How to protect your pension?

[imoldernu]

So I don't even have a pension... Why should I care?
Because I have a close family of about 30 relatives, kids and their kids, who are depending on promises from their pension funds. I care, and wonder about their future. Many mid forties to mid fifties, and signed on when they began their careers.

Living in Illinois, there is a considerable amount of angst about public pensions which are underfunded by more than $100B.

I asked some of my sons about the safety of their own private pension funds about two years ago, and was told that they had checked and their pensions were safe, and if anything, overfunded. Today, not so much. A matter of projections and expectations that changed. Boards of directors changing the investment vehicles because of long term worries. One of the plans that was quoted as 100% funded, is now less than 80%.

Some of the local government funds here in Illinois are projecting to pay current obligations out of current receipts as soon as within four years. Some of my own (younger) neighbors seem to believe that their pension funds are guaranteed by something like the FDIC.... (full faith and trust)... and don't understand the PBGC structure.

While some funds seem to be addressing this, there seem to be many that have faith in a long term solution. Perhaps, but from whence?

Something struck me about a recent article about some IL plans, where total pension monies that were paid in by the pensioneers were completely paid out within 26 months of their retirement.

Not a question about whether or not you'll rely on your pension for retirement, but what can be done to protect what has been promised? Not just for your own retirement, but the effect of problems like those experienced by Illinois... on the economy as a whole?

Or maybe you don't see a problem.

 

[pb4uski]

Not much that one can do to protect their pension that I know of unless you have a lump sum option in which case you can take control.

 

[Chuckanut]

Pension funds vary all over the place on just about every detail.

I know people who have a pension that is 100% funded by their employer and promises great benefits. Other contribute a certain amount every month to their pension along with their employer.

Some plans are 100% DB, others are a hybrid DB/DC plan (usually the newer ones).

Some organizations play games with their pension funds by doing things like not fully funding their yearly obligation (some governments are known for this). Others are scrupulous about making the required contributions.

If one lives in Illinois I would think one's thinking is colored by their particular problems. And I don't blame anybody there for worrying .

FWIW, I have run FireCalc with a 20% reduction in my pension amount and elimination of the capped COLA. I still come out fine, but would probably have to reduce my expenditures are craft brewed beer, and other niceties.

Personally, if I was a younger person, I would do my best to make sure that 100%, or as close at I could get to 100%, of my retirement funds were under my control and could not be taken away from me by any business or government entity. My 2 cents.

 

[Chuckanut]

Something struck me about a recent article about some IL plans, where total pension monies that were paid in by the pensioneers were completely paid out within 26 months of their retirement.

Does this include the earnings on the contributions, or just the contributions?

 

[martyp]

I don't see any immediate problems with our University of California pensions. When I ER'd I just took the attitude that neither I or anyone else really knows what is going to happen in the long term future, say 15+ years from now. Pensions, private or public, the stock market, the economy . . . who knows? We all ER'd by being smart with our money and LBYM. I figure we have to roll with the punches and continue to be smart about our lives.

 

[unno2002]

[FONT=&quot]The factory I worked at right out of high school “fully funded” the promised pensions. Note though that just meant the factory used current income to make an ongoing investment in an annuity fund from an insurance company. The factory closed a long time ago. The insurance company still exists, but those companies can also close. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]There probably is not a true fully funded pension other than you having a stash of cash…[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Just an opinion…[/FONT]

 

[Greencheese]

Other than avoiding working in Illinois I cannot imagine there is much a government employee could do. It's hard to see what will happen with the new governor Rauner in the office but he seems willing to at least address the debt issue more than Quinn ever did. However, it remains to be seen what will happen in the state

 

[steelyman]

Writing as an honest-to-God Illinois retiree, I think there is not much to do except try to follow the shell games they play in Springfield (IL capitol, where oral arguments are to be held this coming week - 3/11/15), make your voice heard, be proud that you held up your end of the bargain, be glad if you took the advice to sock away as much as you could elsewhere while working (maybe even still can through things like IRA contributions) and tune out some of the "facts" that you see or hear in the media.

