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Old 12-04-2012, 08:18 AM   #21
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It annoys me to no end that people in the public sector want to blame the unions & the pension payouts for the problems WALL STREET (aka corporate America) created! Remember there will always be people "working the system" in private & the public sector!
I do believe you meant "private sector," and even that is a gross overgeneralization. What I blame above all else are demographics, out of control health care costs and economic trends that made the "old deal" unsustainable. But I suppose it feels better for some to have a group of political opponents to blame.
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Old 12-04-2012, 08:31 AM   #22
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What I blame above all else are demographics, out of control health care costs and economic trends that made the "old deal" unsustainable.
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Old 12-04-2012, 08:37 AM   #23
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It seem me the only difference between what I specified is pay is calculated at the highest five consecutive years, which I agree is a better system. Given pay raises over the last decade of say 3%. The difference between pension benefit and say the final year is only 6% not huge amount.
The other difference that I see is that the pensions are reduced if one retires before 65. This results in a huge reduction in benefits, as it should. As far as the pension benefit having only a 6% difference from the final year's pay, that is simply not correct. For a 30 year worker, the pension is over 40% less.
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Old 12-04-2012, 08:39 AM   #24
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The other difference that I see is that the pensions are reduced if one retires before 65. This results in a huge reduction in benefits, as it should. As far as the pension benefit being having only a 6% benefit from the final year's pay is simply not correct. For a 30 year worker, the pension is over 40% less.
Another thing to keep in mind is that many people seem to think the average state and local public employee is getting the same pension deal as police and firefighters are getting, who can often retire as early as age 50 with as much as 90% of their final salary. That's rarely the case.
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Old 12-04-2012, 08:50 AM   #25
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My mother has a tiny pension of $15K/yr, after working for the state for 25+ years. She had to contribute, but I do not know the specifics. She retired in her early 60s.

Still, that pension in addition to SS and a paid-for home allows her to live independently without relying on her children.
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Old 12-04-2012, 08:52 AM   #26
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We have been back and forth on whether state pensions are promises that should be kept or promises that can't be kept or something in between. The answer means a lot to more than a few ERdotorg members. Illinois Governor Pat Quinn has contracted with the Khan Academy to post a lesson showing why Illinois should keep it's promise. Seems like an unlikely way to get your point across to a broad public unless he hopes the effort will go vira
I would feel a lot better about the video if it came from the governor of a state that has managed its pension plans in a responsible manner.
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Old 12-04-2012, 08:57 AM   #27
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Another thing to keep in mind is that many people seem to think the average state and local public employee is getting the same pension deal as police and firefighters are getting, who can often retire as early as age 50 with as much as 90% of their final salary. That's rarely the case.
Also, many people also think we get full medical/dental or a highly subsidized deal. That is not usually true. I pay 100% of my monthly medical and dental premiums.
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Old 12-04-2012, 09:35 AM   #28
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/snip/. Then I qualified for SS disability, and so we are doing JUST FINE.

You never said you paid into SS.... did you

If not, then how did you qualify for SS disability


Glad to hear you are doing fine....
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Old 12-04-2012, 04:01 PM   #29
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Just to clarify on what I meant on calculating pension benefit on 5 year highest vs final year, imagine Joe was making 50,000 five year, he got $1,500 cost of living raise each of the last five years and so he retired this year making $57,500. If his salary was based average of the last 5 years the pension would be based on a $54,500 vs $57,500 for a final year calculation. Of course not many worker private or public have received 3% wage boosts the last 5 years.
I know I haven't!

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Honestly, it is a bit of convenient excuse to blame it on Wall St. First, most pension fund including IIRC, Seattle, use a five year smoothing function so that 2008 result will be fully recognized in 2013. Most forum members assets have fully recovered from the crash. (Although, I think mine are still a bit behind after figuring inflation.) If the professional pension managers haven't done as well as the folks on the forum....
Seattle didn't start "smoothing" until very recently. But there is something that puzzles me a great deal about our current funding status. Right before the crash, the system was IIRC fully funded with assets of about $2.1 billion dollars. The last data available says the system's assets have recovered to $1.88 billion as of the end of October, which is nearly 90% of what assets were pre-crash. So I don't know if it's right to say the fund managers here have done all that much worse than E-R members. They don't have the option of reducing what they pay out to current retirees, while forum members can "pull in their horns" and curtail withdrawals when times are tough--and I think a lot of them did just that.

But even though the fund has nearly as much money now as in 2007, the funding percentage is in the low 60's. If we have 90% of the money we had when the plan was fully funded, why is our funding level not 90%, or at least something much closer to 90 than 60?

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I personally was concerned about state pension viability back around 2005. For a pretty simple reason. I had been reading financial forums like this for 5 years and I knew that if you wanted to withdraw 40K a year you near $1,000,000 in assets. But when a looked my state pension plan a lot of the new retirees we collecting $40,000 pension and yet when I looked at the assets there was only $400,000/retiree. Now obviously their big difference between $1,000,000 in assets supporting a SWR of 4% for individual and multi billion dollar pension funds, supporting the retirement of tens of thousand. Never the less I don't think a SWR of roughly 10% is every prudent.

