have been the cause of past legal action by the Feds. Other union managed funds are also at risk but I can't specifically remember past issues. The money is there so I suspect some succumbed to the temptation. The law under discussion here is a way to make the pain felt first and mostly from the people that were contributing to corrupt organizations.

This, of course, leads right into the various abuses and sweetheart deals various public pensions have been victimized by. Whether by corruption or simple underfunding, I don't think any pension is totally safe from "adjustment." My advice for many years is that it's nice to have a pension but you need to plan on life with a lot less of it than you think you are going to get from it.

Some of my pensions (I have 4!) are still held by Megacorp in their pension plan. I know of one that has been sold/converted to an annuity through an insurance company. I think that's my safest one since it should be covered by the state insurance funds that provide a little bit of a backstop.

I expect SS to continue to be shaved like it has been as the baby boomers began showing up in the benefits instead of the income numbers. I suspect that the pols will be happy to "reach across the aisles" in the future just as readily as they have in the past.

On a personal note, my pensions that start next year are about 10% of my 2015 spending budget. SS is a bit more (30%) but not until I reach 70 which is 7 years away.
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Old 12-25-2014, 08:01 AM   #45
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I suspect that changes to SS will continue in the direction of income-based taxation of benefits. I remember when SS wasn't taxable at all. Then 50% was (their "reasoning" was that that was from your employer's contributions although to the framers of SS, the employer contribution was the "welfare element" that could be redistributed). 85% of DH's is taxed although that will change in2015 now that I'm retired.

I once asked Bob Myers, one of the highest-ranking actuaries in the SS Administration about means-testing SS and he thought it was a bad idea because it would discourage savings. I guess they didn't listen to him.
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Old 12-25-2014, 08:08 AM   #46
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I'm expecting 100% of SS to be taxed within the next 20 years or so and then the Feds will allow chained CPI to do the dirty work of reducing benefits over the long term. Going to a means tested version is political suicide, but allowing the value of benefits to erode at a very slow pace is easy.
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Old 12-25-2014, 08:18 AM   #47
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I wonder what they will do with pensions like the one for illinois public workers that is so far in the hole there looks to be no way to fund it except bankrupting the taxpayers. It has a huge deficit now and keeps growing every year.
I suspect that it may either be a Detroit type thing, where the top pensioners get cut slightly. Or the pensions get transferred to the

Or I can even see where the State(s) turnover the pensions to the PBGC.

Or even the States take a low-interest loan out from the feds to pay the pension obligations.

I just really do not see the majority of pensions getting cut. Most Cities are behind the curve on funding their pensions.
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Old 12-25-2014, 08:20 AM   #48
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worse than taxing SS and other retirement funds would be if we scrapped income taxes and went to a federal sales tax to value added tax as many countries have. That would require paying taxes on ROTH account funds as they are spent. Consider that my ROTH contributions are taxed at 28% rate today, then add in a 30% combined federal and state sales tax. Lemme see....carry the 3, divide by 6... 58% tax rate. So govt gets more than I do.

Doesn't even consider the impact of business taxes on my investments, say another 20% of profit (I read somewhere that corp effective rate paid is like 19%) and gomt is up to 78% !!!

That is scary to me, in this case, no mater how much I save govt can just adjust and continue to take more and more.
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Old 12-25-2014, 08:21 AM   #49
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Pardon my asking, but how can someone be down 6.5% when the market is hitting all time highs?
If someone invested heavily in non S&P things. Or at the peak of the market during the year. Or in oil stocks. Or international. Or BABA, or ...

Fidelity has a great video that shows how market timing makes a difference, the first year. Three identical investments, just different timing.
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Old 12-25-2014, 08:36 AM   #50
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worse than taxing SS and other retirement funds would be if we scrapped income taxes and went to a federal sales tax to value added tax as many countries have.
Be prepared for the worst. Sales taxes AND income taxes. The internet taxes may come first.

I really do not see the political will to add a lot of income taxes except on the 'wealthy'. Of course the definition of wealthy is anyone's guess. Maybe a few deduction reductions . Perhaps the mortgage interest deduction goes away.

I also see a lot of printing of money, in various ways that do not affect CPI. If all the developed nations printed money at the same rate, costs do not go up, but obligations go down.

Most countries obligations are continuing to increase, for various reasons. Printing money is the politically expedient way around hard choices that impact voters.
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Old 12-25-2014, 08:59 AM   #51
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I suspect that it may either be a Detroit type thing, where the top pensioners get cut slightly. Or the pensions get transferred to the

Or I can even see where the State(s) turnover the pensions to the PBGC.