 

[ERD50]

My pension is covered by PBGC, and I'm below the current caps. I think I'm pretty safe. As I understand it, the PBGC is underfunded, so if bad times hit there might be more adjustments. Hard to say, but I'm not going to lose sleep over it (a non-cola pension won't be worth much in the future anyhow).

Also from what I understand, small adjustments to the insurance contributions now could bring the PBGC back to full funding. Unfortunately, it often seems to take a crisis before anything is done, and then it is painful.

...
If one lives in Illinois I would think one's thinking is colored by their particular problems. And I don't blame anybody there for worrying. ...

True, but there are Illinois pensions and there are Illinois pensions. DW's is handled by IMRF, and somehow, that managed to get set up to be managed by representatives of the workers (kind of like a Credit Union), and the politicians can't get their hands on it. It is +80% funded, and seems pretty solid. But that will be small, and a fixed 3%, non-compounding COLA-lite.

-ERD50

 

[Sunset]

IL has an issue as overly generous pension benefits were agreed by politicians and Union leaders which certainly mislead the workers and the public.

Politicians wanted the Union vote, and Union leaders wanted the most benefits possible. So these two entities became self serving.

Where was the fiduciary duty ?

Now, its public knowledge, but still the politicians don't fix it, just talk about it, for over 5 years now, while the problem grows larger.

Cities can go bankrupt, but I believe States cannot, so there is only one option, reduction of pensions, and drastic increase in taxes/slash gov't services.

Why should these somewhat immoral (illegal ? ) overly large pension benefits be protected, when the vast majority of people don't even have a pension, let alone one so generous.

I get that the lowly Union worker probably had no idea it would not work, and it sounded good and he/she considered part of his/her pay. At the same time the taxpayer who has no pension certainly never considered that eventually, the tax rate for IL will have to increase to (estimated) 10% to cover it all for the next 30 years.
Assuming new workers don't get the "golden" pension.
IL had increased the tax rate to 5% (from 3%) for the past 5 years and this pension liability still grew larger while they fiddled watching the fire.

 

[Chuckanut]

True, but there are Illinois pensions and there are Illinois pensions. DW's is handled by IMRF, and somehow, that managed to get set up to be managed by representatives of the workers (kind of like a Credit Union), and the politicians can't get their hands on it.

An good point. People often assume that all pensions, especially public employee pensions are very similar in terms of contributions and benefits. For example, I am often told by others that as a retired teacher I get fully paid medical insurance. Why? Because somebody's great aunt in a far away state got it years ago when she retired.

FWIW, I pay 100% of my medical insurance premium.

 

[Al18]

I don't think there's much the average person can do protect their pension, other than vote the thieving politicians out of office. However it seems like they're just replaced with new thieving politicians

There are many states that have significantly underfunded pension systems, such as NJ, CA, NY, PA, FL and others. Don't take my word for it - check out Pension Tsunami

I think most of us are taking a wait and see attitude. Right now, I'm planning my wife's state pension will get the same haircut as Social Security - 20%. Plan for the worst, hope for the best.

 

[Cobra9777]

My private DB pension is 100% funded and has been for as long as I can remember. Megacorp phased out the DB plan for new employees in the mid-1990s and somehow persuaded most of the existing employees to go DC. Very few stayed with the DB pension. I think everybody thought they would get rich quick on internet stocks. Whatever the case, it's now an extremely small pension plan relative to Megacorp's balance sheet, which also happens to be flush with cash. I'm also below the PBGC caps. So, I don't worry too much about it and had no concerns electing the annuity option at age 52.

 

[imoldernu]

Some pension amounts that I know about from neighbors who have sites at our camground in IL.

1996 -Teacher Crystal Lake IL, then aged 51... retired for convenience of school dept. $53K with a good COLA.
2002- Police Sergeant Chicago... age 57worked an average of 70 hours/wk his last two years (on which his pension was based)... $95K and a COLA.
2008- Teacher athletic dept head Naperville IL, $120K age 55
2012- Teacher Downers Grove IL, - age 53 $68K

Those were all starting year pensions. They're all doing quite well today, thank you.

... and when I went to school (1950's), if you couldn't do anything else, you could teach... and nobody I knew wanted to do that.

