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-   -   More Pension Fund Trouble (http://www.early-retirement.org/forums/f28/more-pension-fund-trouble-40940.html)

chinaco 12-01-2008 03:44 AM

More Pension Fund Trouble
 
Pension funds trying to boost earnings... Its a pension fund, not a hedge fund. Sure some hedging techniques might be prudent for certain situations.

I wonder if pension fund managers using the pension fund as a training ground to get their start/experience to be hedge fund managers... learn at the pension funds expense... then try to open a hedge funds and hit the big time?? :p

Whatever is happening... they should stick with tried and true conservative approaches.

'Alpha' Bets Turn Sour - WSJ.com

saluki9 12-01-2008 05:24 AM

Quote:

Originally Posted by chinaco (Post 754717)
Pension funds trying to boost earnings... Its a pension fund, not a hedge fund. Sure some hedging techniques might be prudent for certain situations.

I wonder if pension fund managers using the pension fund as a training ground to get their start/experience to be hedge fund managers... learn at the pension funds expense... then try to open a hedge funds and hit the big time?? :p

Whatever is happening... they should stick with tried and true conservative approaches.

'Alpha' Bets Turn Sour - WSJ.com

Portable Alpha isn't some exotic highly leveraged strategy like this article seems to imply. It simply involves using options and derivatives to obtain beta exposure which allows you to save more of your hard capital to hunt for alpha. Like most things its all about the execution.

al_bundy 12-01-2008 06:24 AM

pension funds have been in trouble for at least 20 years and in some cases their benefits have improved during that time

ziggy29 12-01-2008 07:12 AM

Quote:

Originally Posted by al_bundy (Post 754730)
pension funds have been in trouble for at least 20 years and in some cases their benefits have improved during that time

Austin firefighters recently turned down a new contract which would (among other things) INCREASE their pension even as most of us have watched our 401K plans go up in smoke and we watch municipal budgets strained to the hilt.

What planet are they on?

soupcxan 12-01-2008 08:37 AM

It may not be exotic but portable alpha does increase your leverage. Instead of using $100 to buy $100 of the S&P500, you use $20 to buy derivatives on the S&P500 that represent $100 worth of the index. Then you invest the remaining $80 in hedge funds or some alternative asset class. Your returns on the S&P are now going to be magnified because you put less capital in. You're also going to incur a cost from rolling those derivatives over all the time. But if you allocate your capital to HFs that add alpha, then you can come out ahead.

There is a slight problem if the S&P and your HF investments become positively correlated and everything declines together. The HFs are supposed to be hedged against beta risk but that is easier said than done. And when things turn sour it is likely to increase the correlation of all asset classes, so maybe this strategy isn't so great after all.

Hal3 12-01-2008 08:39 AM

Retire after 20 years as well!
 
Quote:

Originally Posted by ziggy29 (Post 754737)
Austin firefighters recently turned down a new contract which would (among other things) INCREASE their pension even as most of us have watched our 401K plans go up in smoke and we watch municipal budgets strained to the hilt.

What planet are they on?

Retire after 20 years as well, I'm sure!

Join the fire department at 22, retire at 42 on the taxpayers back for 40 more years.

Our local police can also game the system. On your last year you overtime to the extreme. Retire for the rest of your life making 150% of what you were normally making the year before you retired.

ziggy29 12-01-2008 08:40 AM

Quote:

Originally Posted by soupcxan (Post 754768)
There is a slight problem if the S&P and your HF investments become positively correlated and everything declines together. The HFs are supposed to be hedged against beta risk but that is easier said than done. And when things turn sour it is likely to increase the correlation of all asset classes, so maybe this strategy isn't so great after all.

And in the case of a "systemic risk" meltdown like we've been having, the correlation of all but the "safest" investments approach unity amongst each other, and almost everything else goes down together. That's been a big reason for the hedgies getting creamed.

al_bundy 12-01-2008 08:47 AM

Quote:

Originally Posted by Hal3 (Post 754772)
Retire after 20 years as well, I'm sure!

