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Old 09-06-2017, 07:44 AM   #61
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New York the last five years has been paying 20%+ of payroll to the pension, but even still the pension is counting on 7 percent annual returns, is heavily invested in private placements (KKR just got 3 billion of the pension funds this week for a private deal) that are valued at 5 year rolling asset estimations.

While this is what Illinois has not been willing to do, any kind of a bear market is going to crush these pensions because the cash payouts are so high and going higher. It is hard to make it work when your base case counts on adding 20% of current payroll to the pension assets plus 7% return on existing assets and that is the third best state pension fund available.

I think there might be some confusion here between NY State and NY City pensions. The NYC pensions are comprised of 5 separate retirement systems (police, fire, teachers, etc.) and funding ratios are from the 50% range to the 70's. NY City currently contributes $10 billion per year into their retirement systems (out of an $80 billion total city budget). The NY State Common pension fund is a separate entity as is the NY State Teachers pension fund. The NY State pensions are slightly better funded than NYC (though nowhere near 90%). All 3 are well over $150 billion in asset size.
The next bear market will be devastating to these funds since they aren't particularly well-funded in good times (now).
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Old 09-06-2017, 08:27 AM   #62
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Diversity of income streams is the key - Pension/401k/Deferred-Comp + Personal Savings + SS = a good night's sleep.
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Old 09-06-2017, 08:47 AM   #63
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Diversity of income streams is the key - Pension/401k/Deferred-Comp + Personal Savings + SS = a good night's sleep.

+1

I couldn't agree more! I diversify my investments (stock, bonds, cash), my investment vehicles (taxable, tax-free, pension) and my account relationships (multiple banks and brokerages).
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Old 09-06-2017, 08:59 AM   #64
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Kentucky Public Employee Retirements Surge As Fears Of Pension Collapse Mount | Zero Hedge

Above on Kentucky, and why the financially correct answer won't be politically acceptable.
That is a scary read. The comments after the article were scarier still, for a number of reasons....
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Old 09-06-2017, 09:49 AM   #65
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In Illinois:

1. No contributions made to the funds other than the employees' portion.

2. Bad deals with investment firms and corruption resulting in some state officials resigning and running (but, of course, no prosecutions).

3. State borrowing from the funds which can not now be accurately accounted for.

It's really sad. It's likely most retirees will not collect pensions that even reflect their own contributions when this all blows up. That is, they will have purchased the most expensive annuities ever. They would have been so much better off being on SS where the Feds would have insisted that Illinois pay their half every year. Left unsupervised, Illinois just didn't kick in and, in fact, took out.

A bargain for Illinois tax payers I guess. They have not had to pay into SS for their employees and now it's being shown they never really paid into the state fund or provided any 403b/401k matching. The amount that's in the funds is easily accounted for by just considering the employees' 9.5% contribution.
As an IL taxpayer, I don't feel I got any bargain. With a flat State income tax of ~5% and sales tax of about 12-13% depending where you live, and the highest or 2nd highest property taxes in the USA, there is no bargain.

Especially when you consider 7 other States manage to operate with 0% State tax, lower property taxes, and lower sales tax.

I do think the IL politicians lined their pockets or made incredibly stupid self serving decisions instead of paying the bills, and the Unions played along figuring a tax increase will cover the issue.

One has to wonder, exactly what was all this money that should have gone for pension payments spent upon ?
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Old 09-06-2017, 10:14 AM   #66
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Crap!! So glad our county group is at 85% (state is at 69.8%) and that personally it's only 1/3 of my flow .... glad we resisted all efforts to merge over.
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Old 09-06-2017, 11:25 AM   #67
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Kentucky Public Employee Retirements Surge As Fears Of Pension Collapse Mount | Zero Hedge

Above on Kentucky, and why the financially correct answer won't be politically acceptable.
Not sure why it wouldn't be politically acceptable based on the report.
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Old 09-06-2017, 11:40 AM   #68
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When negotiating contracts at the county I noticed a lot of times employees did not want to increase the amount that they paid into the pension. That was a hard sale for unions, we were an unrepresented group and so we naturally just went long. But trying to convince somebody to put just 10% of their income into the pension every single month was still a difficult sell. If it maintained it only $100 a month per employee then the pension fund would have issues during the 2008 to 2010 Fiasco. A lot of times employees don't think ahead, my son is sort of in that group. I had to continually push the point of contributing to your 457 to the max to him despite the fact that he had enough flush in his income to cover it.

Safety was a mandatory employee contribution of 15% but then they don't do SSA (7%)
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Old 09-06-2017, 11:51 AM   #69
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As an IL taxpayer, I don't feel I got any bargain. ...

