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Old 11-01-2013, 11:43 AM   #81
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Edit: 83 billion not trillion
Trillion is the new billion
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Old 11-01-2013, 11:44 AM   #82
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Trillion is the new billion
A trillion here, a trillion there, and pretty soon we're talking real money here.....
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Old 11-01-2013, 11:51 AM   #83
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Old 11-01-2013, 11:54 AM   #84
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Originally Posted by Bestwifeever View Post
Trillion is the new billion
Reminds me of a quote in Derek: (may not have it right but can't find it)

Talking about ages

"50 is the new 40, 60 is the new 50, and 70 is the new 60"

"What about 80?"

"80 is still 80"



I think a trillion is still a trillion.
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Old 11-01-2013, 12:37 PM   #85
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What would be fair is a pension cap where a certain level is guaranteed and anything above that cap is promised but not absolutely guaranteed. Thus if you work your 25 or 30 years, you get a guaranteed $40,000 a year pension (or some similar figure) and perhaps a promise of a higher pension if the market does great.
I think my state's newest pension plan is close to what you described above. It is 1/2 DB pension, and 1/2 DC investment of account. Each employee controls his/her own investment account and depending upon the market and their investment decisions, she may do very well or he may lose the farm.

The DB pension is 1/2 the of the amount of the current system (1% versus 2% in calculating the amount. From the state's point of view this is a cap, from the employee's point of view it is a floor. It also allows earlier retirements (with the payments actuarially adjusted, of course). So, if one hits it big, no need to wait until some minimum age. Most of the new hires choose this plan since they like the idea of controlling their own future. I don't blame them.
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Old 11-01-2013, 06:01 PM   #86
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There were several cases where companies reduced or eliminated matches to 401K plans during the recession but I have not heard any calls for the federal government to step in and pay the difference.
That's true, but not at all analogous to the situation in Illinois. What some members of the legislature are proposing would be the equivalent of going into your 401k and withdrawing the employer match and earnings on that match after you retire. They actually want to reduce the pensions of long retired folks.

BTW, since someone is bound to say "if the money isn't there, what else can they do?" I'll add that they can attempt to declare bankruptcy (as Detroit is doing) and put it in the hands of the courts. Currently, Illinois politicians are portraying themselves as good guys (and deserving of being elected again and again and again) because they're dealing with over promising/under funding of the pension fund by reneging on already earned benefits. That stinks. If they can't pay already retired folks, they should throw in the towel, admit they're both dumb and crooks and put it in the hands of the courts.
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A responsible person investing a 401K does not assume 8% returns or 5% real returns or whatever similar fairytale figure the pension plans use. Usually you have a mix of stocks and bonds and will be lucky to get a 3% real return. There will be no targeted gasoline tax to make up the difference if you do not get a 5% real return in your 401K.

What would be fair is a pension cap where a certain level is guaranteed and anything above that cap is promised but not absolutely guaranteed. Thus if you work your 25 or 30 years, you get a guaranteed $40,000 a year pension (or some similar figure) and perhaps a promise of a higher pension if the market does great.

$40,000 a year corresponds to at least a $1,000,000 private annuity. A person contributing 2% of their salary (or even 9%) to a 401K will be hard pressed to get more than $1,000,000 in 25 years even with a decent market.
All true. I'd bet most already retired Illinois teachers wish they had contributed their 9% to a 401k plus gotten a decent, say 5% match. And that they had participated in SS with both themselves and the local school districts kicking in the 6+%.

I'm all for reducing benefits earned in the future to the point they are affordable and are appropriate to attract the required talent. I'm all for establishing tough, enforceable rules to eliminate double dipping, spiking, etc. Employees will know what they're earning and can make their employment decisions accordingly. I'm against the legislature being able to reduce pensions to already retired employees without getting the courts involved. Telling people throughout their career that they are earning some "X" level of pension and then, decades later and after retirement, giving them less in order to continue spending in other areas (legislators meeting in Hawaii? Pay for lawyers for Blagojevich?) is wrong.

I can't tell you how bad the political climate is in this state. Politician after politician being sent off to prison and yet we know most of the crooks are still here getting away with shenanigans. And, to keep on topic, the shenanigans are apparently going to impact already started retirements. It's pretty sad.
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Old 11-01-2013, 07:06 PM   #87
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And because pension funds have ongoing outflows from benefits, they can't be as aggressive as someone with a 401K they won't be tapping for another 20-30 years.
If this is so, and I'm not saying it isn't, then why do pensions also invest in all kinds of exotic illiquid private investments. I think the situation must be a lot more complicated than this.
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Old 11-01-2013, 07:16 PM   #88
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That's true, but not at all analogous to the situation in Illinois. What some members of the legislature are proposing would be the equivalent of going into your 401k and withdrawing the employer match and earnings on that match after you retire. They actually want to reduce the pensions of long retired folks.

