Pension ERISA anti-cutback Rule at Risk?

[longranger]

The issues discussed in this thread terrify me. Emotionally I love the USA. Objectively not so much. So few practiced LBYM over the past several decades when the economy was stronger and wages relatively high. How do we expect the next generation to now both save by LBYM and fund SS, pensions etc.. Something will have to give.

I am in OK shape for the present but I seriously fear for the generation now entering the workforce. Not a pretty picture for our young adult children, the working poor or the shrinking middle class.

 

[pb4uski]

I am hopeful that the great recession has been a wake up call for many that they need to put more focus on saving vs spending. It also seems that folks in their 20s and early 30s are learning from seeing the struggles that some of our generation have experienced through living beyond their means and high debt loads and are more conservative. I know my kids and my nieces and nephews seem to be.

 

[harley]

I am hopeful that the great recession has been a wake up call for many that they need to put more focus on saving vs spending. It also seems that folks in their 20s and early 30s are learning from seeing the struggles that some of our generation have experienced through living beyond their means and high debt loads and are more conservative. I know my kids and my nieces and nephews seem to be.

Not according to the statistics. United States Personal Savings Rate | 1959-2014 | Data | Chart | Calendar

I ran the chart from 1969 until 2014, and while we're above the 2008 range we're still way below the historic rate. I don't know about the youngsters in particular, though. I know DD is a really good saver, but that's more because she worked in a bank department dealing with people who really screwed up their finances than because it's part of her generation. I'd like to think you are right about them, but time will tell.

 

[gauss]

Yes, that's my point. What struck me about this law, if you compare it to SS, is that all talk regarding SS "reform" has usually grandfathered people 55, or even 60. Reasoning is one is older and it is really late to change course. That this new pension reform law didn't grandfather in anyone under 75 really struck me. I know people approaching retirement age who made retirement plans based on receiving their pension. Who knows where this will lead in 10 years, especially when more pension plans encounter trouble

I believe that the grandfathering provisions of the new law only fully protected those over 80 years of age. I believe 75 to 80 was a sliding scale.

-gauss

 

[Options]

I believe that the grandfathering provisions of the new law only fully protected those over 80 years of age. I believe 75 to 80 was a sliding scale.

-gauss

This to me is of little consolation to anyone from say 65-75, already retired with a pension, and with otherwise poor prospects. As I posted upthread, cuts under this law appear to be income based and definitely substantial for those with larger pensions. Up to 60% IIRC. I don't call that grandfathering at all. It's more like what were they thinking?

 

[Mulligan]

This to me is of little consolation to anyone from say 65-75, already retired with a pension, and with otherwise poor prospects. As I posted upthread, cuts under this law appear to be income based and definitely substantial for those with larger pensions. Up to 60% IIRC. I don't call that grandfathering at all. It's more like what were they thinking?

But yet on the other hand at the state pension level, court rulings are headed the opposite way of congress recent pension actions...

The problem is that Illinois, Arizona and New York states all provided public workers, such as police, teachers and even judges, near iron-clad pension guarantees that were embedded in their state constitutions.

Two Arizona laws enacted in 2011 to increase employees' pension contributions, restrict certain people from receiving pensions, and institute a new formula for calculating benefit increases, floundered in the face of legal challenges. One law, challenged by teachers, was overturned by a Maricopa County judge in 2012, while another, contested by retired judges, was tossed out by the Arizona Supreme Court in February this year. The courts tied their rulings to constitutional language that membership in public pension systems is a contractual relationship, and retirement benefits cannot be "diminished or impaired."- Source StL Post Dispatch 12/30/2014




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[Options]

But yet on the other hand at the state pension level, court rulings are headed the opposite way of congress recent pension actions...

The problem is that Illinois, Arizona and New York states all provided public workers, such as police, teachers and even judges, near iron-clad pension guarantees that were embedded in their state constitutions.

Two Arizona laws enacted in 2011 to increase employees' pension contributions, restrict certain people from receiving pensions, and institute a new formula for calculating benefit increases, floundered in the face of legal challenges. One law, challenged by teachers, was overturned by a Maricopa County judge in 2012, while another, contested by retired judges, was tossed out by the Arizona Supreme Court in February this year. The courts tied their rulings to constitutional language that membership in public pension systems is a contractual relationship, and retirement benefits cannot be "diminished or impaired."- Source StL Post Dispatch 12/30/2014




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I wouldn't be so sure. See this quite recent ruling from a Federal Judge:

California Public Pensions Put on Notice - Reason.com

 

[aja8888]

But yet on the other hand at the state pension level, court rulings are headed the opposite way of congress recent pension actions...

The problem is that Illinois, Arizona and New York states all provided public workers, such as police, teachers and even judges, near iron-clad pension guarantees that were embedded in their state constitutions.