 

[Masquernom]

I knew I should have been a high school basketball coach...

 

[Sandman62]

Cities can go bankrupt, but I believe States cannot, so there is only one option, reduction of pensions, and drastic increase in taxes/slash gov't services.

Isn't that 3 options? While the latter two don't satisfy anyone who chose a career that didn't offer a pension, they also don't violate contracts.

Why should these somewhat immoral (illegal ? ) overly large pension benefits be protected, when the vast majority of people don't even have a pension, let alone one so generous.

The vast majority of people don't have a lot of money saved either, but FDIC protects the assets of those who do. There are lots of things that some folks have and others do not. So that doesn't really seem like a relevant factor to consider when trying to determine fairness based upon agreed-upon contracts. I mean, if we're going to use that logic, then is it ok also for a majority of citizens who maybe haven't saved much, if anything, for retirement to lobby the government to vote to increase eventual taxation on 401ks to 40, 50, 60%? I mean, as long as THEY don't have it, then it's ok to take from those who DO, right?

Plus one party has already upheld their end of pension contracts. If non-pensioned employees think these benefits are too generous, where were they the past several decades, when they could've been lobbying politicians to reduce FUTURE benefits and/or voting in someone who would? But I don't think we want to set a precedent in this country that entities can just bow out of contracts after the other side has fulfilled their duties.

 

[Independent]

Not a question about whether or not you'll rely on your pension for retirement, but what can be done to protect what has been promised? Not just for your own retirement, but the effect of problems like those experienced by Illinois... on the economy as a whole?

If we're talking about "the economy as a whole", that would mean gov't action.

I'd vote for eliminating DB pensions entirely. Private businesses aren't immortal. Governments are subject to huge conflicts of interest (the gov't workers getting the pensions also vote for the politicians who write the rules). Neither should be making lifetime promises to 25 year old workers.

 

[Chuckanut]

Some pension amounts that I know about from neighbors who have sites at our camground in IL.

1996 -Teacher Crystal Lake IL, then aged 51... retired for convenience of school dept. $53K with a good COLA.
2002- Police Sergeant Chicago... age 57worked an average of 70 hours/wk his last two years (on which his pension was based)... $95K and a COLA.
2008- Teacher athletic dept head Naperville IL, $120K age 55
2012- Teacher Downers Grove IL, - age 53 $68K

Those were all starting year pensions. They're all doing quite well today, thank you.

... and when I went to school (1950's), if you couldn't do anything else, you could teach... and nobody I knew wanted to do that.

Obviously, I should have taught in Illinois. Assuming they can keep paying those pension amounts. They are at least double what my peers and I are getting.

 

[Chuckanut]

I mean, if we're going to use that logic, then is it ok also for a majority of citizens who maybe haven't saved much, if anything, for retirement to lobby the government to vote to increase eventual taxation on 401ks to 40, 50, 60%? I mean, as long as THEY don't have it, then it's ok to take from those who DO, right?

SSSSSSHHHHHH......

Don't give them any ideas.

A lot of nasty things can be done in the name of 'fairness'.

After all, my former co-worker who drove a Z-car and hit happy hour bars on a regular basis, while I drove an old Toyota and ate at home, could easily argue it's not fair that I can retire early while he has to work to 70.

 

[NoiseBoy]

I am a SURS participant, which is the State of Illinois' pension plan for university faculty and staff (some are union members, but many are not.) I have about 6 years of vesting service with SURS from my first career. Currently I work for a megacorp and will receive a DB pension from there when I retire. That plan was frozen to new members in '03 and had many participants kicked out in '11. Benefits will freeze in 2020 for everybody. Just this morning I was reviewing a slide deck from SURS on my pension benefits, so here are some facts about the two plans.

SURS participants do not pay Social Security tax. That's a two edged sword; they "gain" 6.75% more take home pay, but they will not have any SoS benefits, unless their spouse has them or they work a non SURS job.

SURS is not covered by ERISA. Does that mean it is not covered by PB&GT?

SURS participants can retire with 30 years of service and not face any early retirement penalty. For megacorp pension the earliest age is 55, with a 4% reduction per year from age 62.