BTW, since someone is bound to say "if the money isn't there, what else can they do?" I'll add that they can attempt to declare bankruptcy (as Detroit is doing) and put it in the hands of the courts. Currently, Illinois politicians are portraying themselves as good guys (and deserving of being elected again and again and again) because they're dealing with over promising/under funding of the pension fund by reneging on already earned benefits. That stinks. If they can't pay already retired folks, they should throw in the towel, admit they're both dumb and crooks and put it in the hands of the courts.
....It's pretty sad.
I was going to argue with you, but then I gave it some more thought and I think you right. Put the matter before courts, cause the politicians (and the IL voters deserve some of the blame for electing the crooks) have proven to be incapable of doing the job. I know very little about bankruptcy courts, other than they have special judges, who presumably are generally financially literate. Financial literacy being in exceedingly short supply among elected officials, hard to imagine they'd do a worse job. My guess is this would require sacrifice for all parties. Including existing retirees. I don't think for instance eliminating the 3% COLA increase for a couple of year, and then tying it to the CPI is unreasonable.
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Old 11-01-2013, 07:25 PM   #89
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If this is so, and I'm not saying it isn't, then why do pensions also invest in all kinds of exotic illiquid private investments. I think the situation must be a lot more complicated than this.
Pension funds often have laws that tell them how much they are allowed to invest in equities. Most have a little wiggle room for a small amount of really esoteric and risky stuff, so if they can't get their required 8.5% return from a portfolio with 60% equities, they can still often put 5-10% into high risk, exotic instruments and be in compliance with the fund's investment requirements.
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Old 11-01-2013, 07:59 PM   #90
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My guess is this would require sacrifice for all parties. Including existing retirees.
Yes. And the sweet part of having the state go bankrupt and the bankruptcy courts making decisions regarding "sharing the pain" would be that the "special people" (the politicians themselves and the pension fund that handles the patronage workers and other political insiders) would likely be included. As it stands, they'll skip by untouched since they are 80% funded. There's no logical reason for the retirees who are in funds in better financial shape to experience less pain. It was only corrupt political clout that caused their situation.

My hope is that the eventual outcome is that public pensions in Illinois will be funded real time. For example, that they become 401k's where both the employee contribution and the employer match is immediately vested and the property of the employee and not subject to political reneging, for all the wrong reasons, as is happening today.
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Old 11-01-2013, 08:04 PM   #91
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I was going to argue with you, but then I gave it some more thought and I think you right. Put the matter before courts, cause the politicians (and the IL voters deserve some of the blame for electing the crooks) have proven to be incapable of doing the job. I know very little about bankruptcy courts, other than they have special judges, who presumably are generally financially literate. Financial literacy being in exceedingly short supply among elected officials, hard to imagine they'd do a worse job. My guess is this would require sacrifice for all parties. Including existing retirees. I don't think for instance eliminating the 3% COLA increase for a couple of year, and then tying it to the CPI is unreasonable.

Just quoting you and not youbet as his is longer....


From what I understand, a state cannot file for bankruptcy.... so unless the fed gvmt passes another law, they have to be heavy handed.... but, the people receiving pensions are sure to sue and it would be decided by judges anyhow....


One of the big problems (and I bet it is in most states) is that some people on the receiving side were smart and got laws passed (or state constitutional amendments) that said pensions could not be reduced.... Kinda hard to reduce benefits if your state constitution says you cannot...
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Old 11-01-2013, 08:11 PM   #92
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State constitution can be amended if the public wants it, I believe.

I got interested in Calpers (California) recently. Their book looks good now, but the actuarial projection does not. From what I gathered, they are afraid of public pressure, hence keep denying that any potential problem exists.
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Old 11-01-2013, 08:24 PM   #93
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Just quoting you and not youbet as his is longer....


From what I understand, a state cannot file for bankruptcy.... so unless the fed gvmt passes another law, they have to be heavy handed.... but, the people receiving pensions are sure to sue and it would be decided by judges anyhow....


One of the big problems (and I bet it is in most states) is that some people on the receiving side were smart and got laws passed (or state constitutional amendments) that said pensions could not be reduced.... Kinda hard to reduce benefits if your state constitution says you cannot...
IANAL but I would think they could have the various pension plans file for bankruptcy. No matter what judges will be involved I'd just rather have the matter decided by bankruptcy judges familiar with dividing up the pain, rather than judges that simple interpret the law "The state constitution says..." Lots of contracts and laws get changed in bankruptcy court.
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Old 11-01-2013, 08:44 PM   #94
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IANAL but I would think they could have the various pension plans file for bankruptcy. No matter what judges will be involved I'd just rather have the matter decided by bankruptcy judges familiar with dividing up the pain, rather than judges that simple interpret the law "The state constitution says..." Lots of contracts and laws get changed in bankruptcy court.
I'm not sure if a pension plan can file for bankruptcy. I've never heard of that. But, if they can, the interesting issue is "what is bankrupt." Even the most poorly funded of the plans in Illinois can pay in full for 15 - 20 years or so (depending on assumptions). Would the court interpret that as meaning the plan should/could stop paying its bills today? Dunno.........

