OhOh, Federal Pensions Getting Problematical

[Tadpole]

Hey GregLee, It's not us employees that came up with the language or the process. Yea, I guess treasury bonds aren't actual securities. The employee's don't set up these things. The critters that you guys elect do.

 

[donheff]

I think it's rather peculiar to call (part of) the system "fully funded" when evidently all this means is that there is provision in the budget for paying out current obligations. Compare this to the state of the Hawaii state pension fund which was reckoned a year ago to have $7 billion in unfunded liabilities. But that doesn't mean that there is no provision in the state budget to make current pension payments to retirees -- there is. What they've done, among other things, is increase the "matching" payments in the budgets of the various state departments that are made into the fund, as required year by year to find enough money to make the pension payments. Something like what the feds are doing. No one here, though, is trying to pretend that this counts as full funding of the pension system, which is still presumably billions in the hole. The Hawaii pension fund is not just a budgetary device, but a bunch of actual securities and other investments, and it's underfunded because there won't be enough in it in the future to meet the obligations of the pension system. But for the federal system, it seems to me, comparing apples to apples, just as the article claims, there is no actual pension fund there at all.

I don't think it is comparable at all. The FERS system was designed to be fully funded from the outset. Adjustments are not made to meet current obligations, they are made if the actuarial basis changes (hiring older or younger workers, life expectancy, inflation expectations, etc). And it isn't "part of the system." FERS was designed to be a separate fully funded replacement for CSRS. The choice to use a single accounting fund to manage cash flows doesn't change the underlying facts - income (employee and agency payments) = outflows (pensions).

If you can describe a better way to fully fund a defined benefit retirement system I would like to hear it.

 

[GregLee]

If you can describe a better way to fully fund a defined benefit retirement system I would like to hear it.

No, it's fine by me. And Hawaii voters and taxpayers will welcome the news that previous reports of their state pension system being $7B in the hole were premature. Actually, it's not in the hole at all.

 

[clifp]

No, it's fine by me. And Hawaii voters and taxpayers will welcome the news that previous reports of their state pension system being $7B in the hole were premature. Actually, it's not in the hole at all.

A huge difference is that Federal Government has multiple ways of raising money, including printing money, borrowing money, raising taxes, and selling assets. The state of Hawaii, unless the native Hawaiians succeed in going back to the Monarchy, has but one way, raise taxes.

I'd also note that pension benefits for Federal Employees, 1.1% * years of service payable at age 62, is less than 1/2 as generous than typical state and local pension plans. Assuming DonHeff is correct and Federal agencies are billed for their employees retirement cost in actuarialy sound fashion I have no big concern about the Federal pension plans.

This from one of the boards most vocal pension hawks.

 

[ziggy29]

I'd also note that pension benefits for Federal Employees, 1.1% * years of service payable at age 62, is less than 1/2 as generous than typical state and local pension plans. Assuming DonHeff is correct and Federal agencies are billed for their employees retirement cost in actuarialy sound fashion I have no big concern about the Federal pension plans.

This from one of the boards most vocal pension hawks.

I tend to agree. I'm not worried about FERS much at all. CSRS was becoming a huge issue (and is), but it has had no new participants for many years so we suck it up and move on. It's some of the state and local plans which were on par with CSRS for generosity that are a problem.

Frankly I think FERS is a model retirement plan that I'd like to see all over the place (though the pension part may have to be made portable to match reality in today's world).