I do think the IL politicians lined their pockets or made incredibly stupid self serving decisions instead of paying the bills, and the Unions played along figuring a tax increase will cover the issue.

One has to wonder, exactly what was all this money that should have gone for pension payments spent upon ?
Yes, I really can't go along with the idea that we "got a bargain" by not paying into those systems back then.

The actual alternatives would have been to change the pension system, or raise taxes to cover the payments they needed to remain solvent, or divert money from other sources (or some combo). If they raised taxes, or de-funded things people wanted, the taxpayers could have raised their voices at the time, which might have resulted in changes to the pension system. To come back after the fact, and say we got a bargain, strikes me as disingenuous.

Imagine if a car company, or computer or TV manufacturer, or failed restaurant came to you 20 years later, and said "It turns out we were not charging enough for our product to remain solvent, so we are here to collect an extra 25% of the price you paid for that car, TV, computer or meal you purchased 20 years ago. You got a bargain back then." No way, if it was 25% more at the time, maybe I would not have bought it, maybe I would have gone to a competitor. It was for me to decide at the time, not you, and not 20 years later. It just doesn't work that way.

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Old 09-06-2017, 01:07 PM   #70
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Since 2008 the stock market has gone up, Up, and UP!

What in the world are these states doing that they can't fund at least 75% of their pension obligations at such times? Maybe they need to fire the money managers and put it all into the Psssst....Wellesly fund?
I dunno. Perhaps the problem is not because of investment returns?

Can Wellesley's return support a WR of 8-9%? I read that many pension funds used that as the projection for their investment return, back from the early 2000s. People including Bogle cried foul all the time. Did anybody care?

In the late 90s, a return of 8-9% seemed so prudent. Nobody ran FIRECalc back then. They were too busy counting their capital gains.
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Old 09-06-2017, 02:16 PM   #71
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I do think the IL politicians lined their pockets or made incredibly stupid self serving decisions instead of paying the bills, and the Unions played along figuring a tax increase will cover the issue.
Really? I am shocked! Shocked!

The net thing you will claim is that some Illinois politicians have been sent to prison for wrong doing.
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Old 09-06-2017, 02:30 PM   #72
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Imagine if a car company, or computer or TV manufacturer, or failed restaurant came to you 20 years later, and said "It turns out we were not charging enough for our product to remain solvent, so we are here to collect an extra 25% of the price you paid for that car, TV, computer or meal you purchased 20 years ago. You got a bargain back then." No way, if it was 25% more at the time, maybe I would not have bought it, maybe I would have gone to a competitor. It was for me to decide at the time, not you, and not 20 years later. It just doesn't work that way.

-ERD50
I agree with you.

But, does not that logic work the same way for the employee who works for 20+ years thinking he/she is getting a certain pension benefit? Maybe they would have chosen another job had they known that a chunk of their compensation was going to be denied them in the future.

That said, I suspect that everybody else's Time Machines are also having problems. My Temporal Fusion Matrix Generator is broken, and the parts needed to fix it won't be invented until 2060 at the earliest.

Everyone needs to get in line for the haircut. There is no other way out that I can see. Very sad.

And we need to put retirement resources into the hands of the workers. Nobody else will be as vigilant.
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Old 09-06-2017, 04:32 PM   #73
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...And we need to put retirement resources into the hands of the workers. Nobody else will be as vigilant.
I dunno... given the pathetic retirement savings of the average American and typical investing mistakes that they make, I'm skeptical that putting it in their hands will be successful.... how about we just take them out of the hands of politicians as a start?
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Old 09-06-2017, 06:59 PM   #74
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I agree with you.

But, does not that logic work the same way for the employee who works for 20+ years thinking he/she is getting a certain pension benefit? Maybe they would have chosen another job had they known that a chunk of their compensation was going to be denied them in the future. ....
Yes, but the difference is pensions are really promises. And if that promise is extremely important to someone (like their entire retirement depends on it, no SS, like some IL pension systems, no other savings), then I think those people really need to be cognizant of what's behind that promise. And realize that promises are sometimes broken, and you can't get blood from a turnip. Of course, many won't think that through, that's just how it is. But should the taxpayer now be on the hook for it, after the fact?

Back to the differences - when I bought that car, TV or computer 20 years ago from a now bankrupt company, there were no promises past the warranty date. And that's how pensions should be handled - put the actual money into an account with my name on it (like a 401K), and no gets to touch it but me. I'm subject to investment risk, but so is everyone. Better that than the system that led to this mess.