SURS maximum benefit is 80% with 36.4 years of service. For megacorp it's about 55% with 35 years of service.

Pre 2011 SURS participants can spike their pensions. For instance, unused sick time can be paid in a lump sum in their last year, and that is used in their benefits calculation. No spiking megacorp pension.

SURS pension has a 3% fixed cola on the entire amount. Megacorp pension has no COLA.

SURS participants pay 8% of their salary to the system. Megacorp pension is 100% company funded.

SURS participants have a lump sum option, although they'd be foolish to take it. Megacorp pension does not and only spouse can receive survivor benefits.

SURS participants with 20 years of service receive 100% premium for retiree health care. Megacorp has some retiree health care benefits, but they're a rapidly moving target.

It's pretty clear that the public pension is far more generous than the private pension. I am not an actuary, but a number that I'd like to know is, given the 8% participant contribution and a market average portfolio performance, what should the State contribute to make the plan work?

Some years back I was having a conversation about this with someone who was a mid-level manager at one of the state schools. He told me that these benefits were a result of the legislature's desire to resolve contract issues without giving significant pay raises. Significant pay raises would have necessitated more revenue immediately (higher taxes), but the bills for benefits increases would come due much later. It is now later, I guess.


FWIW I'm not against pensions, even those in Illinois, but it's pretty clear to me that the State of Illinois can't meet the obligations it has under the current rules for everyone that joined before 2011 so something has got to give. Rauner's proposal is to freeze all current benefits, pay them, but move everyone into a DC plan. That is pretty much what has happened in the private sector, but I have no idea if his plan can pass the legislature, and also withstand a court challenge.

 

[Mulligan]

I knew I should have been a high school basketball coach...

It just depends on the state and also the school, too. If I had stayed at my first school, coached and completed 30 years, my pension would be about $30k a year and no social security either. Fortunately I didn't.


Sent from my iPad using Tapatalk

 

[jon-nyc]

Short of buying CDS on the issuer I'm not sure what one could do to protect a pension.

 

[ESRwannabe]

Some enterprising insurance company should start offering pension insurance...

I have 15, and counting, years vested into a state pension system. As far as I can tell it is well funded, conservatively invested, and so on. I believe my state is considered to have generally one of the best run pensions in the country.

I believe we have a well run pension system because it is not only used for state employees but also for the state legislators... The pension director also has independence from the governor...

If I keep working I'll be able to retire off the pension at 55. The pension has yearly COLA. The payout will also be way more than I need seeing as it is based on my income (I only spend 50% or less of my w-2).

Anyway... with my taxable investments I am already able to fund roughly 50% of my living expenses from taxable dividends. I'll turn 39 this year and I doubt I will still be working by 55, but it is nice to have a cap, if you will, on how long I have to work.

Sometime between 39 and 55 I will be either early semi-retired (ESR) or completely retired....

 

[nun]

Average public pension amount in MA is $29k with a 3% COLA on the first $13k. Public employees don't get SS which saves that state a lot of money in FICA contributions. Employees contribute 11% to the pension, MA is supposed to pay in 5%.....they weren't good at doing that in the past but have been making catch up payments since 2010. The pension is 75% funded with a goal of 100% funding by 2036. In 2012 the earliest retirement date was increased for new employees from 55 to 60 and the pension calculated from the average of 5 highest salary years rather than 3.

In many studies MA's state pension is ranked poorly because of the drop in funding level post 2008 and for poor state contributions, that has been well addressed, but mostly because the level of benefits is significantly less than in many other states and because the employees have to make large contributions.

 

[Delawaredave5]

Some enterprising insurance company should start offering pension insurance...

Above would be great. Googled "pension insurance" and appears there's some European companies, ING and Veritas, that seem to offer something close.

Wish there were tools to assess the risk. I can't tell if odds of Megacorp DB paying until I die are 10% or 90%.

Many private companies seem like they want to contain/minimize the pension risk - so they are transferring this risk to insurance companies and/or offering lump sum buyouts.

I'll bet state / local governments and union pensions start doing the same.

GM to cut about one-fourth of U.S. pension liability | Reuters