Additionally, since the plans do not stand alone but depend on funding from both the participants (who've always paid in full) and the state (who seldom pays in full), could/would the court somehow intervene in the state's autonomy regarding whether to fund or not since the state is not the party declaring bankruptcy. It seems like the state would have to be involved since the funds do not have any taxing authority.

It's interesting stuff. I recall reading about various political scandals in school years ago. I wonder what my grandkids will think about their home state and their leadership when (if) they read about it in the textbooks.

Squeezy needs to get busy and use his powerful coils to squeeze the life out of the bad guys.
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Old 11-01-2013, 09:38 PM   #95
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A good article even if there is fair amount of CYA.

But I still disagree that pensions aren't generous by comparison to private sector.

From I can tell prior to the 2011 pension change a Chicago teacher could retire at 55 (more realistically 56 if they started right out of college.) after 34 years and retire. They will be eligible for 75% of the 4 highest years pay.

Now according to this article in Slate the mean teacher salary in Chicago is $74,236, but of course somebody with 34 years is going to make well over the average. I'd guess it is 100K, but lets say it is only 90K. So the pension will be 75% of 90K or $5625 a month. An annuity for 56 year old female in IL will cost ~$1,167,000. But that is for a fixed annuity CPS teacher pension increase by 3% a year. I am not sure what the factor for a 3% pension increase should be over nearly 30 years. Life expectancy for a 56 year female is 28 years. I'll make a wild ass guess that $1.7-2 million would get you an annuity paying $5625 and increasing 3% a year.

Now a teacher starting off at 30K and after 30 years topping out at $90k salary and contribution 9% of their salary and earning 8% a year (per the historical CPS returns) will have saved $700K after 34 years. The shortfall $1.1 million to 1.3 million is the amount the state would have to match of the teacher pension. This implies a contribution of 14% to 16%. Now if we compare this to typical 401K match of 3-6% in the private sector, it is easy to reach the conclusion the pension are generous. My rule of thumb is that public service pension are equivalent to 10% salary increase.

Now this doesn't excuse the borderline criminal behavior the elected official in not contributing to the pension fund, but I think if the public knew how expensive pensions really were perhaps thinks may have been different.
There is significant credible data that supports your opinion. But, the 10% 17% difference you estimate is much too low. The differences are, unfortunately, much larger; try 74%.

Here's an article that analyzes differences btwn private sector and federal employees.

Overpaid Federal Workers | Downsizing the Federal Government

In the interest of full disclosure, I will receive a small Reserve military (read Federal) pension but, I find the trend of disparity btwn public and private pay/benefits/pensions in this article alarming...very alarming, and very unsustainable.
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Old 11-02-2013, 07:29 AM   #96
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There is significant credible data that supports your opinion. But, the 10% 17% difference you estimate is much too low. The differences are, unfortunately, much larger; try 74%.

Here's an article that analyzes differences btwn private sector and federal employees.

Overpaid Federal Workers | Downsizing the Federal Government

In the interest of full disclosure, I will receive a small Reserve military (read Federal) pension but, I find the trend of disparity btwn public and private pay/benefits/pensions in this article alarming...very alarming, and very unsustainable.
The difference is significant. The argument has always been that federal workers were smarter and better educated than regular folk. But that argument loses its shine when you realize that all their work is contracted out to the regular folk in the private sector.
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Old 11-02-2013, 07:50 AM   #97
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The difference is significant. The argument has always been that federal workers were smarter and better educated than regular folk. But that argument loses its shine when you realize that all their work is contracted out to the regular folk in the private sector.
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Old 11-02-2013, 09:59 AM   #98
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My guess is this would require sacrifice for all parties. Including existing retirees.
I think the best guess as to what reasonable thinking bankruptcy courts would do is that they would share the pain across all citizens. This would include cutting gov't spending in non-pension areas (and there is a ton of "political reward" spending in Illinois to cut) and increasing revenue by, for example, taxing public pensions.

I think the toughest part for the courts would be coming up with a method that ensures that the funds, once corrected, stay funded in the future. Today, even as the crooks politicians in Springfield battle over which of them is going to take the biggest political hit due to the pension issue, they refuse to include a mandatory funding provision. They insist that funding the pensions (even the very reduced pensions of the future) must be a "suggested" rather than mandatory annual activity. And that's what got us into this mess to begin with.
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Old 11-02-2013, 10:41 AM   #99
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It doesn't help the budget when retirees take their pensions and move to Florida or Texas to spend them.
Well, they do have an incentive to stay in Illinois because their pension is not taxed by the state.
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Old 11-02-2013, 10:55 AM   #100
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Do you mean that a pensioner under this system gets 3% more every year regardless of the inflation rate?
The latest proposal by the pension committee is for 1/2 of CPI and with a floor of 1% and a cap of 4%.
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