Join the fire department at 22, retire at 42 on the taxpayers back for 40 more years.

Our local police can also game the system. On your last year you overtime to the extreme. Retire for the rest of your life making 150% of what you were normally making the year before you retired.

i was deployed with the cal national guard one time and someone there told me of this nice scam. join the national guard and work for the state and you get 2 pensions. or retire from active duty and go work for the cal national guard

utrecht 12-01-2008 01:49 PM

Quote:

Originally Posted by Hal3 (Post 754772)
Retire after 20 years as well, I'm sure!

Join the fire department at 22, retire at 42 on the taxpayers back for 40 more years.

Our local police can also game the system. On your last year you overtime to the extreme. Retire for the rest of your life making 150% of what you were normally making the year before you retired.

This comes up over and over again. Most police and fire pensions are seperate entities and dont affect the cities budget other than whatever they are contributing each month (just like an employer match). They are not owned or operated by the city. When pension benefits are increased it is because the pension fund has done well enough to pay out better benefits, not because the city is being forced to contribute more money.

Also, very few if any civil servant pensions that I know of figure overtime into the final salary that is used to calculate the pension benefit. And even if some do, why does anyone care? Again, it doesnt affect the cities budget at all. The cities contribution amount isnt affected.

utrecht 12-01-2008 01:52 PM

Quote:

Originally Posted by al_bundy (Post 754777)
i was deployed with the cal national guard one time and someone there told me of this nice scam. join the national guard and work for the state and you get 2 pensions. or retire from active duty and go work for the cal national guard

How is that a scam? You could also work 2 private sector jobs and have 2 401Ks, or retire from one private sector job and go to work for another and start accumulating more money in another 401k....but in this case you wouldnt be under paid by 2 seperate companies like you would in your example.

ziggy29 12-01-2008 02:01 PM

Quote:

Originally Posted by utrecht (Post 754873)
How is that a scam? You could also work 2 private sector jobs and have 2 401Ks, or retire from one private sector job and go to work for another and start accumulating more money in another 401k....but in this case you wouldnt be under paid by 2 seperate companies like you would in your example.

"Scam" is a bit strong. "Loophole" would be a better word for it. One I think needs to be closed to future new hires, but I wouldn't call it a "scam," though from the taxpayer point of view I can understand how it would feel like a fleecing.

samclem 12-01-2008 02:17 PM

I'm not clear on why it is even considered a loophole. The individual earned the first pension and is taking it. He wants to get another job. He can work for anyone, and anyone can hire him. Should the government, of all the employers out there, be selectively denied access to his services? Or, if he takes a job with them, should he, for that reason alone, forfeit the pension he earned as part of his earler agreement with his employer?

If govt pensions (specifically, at what age an individual can begin collectng them) is the issue, then it should be addressed (for new hires). But that's a different issue than honestly earning two pensions while following the rules.

eridanus 12-01-2008 02:42 PM

Quote:

Originally Posted by utrecht (Post 754872)
This comes up over and over again. Most police and fire pensions are seperate entities and dont affect the cities budget other than whatever they are contributing each month (just like an employer match). They are not owned or operated by the city. When pension benefits are increased it is because the pension fund has done well enough to pay out better benefits, not because the city is being forced to contribute more money.

Not in this case.

The city in question (Austin) would add more to the pension if the union contract is finalized. The previous city manager calculated that, if the union desired salary increases continue, the police and fire fighters would take ALL of the city budget by about 2015.

chinaco 12-01-2008 03:30 PM

Quote:

Originally Posted by saluki9 (Post 754726)
Portable Alpha isn't some exotic highly leveraged strategy like this article seems to imply. It simply involves using options and derivatives to obtain beta exposure which allows you to save more of your hard capital to hunt for alpha. Like most things its all about the execution.

It is for a pension fund.

NW-Bound 12-01-2008 04:28 PM

Quote:

Originally Posted by eridanus (Post 754885)
Not in this case.