Two Arizona laws enacted in 2011 to increase employees' pension contributions, restrict certain people from receiving pensions, and institute a new formula for calculating benefit increases, floundered in the face of legal challenges. One law, challenged by teachers, was overturned by a Maricopa County judge in 2012, while another, contested by retired judges, was tossed out by the Arizona Supreme Court in February this year. The courts tied their rulings to constitutional language that membership in public pension systems is a contractual relationship, and retirement benefits cannot be "diminished or impaired."- Source StL Post Dispatch 12/30/2014

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I don't have any skin in the public pension game (except for SS), but what happens if the states mentioned above run into funding problems with those iron clad pensions?

 

[Mulligan]

I don't have any skin in the public pension game (except for SS), but what happens if the states mentioned above run into funding problems with those iron clad pensions?

Well me personally, I wouldn't want to be relying the pension or being the tax payer either in that state!

Options--- I only know what I have read and that is probably only enough to be dangerous, but I think it all boils down to the individual state, and how it is worded in each states constitution concerning the pensions. Also, the judges interpretation may come into play also.

But like Aja's thoughts, even if there is a positive ruling for the pensioners, if the money is not there, what happens next?


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[daylatedollarshort]

I don't have any skin in the public pension game (except for SS), but what happens if the states mentioned above run into funding problems with those iron clad pensions?

It could be ruled that "that even constitutional rights can be limited when necessary to serve an overarching state interest."

http://www.chicagobusiness.com/arti...illinois-pension-reform-may-be-constitutional

It may take a deeper future fiscal crisis to reach this point for some states than they are in now, but the reality is that it is unlikely that any court is going to say it is okay to stop police services and public school funding in order to keep pension promises. The state public pension crisis is estimated to be as high as several trillion dollars:

http://www.statebudgetsolutions.org/publications/detail/promises-made-promises-broken-the-betrayal-of-pensioners-and-taxpayers

 

[Options]

Don't mean to , but this is a thoughtful piece on this subject I've been following with interest. Those with pensions and SS in their plans would be wise to read (warning: a bit political, depending on your view, but the information contained has value to anyone interested):

Michael Hudson: The War on Pensions –Â*The US Budget Anti-Pension Law | naked capitalism)

 

[gauss]

Yes, the article does have a lot of rhetoric to it.

I am curious to which pension funds owe Wall St. money as opposed to the other way around (ie pension funds usually buy bonds, not sell them).

I guess if you have not heard about the issue that has been discussed in this thread before there may be information there for you, but the PRC fact sheets and the such have more solid information and less hyperbole than the Michael Hudson article.

That all being said, lets not get too derailed in discussing the merits of the linked article.

Thanks
gauss

 

[samclem]

Of course, it's not the proposed change in the law that is the root cause of the potential reduction in retiree checks, it is the fact that the plans are underfunded (and have been, for decades). It would seem that addressing that (either by increasing the contributions or decreasing the promises right now for present workers going forward) would be a good first step.

 

[Teacher Terry]

Mulligan, like you my hubby & I will collect very little of our SS due to our pensions from a state. This is really scary stuff. However, our state pension fund is well funded. If places want to make changes they should do so with new hires. Often people make a lower wage working for state government & the trade off is the pension down the road. We are continuing to work p.t. in our fields & will probably do so until mentally unable.

 

[Options]

Regarding Social Security, see this:

Social Security Long-term Outlook

Of particular interest is this paragraph:

One last interesting point to consider is that the assets of the larger trust fund were once nearly depleted in 1982. Yet all of the benefits were paid in full and on time because Congress enacted temporary emergency legislation that permitted borrowing from other Federal funds which bought time to enact legislation that strengthen the Trust Fund financing. The borrowed amounts were repaid with interest within 4 years [Emphasis added].

With all of these problems, many options are being considered to restore long-term trust fund solvency. Fortunately, these options are being considered now, many years in advance of when the funds are likely to be exhausted. This leaves plenty of time for legislation to be enacted to restore long-term Social Security solvency.

I find this heartening with respect to possible, potential SS reforms. Pensions, not so much, given the Reason.com article I posted upthread.

 

[daylatedollarshort]

Some of the plans to restore SS solvency like chained CPI are going to mean future benefit cuts. It just won't be called an outright cut.

 

[Options]

Agreed. I said it was heartening. I didn't say it doesn't mean there won't be cuts, which I personally am planning on. Latest I've read is (correct me if I'm wrong), without reforms, SS will only be able to pay out 77% of benefits as of 2033.

 

[pb4uski]

Some of the plans to restore SS solvency like chained CPI are going to mean future benefit cuts. It just won't be called an outright cut.

The impact of chained CPI is pretty minor in the whole scheme of things. I think the reality is that beneficiaries could adjust to these slight reductions.

The impact of the slower-growing measure of inflation would increase over time. For example, a worker who claimed retirement benefits at age 62 would, on average, get a 0.25 percent smaller payment at age 63 if the chained CPI were used instead of the current measure of inflation. After 10 years of Social Security payments and cost-of-living adjustments, this 73-year-old retiree would get 2.5 percent less, on average, than under current law. And at 93, this person would get an average of 7.2 percent less in Social Security payments over his or her lifetime.

 

[daylatedollarshort]

The impact of chained CPI is pretty minor in the whole scheme of things. I think the reality is that beneficiaries could adjust to these slight reductions.