When I dug a bit deeper one I found pretty consistent assumption in most pension plans, they almost all predicted a steady increase in the number of government employees, and wages for those employees. Which is great news for a pension plan more highly paid workers, makes easier to pay current retirees, meaning you can invest less. I can even understand how that occurs, I imagine all state and probably most major cities, have economic development department/forcasting. These department almost always are optimistic. But if you are the actuarial and are looking for economic forecast for you state or city, well who are you going to call, your economic development department.

Everything looked hunky dory in the mid 2000s, home prices were rising rapidly,new housing starts were up, the stock market was doing good, and new housing starts, means new people, who require more government workers.

Now we live in a new normal, and for pension funds the world is even worse. They don't have the freedom that folks like I do and cut my bond allocation down to 15%. Nope pension plans need roughly 50% of their money in bonds and right now bonds have a negative real return. So their options for raising more money to pay for the pensions are really limited hence the fighting.
I don't know if Seattle's pension fund assumed a steadily growing pool of employees. I can certainly see that it could cause a problem if the number of new employees was less than projected. But if there are fewer employees, aren't the future obligations of the plan reduced accordingly?

>>sigh<< what's a pension fund to do?
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Old 12-04-2012, 04:18 PM   #30
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There could be many reason that the number is now 60%....

First, you have 4 more years of liabilities that have accrued... now, it seems that at 60% that means $3.1 billion of liabilities... seems a bit high in 4 years...

So, second, they could now be using more realistic numbers to discount future liabilities to today's dollars...

I am not sure how the smoothing works, but if you put in 2007 to 2009 in, it seems that this would tend to smooth down....
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Old 12-04-2012, 04:37 PM   #31
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We do not have a pension, so I never paid much attention to how a pension fund was run. But from what Clifp described, could it be that pension funds have the same problem as SS, meaning that demographic changes plus lower investment returns are the deep fundamental causes for the short fall?

I have some relatives living in California, and their pension fund is CalPERS. A few years ago, I read that CalPERS had a good footing, and was financially sound. Just now, out of curiosity, checked on the Web and found that it currently has 55-75% of the money needed for current obligations.

Moreover, one Web site said that CalPERS managers just recently lowered their expected return from 7.75% to 7.50%. If that was real return they were expecting (meaning after compensation for inflation), then these number were way too high compared to what other professional investors have been predicting. People have been talking about 3% above inflation for the years ahead. Add that to an inflation rate of 3%, and we are still short of 7.5% as a nominal return.

Looks like big trouble ahead to me!
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Old 12-04-2012, 04:57 PM   #32
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We do not have a pension, so I never paid any attention to how a pension fund is run. But from what Clifp described, could it be that pension funds have the same problem as SS, meaning that demographic changes plus lower investment returns are the deep fundamental causes for the short fall?

I have some relatives living in California, and their pension fund is CalPERS. A few years ago, I read that CalPERS had a good footing, and was financially sound. Just now, out of curiosity, checked on the Web and found that it currently has 55-75% of the money needed for current obligations.

Moreover, one Web site said that CalPERS managers just recently lowered their expected return from 7.75% to 7.50%. If that was real return they were expecting (meaning after compensated for inflation), then these number were way too high compared to what other professional investors have been predicting. People have been talking about 3% above inflation for the years ahead. Add that to an inflation rate of 3%, and we are still short of 7.5% as a nominal return.
We don't have a pension either, and will be getting just a small bit from SS, but I did have the opportunity for a hands on view of how pensions are managed when I w*rked. Private and public alike - when they are poorly funded it is bad management, plain and simple, and there is no good reason a savings funds need be anything but fully funded.

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Looks like big trouble ahead to me!
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And you know that notion just crossed my mind
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Old 12-04-2012, 05:08 PM   #33
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... there is no good reason a savings funds need be anything but fully funded...
But, but, but a fund that looked fully funded in the decades of 1980-2000 became puny and meager in the subsequent decade.

As I manage my own retirement fund, I would just tighten my belt, same as other people here. How does a pension manager tell that to his retirees?

Yes, I know, I know, he should have run a big surplus in the good years, but do you think people would leave that big stash alone and not molest do something to reduce that "windfall" profit?
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Old 12-04-2012, 05:33 PM   #34
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But, but, but a fund that looked fully funded in the decades of 1980-2000 became puny and meager in the subsequent decade.

As I manage my own retirement fund, I would just tighten my belt, same as other people here. How does a pension manager tell that to his retirees?

Yes, I know, I know, he should have run a big surplus in the good years, but do you think people would leave that big stash alone and not molest do something to reduce that "windfall" profit?
It's different for the pension fund. In your case it is only you, with a start date, end date, accumulation period and withdrawal period that are all exclusive. The pension fund is ongoing with new members and others departing, enjoying tax status, actuaries to do the hard math. Because they have a large population it is easier to mitigate risk. IOW, it is easier for the pension fund than it is for you, so if you can do it, so can they.