Or even the States take a low-interest loan out from the feds to pay the pension obligations.

I just really do not see the majority of pensions getting cut. Most Cities are behind the curve on funding their pensions.
Illinois is in one of the worst situations of any state. A "slight" cut on the top pensioners only worked for Detroit because they also defaulted on their bonds. Illinois has no hope of making "slight" cuts to only a few people within their current plan.

There would be a number of states that would seriously object to the Feds taking over any ownership of the underfunding of any state or municipal pension plan. As mentioned earlier, the PBGC is "insurance" that is funded by other private pension plans. Your options imply all states would have to enter into the plan and pay premiums for their brethren who would immediately be in default. Ain't gonna happen.

Many public pensions are well behind the curve. I personally can't see it ending well. Who gets cut and by how much? How badly do taxpayers get shafted for years of political mismanagement? These are all unknowns but we see what happened to Detroit when they tried to make it all up on the backs of the taxpayers.
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Old 12-25-2014, 09:13 PM   #52
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This may sound silly but one reason for the under-funding of these plans now is because they were over funded in the '80s & '90s. The plans cannot save in good times for the rainy days that always seem to show up. The IRS has ruled any over funding acts as a tax shelter so further contributions by the employers are not tax deductible. Being that employer contributions cannot be stopped or lowered, the trustees must raise the benefits of retirees and in so doing, raise the cost of future obligations.
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Old 12-25-2014, 09:50 PM   #53
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I'm expecting 100% of SS to be taxed within the next 20 years or so and then the Feds will allow chained CPI to do the dirty work of reducing benefits over the long term. Going to a means tested version is political suicide, but allowing the value of benefits to erode at a very slow pace is easy.
If that is the case then the American voter has got to be the stupidest being on the planet. Why would we knowingly elect someone that would do that? The idea of cutting our benefits in order to save a system that designed to be a safety net doesn't make sense.

The sustainability of SS is simply a matter of spending priorities.

There has been much debate on developing a new/different sort of retirement system in the US. Our present system of defined contribution plans doesn't seem to be a good replacement for the defined benefit plan.

I'm quite sure the financial engineers can develop a better plan for the next generation of American workers.

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Old 12-25-2014, 11:12 PM   #54
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Pardon my asking, but how can someone be down 6.5% when the market is hitting all time highs?
International investments. I just happened to dump my whole $11k pension rollover check into developed international index fund.
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Old 12-25-2014, 11:30 PM   #55
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International investments. I just happened to dump my whole $11k pension rollover check into developed international index fund.
I suspected that might be the case sine they are my only loser for the year but when you said the "market" if didn't sound so concentrated. But I think you are right, it will come back eventually. Ying and yang.
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Old 12-26-2014, 12:25 AM   #56
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According to the Wharton article in the OP unfunded bennifits were included in some of these pensions. How does a union agree to unfunded bennifits? And how does the PBGC allow that to happen on their watch? So exctly who should pay for unfunded bennifits promissed such workers?
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Old 12-26-2014, 06:22 AM   #57
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I'm expecting 100% of SS to be taxed within the next 20 years or so and then the Feds will allow chained CPI to do the dirty work of reducing benefits over the long term. Going to a means tested version is political suicide, but allowing the value of benefits to erode at a very slow pace is easy.
BINGO. I agree that this is nearly certain. Any projections I do include 100% taxable SS and virtually no increases.
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Old 12-26-2014, 06:39 AM   #58
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This may sound silly but one reason for the under-funding of these plans now is because they were over funded in the '80s & '90s. The plans cannot save in good times for the rainy days that always seem to show up. The IRS has ruled any over funding acts as a tax shelter so further contributions by the employers are not tax deductible. Being that employer contributions cannot be stopped or lowered, the trustees must raise the benefits of retirees and in so doing, raise the cost of future obligations.
+1

"Excessive" pension contributions was a key factor in the LBO mania of the 1980s and early 1990s. Corporate raiders bought stakes in companies and greenmailed them or other companies just bought companies with plump pension funds and took the "excess."

Congress passed a law to keep companies from over-funding pensions rather than protect the pension assets.

None of this applied to municipal pensions. Here underfunding has been common practice since they first started. We're only seeing the problems here when population and economic growth couldn't paper over the issues.
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Old 12-26-2014, 03:54 PM   #59
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BINGO. I agree that this is nearly certain. Any projections I do include 100% taxable SS and virtually no increases.
+1

Agreed. Personally simply planning for a % benefits reduction. Too lazy to be as precise as you.
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Old 12-26-2014, 09:24 PM   #60
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I suspect that if the minimum wage was $15 per hour, all SS would be solvent again.
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