The city in question (Austin) would add more to the pension if the union contract is finalized. The previous city manager calculated that, if the union desired salary increases continue, the police and fire fighters would take ALL of the city budget by about 2015.

What happens when a city or county goes bankrupt? Has that not happened before? Someone, please enlighten me.

REWahoo 12-01-2008 04:31 PM

Search "Orange County bankruptcy"...

NW-Bound 12-01-2008 05:13 PM

I knew of the bankruptcy of Orange County in 1994, but did not follow up on how they recovered. But if my memory served me right, it was caused by a poor investment choice. They probably raised taxes and cut services to make ends meet.

The question related to this thread was about what happened to the pension plans that the county was liable for, because I also remember reading somewhere that public pensions are protected by the California Constitution. So, they can cut services and raise taxes, but cannot cut pensions.

But if the entire budget is consumed by pensions, as an ealier post pointing out about Austin budget projection, then what happens next? Would the state have to step in to help the county out? Then, the Federal bails out the state? But aren't Medicare and SS also projected to consume entire Fed budget?

It does not compute!!!

Just searching "Orange County pension bankruptcy", and I ran across several items about "Measure J", a proposition that was just passed by a 3-to-1 margin. This Measure J requires voter approval for all pension increases for Orange County elected officials and employees.

burch64 12-01-2008 05:15 PM

Quote:

Originally Posted by eridanus (Post 754885)
Not in this case.

The city in question (Austin) would add more to the pension if the union contract is finalized. The previous city manager calculated that, if the union desired salary increases continue, the police and fire fighters would take ALL of the city budget by about 2015.

I believe this is for the active duty police and fire departments. Not the ones that are already retired.

I believe that Texas also has a separate pension fund for its police and firefighters that is not directly associated with Austin.

I also believe that most cities spend the biggest part of their budget on the police and fire departments.

Jim

Goonie 12-01-2008 06:05 PM

Quote:

Originally Posted by utrecht (Post 754872)
This comes up over and over again. Most police and fire pensions are seperate entities and dont affect the cities budget other than whatever they are contributing each month (just like an employer match). They are not owned or operated by the city. When pension benefits are increased it is because the pension fund has done well enough to pay out better benefits, not because the city is being forced to contribute more money.

Also, very few if any civil servant pensions that I know of figure overtime into the final salary that is used to calculate the pension benefit. And even if some do, why does anyone care? Again, it doesnt affect the cities budget at all. The cities contribution amount isnt affected.

Being a recipient of a public pension, I know a little bit about our pension fund...and funding. From the 1st day on the job I contributed...automatically, by state statute, a certain % of my gross income each payday. My employer, likewise, automatically, by state statute contributed a certain % base on my income each payday. When I retired, the pension board (which is NOT owned, operated, or in any way controlled by my employer) determined, based upon my 30+ years of total earnings, how much my employer was required to transfer over to the pension board as a final, one-time sum, to fully cover my pension for life! And that sum was FAR LESS than what they'd be paying me had I stayed working and not ER'd. From the time they made that one-time final payment, they will NEVER have to contribute one plug nickel to cover my pension...nor will any of the other employees. My account is "Paid In Full"....as are the accounts of all who have retired before or after me.

And FWIW, our pension fund was fully funded 100+% (105% IIRC) before the Wall Street toilet flushed. It's still very much solvent, and on track to be back up to 'fully funded' status in a matter of a few years.....the trustees of the fund are very cautious in their investing, since they too are future recipients of this pension....half of them are elected to the pension board by the participating employers, and half of them are elected by the participating employees. And although the pension is governed by state statute, thankfully, it cannot be touched by the thieving, lying, despicable, moronic twit Governor or state legislature....unlike many of the state pension funds in IL....and it will be another 20 years before they get another shot at being able to change the state constitution to be able to try to get at the solvent public pension funds in IL. (Thank God the voters of IL on Nov.4th, defeated the proposal for a Constitutional Convention!!!)