What has happened to pension funding is well documented and debated here time and again, so no need to look under that rock anymore. I think funding the pensions - private, public and SS - is one of those things that shouldn't be discussed, just done, and is critical to restoring confidence in business and public sector institutions. The country is still wealthy enough to do this but will not always be so.
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Old 12-04-2012, 05:36 PM   #35
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I don't know if Seattle's pension fund assumed a steadily growing pool of employees. I can certainly see that it could cause a problem if the number of new employees was less than projected. But if there are fewer employees, aren't the future obligations of the plan reduced accordingly?
Perhaps, but you do have the same problem that social security, Spain and Bernie Madoff have or had. Ponzi finance tends to crash when the members and money entering trail off below the numbers leaving.

Ponzi Finance is a technical term, explained very clearly by the late Prof. Hyman Minsky in Stabilizing an Unstable Economy.

Ponzi finance results whenever the natural cash flows of an enterprise or funding system cannot be expected to sustain its operations without further inputs. It is essentially the root problem underlying all the highly interesting events of the 21st century.

Ha
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Old 12-04-2012, 05:38 PM   #36
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It seem me the only difference between what I specified is pay is calculated at the highest five consecutive years, which I agree is a better system. Given pay raises over the last decade of say 3%. The difference between pension benefit and say the final year is only 6% not huge amount.

I and most longtime forum members understand that any many case public employees also contribute to their pension. The problem in a nutshell is that the combine contribution by the public employes and their employers have not nearly enough.

My rule of thumb is that for the full pension plan where the employee contributes X% and the employer contributes y% of the employees salary, X+Y needs to be about 25% for 2%*years of service benefit. Typically what I have seen in public pension plans is that X is between 6-8% and Y is between 8-12%. Leaving a shortfall of 5-10%

I arrived at this rule of thumb, by assuming private sector worker contributed X and his employer Y in a 401k, his salary increased faster than inflation (merit/experience pay) . At retirement age, the lump sum was converted to a annuity, with a capped COLA increase, and with 50% survivor benefit for the same age spouse.

(I should add I invite others to check my calculation, which were performed under different under economic conditions. Relatively small changes in investment rates, inflation, and merit/experience pay calculation can make a big difference)

As Ziggy nicely summarized this systematic underfunding of pension plans by 5-10% was always a problem, but since the economic crisis it has become a monster problem. There is no good solution to it.
In my pension experience, I would suggest you are in the ballpark. My pension system deducts 14.5% and employer matches 14.5%. At 30 years the multiplier is 2.5 times years worked, with 2% cola. So at a 29% yearly contribution rate, the system itself is still only a little over 85% pre funded. I don't read of many pension systems that contribute that high of an amount that mine does, so it certainly wouldn't surprise me why many systems are in bad shape.
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Old 12-04-2012, 06:11 PM   #37
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You never said you paid into SS.... did you

If not, then how did you qualify for SS disability


Glad to hear you are doing fine....



ABSOLUTELY paid in - the whole 7.65% of virtually every dollar earned. I was often flirting with the FICA cap, and ONCE IN A WHILE scored a few checks above the limit. But very rare.
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Old 12-05-2012, 01:42 PM   #38
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ABSOLUTELY paid in - the whole 7.65% of virtually every dollar earned. I was often flirting with the FICA cap, and ONCE IN A WHILE scored a few checks above the limit. But very rare.
May be picking nits, but SS is 6.2% of that, and the % was less than 6.2% prior to 1990. Back to my reading...
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Old 12-05-2012, 02:18 PM   #39
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ABSOLUTELY paid in - the whole 7.65% of virtually every dollar earned. I was often flirting with the FICA cap, and ONCE IN A WHILE scored a few checks above the limit. But very rare.

OK, thanks for the reply... now makes better sense to me....
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Old 12-05-2012, 10:13 PM   #40
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kyounge1956...


There could be many reason that the number is now 60%....

First, you have 4 more years of liabilities that have accrued... now, it seems that at 60% that means $3.1 billion of liabilities... seems a bit high in 4 years...

So, second, they could now be using more realistic numbers to discount future liabilities to today's dollars...

I am not sure how the smoothing works, but if you put in 2007 to 2009 in, it seems that this would tend to smooth down....
I'm still not getting it. Five years ago, the actuaries said the plan's $2.1 billion in assets were enough to cover all liabilities for 30 years. Now, with $1.88 billion, we've got not quite 2/3 of the necessary amount? I don't recall all the details, but I don't think there have been any significant changes in the assumptions underlying the actuaries' evaluation, or in the employee demographics. I'm not even certain there have been more retirements than were expected, due to the budget shortfalls of the last few years--I just assumed that anyone who got laid off and was eligible to retire probably did so, either immediately or maybe after a few months if they couldn't find another job.

It's just not making sense to me that in five years, liabilities have increased so much that an 11 or 12% decline in assets means the system is 1/3 less able to meet its obligations. But I'm not an actuary. What do I know? Maybe it is just one of those counter-intuitive things that doesn't sound right to me, even when it is.
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