More State Pension Problems

[pb4uski]

4.5% is a great number if you're trying to convince people that the situation is not that bad. If all retired health care benefits were also taken a way, well that 4.5% could be more like a 50% total cut in benefits after health insurance is purchased prior to Medicare kicking in.
.....

...Edit to add... the one article I read says they did not lose their healthcare, so your point is mute [sic]....

....Numbers are so easily manipulated for political purposes.

Yes, NanoSour, I believe you.... numbers (and I guess facts) are easily manipulated for political purposes.

 

[OldShooter]

... What's going on with under funded pensions is, IMHO, the moral equivalent wage theft. And it's just plain irresponsible behavior towards the citizens, taxpayers, etc. ...

From one angle, yes. The pensioners have been promised something that they will not get. But whom to blame?

Part of the blame, IMO, runs to the public employee unions who negotiated deals either without trying to determine the consequences or by ignoring them. The politicians, too, who wanted the union votes but needed to hide the bribe in the pension promises rather than making it visible as wage increases. And, then, of course kicking the financial can down the road for future politicians to deal with.

And pretty much the same scenario on the private side. Labor peace being purchased by making impossible future promises, exacerbated by underfunding.

So now it looks like the state taxpayers are being the wage theft bad guys by refusing (being unable, really) to fund the promises, but they too have been snookered by the unions and the politicians.

Terrible situation but no one around to guillotine.

 

[pb4uski]

+1 and many of the true culprits are dead or retired and the promises that they either knew or should have known could not be kept were made long ago. SS could end up being a similar story if we don't see some courage in DC pretty soon.

 

[ncbill]

Even private pensions are in bad shape, I have a cousin and his wife that works for united airlines, both mechanics and bbeen with the company for over 25 years. They just retired in their mid 60's


"United Air Wins Right to Default on Its Employee Pension Plans. United Airlines, which is operating in bankruptcy protection, received court permission yesterday to terminate its four employee pension plans, setting off the largest pension default in the three decades that the government has guaranteed pensions.May 11, 2005

OTOH, a relative was an aircraft mechanic for 30+ years at a different airline, but the union was always in charge of his plan.

though, unfortunately for the pilots...

 

[Texas Proud]

Yes, NanoSour, I believe you.... numbers (and I guess facts) are easily manipulated for political purposes.

Thanks for fixing my mistake.... I was able to go back and edit...

But, I wonder why you are saying that what I put down is being manipulated NanoSour was saying that it could be a big issue if they lost health care... I would agree with that stmt...

So, I looked and from what I read they did not... so it is back to the 4.5% reduction that was stated... how is that manipulation for political purposes? It is the fact and it is not being manipulated... unless you can show me that something else happened here, I will have to go with the real facts and not speculation....

 

[pb4uski]

I guess that I was thinking that NanoSour included health care being lost as if it was a fact to make some sort of political point about how these retirees got fleeced when in fact they did not since the 4.5% reduction with no chnges to health benefits is not that big a deal in the whole scheme of things.

Though I see now that his post was "if" healthcare was taken away and not asserting that it was taken away.

 

[RenoJay]

My two observations are that neither a rising stock market nor the existence/non existence of state income tax seem to make any difference on funding levels.

 

[gcgang]

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.

 

[aja8888]

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.

Just another state pension system in the que.....

 

[Running_Man]

New York 94.5% funded.

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

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.

 

[pablo]

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).

 

[Chuckanut]

Diversity of income streams is the key - Pension/401k/Deferred-Comp + Personal Savings + SS = a good night's sleep.

 

[pablo]

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).

 

[LRDave]

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....

 

[Sunset]

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 ?

 

[gayl]

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.

 

[gerntz]

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.

 

[gayl]

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%)

 

[ERD50]

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.

-ERD50

 

[NW-Bound]

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.

 

[Chuckanut]

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.

 

[Chuckanut]

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.

 

[pb4uski]

...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?

 

[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. ....

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.

-ERD50

 

[Mulligan]

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.