A household with $50K in SS benefits for 30 years would be $1.5M. If I am reading that right, 7.2% less would be $108K.

 

[pb4uski]

You're a proverbial math whiz there DLDS. It is still slight, no matter how you frame it. Besides, the number of people that live to 93 is not a lot so very few would get impacted that much. A slight reduction to benefits is better than some of the other alternatives.

 

[jd0850]

Of course, it's not the proposed change in the law that is the root cause of the potential reduction in retiree checks, it is the fact that the plans are underfunded (and have been, for decades). It would seem that addressing that (either by increasing the contributions or decreasing the promises right now for present workers going forward) would be a good first step.

At the beginning of 2008, 90% of these Multi-Employer Pensions (MEP) were in Green Zone status (at least 80% funded).
When the crash hit almost all of the MEPs took a beating. Most have now recovered but the 10% ( There are about 1500 plans in total) below Green Status at the beginning of 2008 were unable to recover and are the ones that this new law will address.

For now, anyway. That's the kicker.

Even though the majority of the MEPs took steps to mitigate the the crash of 2008 and are in good shape, the 10% at risk of insolvency will cause all MEPs to be more susceptible to benefit cuts in the future.

I am a participant in a well funded MEP ( actually retiree 12/01/2014) so this introduces a little unneeded stress to the retired life.

As in the OPs original message "Solutions not Bailouts" lays it all out very well

 

[Greencheese]

The impact of chained CPI is pretty minor in the whole scheme of things. I think the reality is that beneficiaries could adjust to these slight reductions.

No offense but its thinking like this that p***es me off as a younger individual. People today say that chained CPI isn't a big deal, pushing the retirement age up is fine, increasing SS contribution limits/percentages is no big deal... For those who are 50+ it isn't as big a deal because they're already done with contributing or will be grandfathered under the old rules. For those of us who are looking at at least 30+ years of working this disturbs me how nonchalant older individuals are at "throwing the younger generation under the retirement bus". Everyone here understands compounding interest when it comes to their investments, but why do people gloss over the LOSS of benefits due to the compounding of CPI?

 

[daylatedollarshort]

No offense but its thinking like this that p***es me off as a younger individual. People today say that chained CPI isn't a big deal, pushing the retirement age up is fine, increasing SS contribution limits/percentages is no big deal... For those who are 50+ it isn't as big a deal because they're already done with contributing or will be grandfathered under the old rules. For those of us who are looking at at least 30+ years of working this disturbs me how nonchalant older individuals are at "throwing the younger generation under the retirement bus". Everyone here understands compounding interest when it comes to their investments, but why do people gloss over the LOSS of benefits due to the compounding of CPI?

I don't regard a loss of $108K or so as trivial, plus I think that won't be the only upcoming Medicare or SS change. In another thread someone had a sub teaching retirement job paying $10 an hour, which I believe was before taxes.

So to make $108K, a two earner retiree household would have to work an extra 10,800 hours combined, at a substitute teaching type job or equivalent, plus some extra hours to make up for taxes. If a full time work year is 2,000 hours that is 5 additional years of work, plus at least another year or two to account for taxes and job / commute costs.

$108K is almost double the entire net worth of a typical U.S. household:

http://www.nytimes.com/2014/07/27/business/the-typical-household-now-worth-a-third-less.html?_r=0

"The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation."

Buy you know going to chained CPI sounds rather innocuous compared to we're cutting your lifetime household SS benefits by $100K or so.

 

[Senator]

Buy you know going to chained CPI sounds rather innocuous compared to we're cutting your lifetime household SS benefits by $100K or so.

I think there will be many more changes as times goes on. The chained CPI is going to be the least of many younger people's worries. Tax rates will likely increase overall, perhaps wage suppression, inflation, sales taxes, etc.

 

[pb4uski]

No offense but its thinking like this that p***es me off as a younger individual. People today say that chained CPI isn't a big deal, pushing the retirement age up is fine, increasing SS contribution limits/percentages is no big deal... For those who are 50+ it isn't as big a deal because they're already done with contributing or will be grandfathered under the old rules. For those of us who are looking at at least 30+ years of working this disturbs me how nonchalant older individuals are at "throwing the younger generation under the retirement bus". Everyone here understands compounding interest when it comes to their investments, but why do people gloss over the LOSS of benefits due to the compounding of CPI?

No offense, but do you have a bloody clue as to what we are talking about?

My underlying point is that changes will need to be made to keep the system viable and the lower benefits paid to people like me if chained CPI is adopted will put less pressure on the need for higher taxes on you younger folks. DLDS would prefer to preserve benefits which screws you because the likely funding is higher taxes on you.

I'm not at all nonchalant about these changes and even though I am done working and no longer contribute to the system I don't think higher taxes are the answer (thought I would support getting rid of the cap) and I'm willing to accept slightly lower benefits.

The retirement age was increased from 65 to 67 in 1983 on people like me (I was 28 at the time) and will likewise likely be increased from 67 to 69 or 70 for people like you, in both cases because of improving longevity. But IIRC even after these changes, the expected number of years collecting benefits will still be much higher than when SS was first put in place.