Promises were also part of my compensation. At least I have PBGC backing my pension, but that may not be 100% (and the insurance payments and admin were paid by me and my employer, no taxpayer $ involved). And while not an actual promise, there was a history of pretty generous retiree health care benefits, that many people counted on. Those are down to a shadow of what they were. And I see that as my problem, not anyone else's.

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Old 09-06-2017, 08:44 PM   #75
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New York 94.5% funded.

I sleep well every night, keep those pension checks coming.


Mine is a bit under that, but I sleep well too. And with pensions people immediately go to the assumed yearly rate of return to measure safety of fund....Ya gotta go deeper as there are a whole bunch of assumptions under that assumption. My pension assumes 26% employer/employee contribution rate when it has been 29% for 10 years. They also assume ave death at 89 when it currently is 82... I suspect our funding ratio is being under reported which makes it even better.
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Old 09-06-2017, 09:33 PM   #76
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Yes, but the difference is pensions are really promises. And if that promise is extremely important to someone (like their entire retirement depends on it, no SS, like some IL pension systems, no other savings), then I think those people really need to be cognizant of what's behind that promise.
-ERD50
Or, states are quite happy to hire public employees at lower salaries with a promise for a pension to have them educate your children, and then states are quite happy to renege after the children are educated.
It's interesting that "promises" are now just "promises," now that we are in a post-truth society. After all, it's just a "promise." (Perhaps teachers or police should "take back" their employment, after 30-40 years, now that they know what ERD knows what they should have known 30 years ago about promises. Or maybe the word is lies.)
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Old 09-06-2017, 09:57 PM   #77
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Or, states are quite happy to hire public employees at lower salaries with a promise for a pension to have them educate your children, and then states are quite happy to renege after the children are educated.
It's interesting that "promises" are now just "promises," now that we are in a post-truth society. After all, it's just a "promise." (Perhaps teachers or police should "take back" their employment, after 30-40 years, now that they know what ERD knows what they should have known 30 years ago about promises. Or maybe the word is lies.)
I'm staying away from any judgmental views here, these pension threads always get shut down when it goes there, then no one learns anything.

I'm just stating it factually. These sorts of benefits are a promise to make a future payment. And we know we can't always rely on a promise to be kept. And sometimes it is out of control of the promise maker (or the person/group now in charge of the promise that was made earlier).

It's a bad situation. Like I said earlier, I like a situation where we are compensated in "real time", no future promises. It's better for everyone.

But now, these bad situations need to be dealt with. It's not going to be pretty.

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Old 09-06-2017, 10:02 PM   #78
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I worked in Texas, which has done a pretty good job of funding state employee pensions as a whole.
In retrospect to use "promise" rather than "lies" or "reneging" is a judgement; just pointing that out. One can claim to be dispassionately non-judgemental, but then word choices are a judgement, willy or nilly.
Just pointing that out, non-judgementally.
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Old 09-06-2017, 10:08 PM   #79
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Also, I agree that "bad situations" need to be dealt with, probably sooner rather than later.
Illinois is something of a special case, I suspect, so I would not base policy on it.
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Old 09-06-2017, 10:14 PM   #80
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Or, states are quite happy to hire public employees at lower salaries with a promise for a pension to have them educate your children, and then states are quite happy to renege after the children are educated.
It's interesting that "promises" are now just "promises," now that we are in a post-truth society. After all, it's just a "promise." (Perhaps teachers or police should "take back" their employment, after 30-40 years, now that they know what ERD knows what they should have known 30 years ago about promises. Or maybe the word is lies.)
A bit snarky... so keep it civil so we do not see porky....

I do not see any difference in a state person getting a haircut from a promise than others that get one...

With few exceptions everybody here is going to get less than promised from SS... when I was young I was going to get it at 65... and it was not going to be taxed... now I am at 66 1/2 and if I earn too much I will pay some hefty taxes on it... a promise changed...

I also had a pension from my mega when I was young... but they closed it down and created a cash balance account... I cannot invest it and it only earns interest at the 10 year bond rate plus a bit... a promise changed..

I also was in line to get health care benefits from my mega... all you had to do was work 15 years and reach 55 YO.... but they decided to close it down and said people who were 50 could still get in... I was 49.5... so a promise broken...

I am not looking for someone else to bail me out on these broken promises... I was hoping for them all but in the end most were reduced or taken away... such is life....


The only one that I can say that did not change when they changed the rules was the 401(k) match... I was getting 8% match... it was on a sliding scale based on how long you had worked... mega decided to lower the rates on the various levels... mine would have gone to 4% IIRC, but they did grandfather in whatever rate you had....
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