As to the OT figuring into final salary/pension calculations....our city's former police chief retired a few years ago, and had a large 'bank' of OT and comp-time still on the books from the years before he was appointed chief. It was his, he earned it, and as such it was turned in for pay when he retired. He felt that that VERY LARGE chunk of change should be used to calculate his final rate of earnings, which would drastically increase his pension. The city disagreed, the pension fund administrators disagreed, but the local court agreed, and ordered that he paid accordingly. Both the city & the pension admins appealed, and a higher court agreed with them, and overturned the 1st court ruling. It may have been different if the pension rules weren't spelled out clearly as they were.

Quote:

Originally Posted by utrecht (Post 754873)
How is that a scam? You could also work 2 private sector jobs and have 2 401Ks, or retire from one private sector job and go to work for another and start accumulating more money in another 401k....

Quote:

Originally Posted by samclem (Post 754877)
I'm not clear on why it is even considered a loophole. The individual earned the first pension and is taking it. He wants to get another job. He can work for anyone, and anyone can hire him. Should the government, of all the employers out there, be selectively denied access to his services? Or, if he takes a job with them, should he, for that reason alone, forfeit the pension he earned as part of his earler agreement with his employer?

If govt pensions (specifically, at what age an individual can begin collectng them) is the issue, then it should be addressed (for new hires). But that's a different issue than honestly earning two pensions while following the rules.

I know several people both in the private and public sectors, that have fulfilled all of the requirements for their 1st pension and have retired from that job, and gone on to work elsewhere and earn a 2nd pension. Like utrecht says, how's that a scam? It's above board, and fully legal...there's no 'double-dipping', 'scamming', 'loopholes' or whatever. I worked with a guy who retired from a private sector Mega-Utility with a very nice pension. He was then hired by the local municipality, and since he's young enough, he'll be able to earn a reasonably sized public pension. There are others who I know that have retired from the muni, and have earned or are earning a private sector pension....earned a 1st private pension and are working toward a 2nd private sector pension...and some who have retired from one public entity, and are working toward a 2nd public pension.

I'd consider it myself....but I'm faaaaar toooo lazy to even consider working again. ;D

Goonie 12-01-2008 06:38 PM

Quote:

Originally Posted by NW-Bound (Post 754920)
......I also remember reading somewhere that public pensions are protected by the California Constitution. So, they can cut services and raise taxes, but cannot cut pensions.

But if the entire budget is consumed by pensions, as an ealier post pointing out about Austin budget projection, then what happens next? Would the state have to step in to help the county out? Then, the Federal bails out the state?.....

That's how the IL Constitution reads as well.....public pensions are protected...and a good thing with the thieving crooks we've had, and still have, in Springfield. And as is currently happening here, services are being cut.....several state parks and historical sites are now closed as of midnight last night, due to the governor's squandering, mismanagement of funds, and most of all, stupidity. Lots of state workers hit the unemployment lines this morning. Other services cut by the state have been roadway and roadside maintenance...like pothole patching and mowing of rights of way. It'll be interesting this winter to see how far they cut back on snow and ice removal!

As for the 2nd part, the "then what happens next?" part.....I have NO clue! Here in IL, I seriously doubt that the state would intervene on behalf of a municipality. And Blago, our illustrious moron governor, is planning to ask Obama for federal help.....even though Obama has already publicly stated (for the benefit of Blago and Chicago mayor King Richard II) that he (Obama) will NOT show preference to IL, anymore than any other state. He said he was elected to be president of the United States of America, and not president of Illinois! In others words, "You guys can get in line with the other 49 states". I hope he stands firm on that, and if so, then the Feds aren't going to intervene on behalf of the state either. There's just going to have to be belt tightening in state and local government, like there is households all across the country.

As for state income tax hikes.....that's what needs to be done in IL....but the general public won't go along with that.....it would be political suicide to increase taxes here in IL...if they never want to be re-elected they can raise taxes. Not knowing all of the details, and I'd be willing to guess that a 1% state income tax increase would go a long way to balancing our state budget. The current income tax rate is a flat 3%.


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