Pension ERISA anti-cutback Rule at Risk?

[REWahoo]

The vast majority of early retirees have a defined benefit pension.

Once again I'm going to say your statement isn't accurate. Polls on the forum (like this one and this one) show a fairly even split between pension/no pension.

 

[Big_Hitter]

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0CEIQFjAD&url=http%3A%2F%2Fwww.nylaarp.com%2F~%2Fmedia%2FFiles%2FLIMRA%25202010%2520fact%2520book.ashx&ei=OwCbVJGoDoy0ggT-mID4Dw&usg=AFQjCNGR1W4WLbJplNYhQICG_N0SDUmaYg


this is somewhat dated but there is no point arguing facts; I'm sure there is more recent data out there - let me restate that the majority of those that retired early in comfort have DB income (either immediate or deferred)

 

[gauss]

... If you've got a pension, you may very well feel it and should be at least reviewing your plans, IMO. Another thought regarding SS reform is that according to the trustees latest report the SS fund is going to broke somewhere around 2030. In that case, only 75% of benefits could be paid out for something like the next 75 years. This means those planning for SS could get hit with a 25% cut at worst. This assumes no other measures (of which there are plenty) are taken to mitigate the cuts, so it's an absolute worst case scenario (at least at this point).

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. A review of the Simpson-Bowles study shows many ways that the pain could be delivered.

I thought that the private pensions would be more secure than Social Security up until a few weeks ago. Now I am not so sure.

-gauss

 

[pb4uski]

Ah... I see... the sky is falling.

 

[purplesky]

This is a early-retirement.org Christmas miracle!!!!!

A political thread about pension reform and the middle-class getting screwed again is still open.

Amazing.

 

[gauss]

The thread is not intended to be political in nature but rather to discuss in an intelligent manner the risks, real or perceived, of Private PBGC insured pensions in light of the recent changes to multi-employer PBGC pensions enacted in the budget bill.

 

[purplesky]

The thread is not intended to be political in nature but rather to discuss in an intelligent manner the risks, real or perceived, of Private PBGC insured pensions in light of the recent changes to multi-employer PBGC pensions enacted in the budget bill.

Certain topics like Obamacare,SS, and pension reform are going to include some political discussion if you want to have a complete and honest discussion.

Its unfortunate this forum falls short in this area. Head in sand.

 

[Winemaker]

The pension plans that are affected by this legislature are multi-employer pension plans such as the United Mine Workers and United Steel Workers. Most of the contributors for one reason or another are no longer in business because of bankruptcy or the way of the buggy whip, so therefore there are no more "pockets to pick". My father had his pension cut by 2/5ths when United Airlines went bankrupt right after 9/11. PBGC picked up the tab for the other 3/5ths. However, the political move to rescue the Big Three Automakers during the "Great Recession", resulted in moving the UAW pensioners up the food chain ahead of creditors and created in a different result. Politics will rule in the end.

 

[purplesky]

The pension plans that are affected by this legislature are multi-employer pension plans such as the United Mine Workers and United Steel Workers. Most of the contributors for one reason or another are no longer in business because of bankruptcy or the way of the buggy whip, so therefore there are no more "pockets to pick". My father had his pension cut by 2/5ths when United Airlines went bankrupt right after 9/11. PBGC picked up the tab for the other 3/5ths. However, the political move to rescue the Big Three Automakers during the "Great Recession", resulted in moving the UAW pensioners up the food chain ahead of creditors and created in a different result. Politics will rule in the end.

Yes the Wall-street bankers got a sweet $$$ deal after 9/11 also.

 

[MichaelB]

This is an interesting thread, let's help Gauss keep it on topic

 

[Options]

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. A review of the Simpson-Bowles study shows many ways that the pain could be delivered.

I thought that the private pensions would be more secure than Social Security up until a few weeks ago. Now I am not so sure.

-gauss

Yea, I was referring to Simpson-Bowles, along with another analysis but can't remember where I read it. Bottom line is there are many alternatives to an across-the-board cut. I agree with your thinking that pensions and SS are fair game now, not that they always haven't been. Many have been waiting for some smoke signals on future SS cuts, and I believe this may be one important one. And yes, means testing or even income based testing would be the worst case scenario. If you run scenarios in the calculator I posted up thread, this appears to be exactly what they'e done with this new law.

At the least, we should be prudent and do as you've done (me as well) and calculate a benefits reduction into our plans.

Ah... I see... the sky is falling.

Not the sky. Just benefits. A possible 60% benefits reduction for those under 75 and too old to change course signals great opportunities in cat food and cardboard box stocks.

Certain topics like Obamacare,SS, and pension reform are going to include some political discussion if you want to have a complete and honest discussion.

Its unfortunate this forum falls short in this area. Head in sand.

I see the two as overlapping. Unfortunately, benefits reductions (or additions, in the case of the ACA) are influenced by the political process, and as such it's important to discuss from a financial planning standpoint. OTOH, IMHO, a "democrats vs. repulicans" discussion for example is meaningless to the discussion (i.e., how is that actionable?).

 

[purplesky]

Yea, I was referring to Simpson-Bowles, along with another analysis but can't remember where I read it. Bottom line is there are many alternatives to an across-the-board cut. I agree with your thinking that pensions and SS are fair game now, not that they always haven't been. Many have been waiting for some smoke signals on future SS cuts, and I believe this may be one important one. And yes, means testing or even income based testing would be the worst case scenario. If you run scenarios in the calculator I posted up thread, this appears to be exactly what they'e done with this new law.

At the least, we should be prudent and do as you've done (me as well) and calculate a benefits reduction into our plans.



Not the sky. Just benefits. A possible 60% benefits reduction for those under 75 and too old to change course signals great opportunities in cat food and cardboard box stocks.



I see the two as overlapping. Unfortunately, benefits reductions (or additions, in the case of the ACA) are influenced by the political process, and as such it's important to discuss from a financial planning standpoint. OTOH, IMHO, a "democrats vs. repulicans" discussion for example is meaningless to the discussion (i.e., how is that actionable?).

I am not going to be the one that closes this thread.

In my financial planning my pension(if it survives) will be the icing on the cake.

 

[FUEGO]

This is one reason why I mentally discounted the stated value of any pension I might receive from my former state employer. Rules change. Or inputs to formulas to calculate a benefit can change. When the $hit hits the fan, and things must change to remain solvent to some degree, the beneficiaries can't always expect to remain whole.

I pulled the full cash value out of my pension and popped it into the market in January of this year. So far I'm down 6.5%, but long term I expect it to outperform what I would have received from the pension (even if I got 100% of what is promised under today's rules).

 

[pb4uski]

Pardon my asking, but how can someone be down 6.5% when the market is hitting all time highs?

 

[harley]

Venezuelan Beaver Cheese futures.

 

[ERD50]

... 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:

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.

-ERD50

 

[Options]

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?

 

[frank]

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.

 

[2B]

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.

 

[athena53]

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.

 

[Greencheese]

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.

 

[Senator]

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.

 

[RetireBy90]

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.

 

[Senator]

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.

 

[Senator]

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.