Pension problems?

[Chuckanut]

There's rumblings about it being too expensive, but I work for a private employer required to make pension fund contributions each year. I'd personally rather just have a pay raise and invest the money myself,

+1 If I could do it again and get the above deal, that would be my choice also.

 

[Mulligan]

Given your huge savings of 29% and 36% of gross, you should be able to do well with a 401k type of retirement account too, I would say.

Then, it's your money and you do not have to explain to anybody, and also have total control. Do you think future and young employees prefer that? Is there any movement towards that?

Eh, charity should be voluntary, not forced.

Ask me on my last breath whether overall, it was a good deal or not! If I had worked in the private sector, and liked to move around, the 401k would have been the better play. But here in my state, the retirement system that I worked under is portable, so even though I moved often, the pension followed me around. At this point, the tide has shifted. I do not see ultimately how most of the public pension systems don't move to a hybrid system at the very least, even if it takes a few decades. It becomes more apparent as the biggest wave of private pensioners slowly die off, leaving mostly government pensioners vs. public 401kers. I have not heard of many private companies giving a 14.5% match on 401k contributions. It is not a slam dunk though. If I die tomorrow, then I am a big loser as I have no meaningful assets to pass on. Or if I bounce around in a couple different government pension systems, the payout could be quite low. But monthly, security wise, you cannot beat a pension with a COLA starting out each new year.,

 

[utrecht]

Here is one article comparing pension fund management to and indexed approach over the last five years. State pension funds have a 1.5 % annual gain versus 2.19 percent for the indexed approach.

Active Managers Fail State Pensioners

Here is another one written in 2011 looking at a 10 year return. State pension funds have a 3.15 annual gain versus 6% for the index approach.

An Easy Way to Reduce State Debt

Hmm...

My pension fund has a 10 year return of 8.5%, after management fees, as of Dec 31, 2012.

 

[Bigbass]

"I've never heard of a pension which provides "80%" of a person's salary"

You need to check out San Francisco Fire Dept's pension - one can get up to 90% of their highest salary w cola. Not sure if OT is included in that calculation...if so,

A lieutenant at Station 39 on Portola Avenue collected $221,000 in overtime last year, raising his total salary to $363,000, according to the San Francisco Chronicle.

A paramedic-firefighter at Station 51 in the Presidio made $191,000 in overtime, taking his pay to $337,204, while three battalion chiefs made $113,000 to $124,000 each in overtime, boosting their pay to $316,000 to $332,000 each, the San Francisco Chronicle reported on Wednesday.

Read more: San Francisco firefighter makes $221,000 in OT due to understaffing | Fox News

 

[utrecht]

Given your huge savings of 29% and 36% of gross, you should be able to do well with a 401k type of retirement account too, I would say.

Then, it's your money and you do not have to explain to anybody, and also have total control. Do you think future and young employees prefer that? Is there any movement towards that?


Eh, charity should be voluntary, not forced.

I'm not sure what you mean by 29% and 36%. The combined contributions to my pension between me and my employer is 36%. The 29% number quoted wasn't about me.

Like everything else, there are pros and cons to a DB pension. My pension benefit is going to be higher than if the same amount of money had been invested in a 401k all these years, but I have no flexibility in changing jobs
multiple times in a lifetime like most people do nowadays. I also wont be leaving a large lump sum to my heirs when I die like I would if all my pension contributions had gone to a 401k so its a trade-off.

From the conversations I've had with young people where I work, most of them are clueless about all of this. Most of them have no idea we have one of the best pensions in the country. All they care about is now, not later. There is no movement towards moving away from a DB pension here. There was a group trying to get a law passed to ban all public pensions in Texas but they failed miserably. Most of their arguments about why public pensions needed to be eliminated were baseless, not to mention studies showed it would cost billions to switch everything in the State from DB to DC.

 

[Mulligan]

I'm not sure what you mean by 29% and 36%. The combined contributions to my pension between me and my employer is 36%. The 29% number quoted wasn't about me.

Like everything else, there are pros and cons to a DB pension. My pension benefit is going to be higher than if the same amount of money had been invested in a 401k all these years, but I have no flexibility in changing jobs
multiple times in a lifetime like most people do nowadays. I also wont be leaving a large lump sum to my heirs when I die like I would if all my pension contributions had gone to a 401k so its a trade-off.

From the conversations I've had with young people where I work, most of them are clueless about all of this. Most of them have no idea we have one of the best pensions in the country. All they care about is now, not later. There is no movement towards moving away from a DB pension here. There was a group trying to get a law passed to ban all public pensions in Texas but they failed miserably. Most of their arguments about why public pensions needed to be eliminated were baseless, not to mention studies showed it would cost billions to switch everything in the State from DB to DC.

NW was referring to you and me, both. I was the 29% (14.5% employer/employee match).

 

[utrecht]

OK, gotcha.

 

[timo2]

I definitely feel sorry for the people who could be faced with a loss of pension, especially the ones that did not have the opportunity to contribute to SS. These people could be in a potential nightmare situation.

From what I've read, that is the situation in Detroit: The workers had pensions, but no social security. So it definitely is a nightmare for them if their pension gets reduced.

 

[almost there]

My co. went with a lump sum option in the late 90's.
(and cut the defined benefit option for employees not making a magic number of age and yrs of service - 60 points.) Us folks got more or less halved that didn't make it.
Regardless, I don't recall anyone taking the annuity option given the choice.
For reasons mentioned in this thread.

 

[TuborgP]

From what I've read, that is the situation in Detroit: The workers had pensions, but no social security. So it definitely is a nightmare for them if their pension gets reduced.

That is the problem with states that are all pension and don't participate in SS. Higher pension but eggs all in one basket. Either way investments are essential.

 

[Walt34]

I'm not concerned at all. Ours is fully funded, always has been. And yes, it's a public service pension, COLA'd, and no they don't offer it anymore, haven't to new hires since the early '80's. The new plans have been tweaked several times but are essentially hybrids of the old one and 401(k)s. (Or more accurately 457 accounts.)

And with credit for unused sick leave I went out at 70% of the last year's pay. The highest one could go was 72% and after that there was no further pension benefit increase.

All that said it is a high-risk job. About 20-25% go out with (well deserved) disability pensions. They are not easy to get and not one said they'd rather have that than the injury that led to forced retirement.

And I went to eight line-of-duty funerals.

 

[ripper1]

"I've never heard of a pension which provides "80%" of a person's salary"

You need to check out San Francisco Fire Dept's pension - one can get up to 90% of their highest salary w cola. Not sure if OT is included in that calculation...if so,

A lieutenant at Station 39 on Portola Avenue collected $221,000 in overtime last year, raising his total salary to $363,000, according to the San Francisco Chronicle.

A paramedic-firefighter at Station 51 in the Presidio made $191,000 in overtime, taking his pay to $337,204, while three battalion chiefs made $113,000 to $124,000 each in overtime, boosting their pay to $316,000 to $332,000 each, the San Francisco Chronicle reported on Wednesday.

Read more: San Francisco firefighter makes $221,000 in OT due to understaffing | Fox News

Do you think this is the norm for the vast majority of public employees nationwide?

 

[ERD50]

Do you think this is the norm for the vast majority of public employees nationwide?

Why that question? He didn't say, nor imply, that it was the 'norm'.

I saw it simply as a response to the earlier comment (underline mine) "I've never heard of a pension which provides 80% of a person's salary". So he gave some examples. Apparently, they exist, but that in no way indicates they are the norm.

-ERD50

 

[aja8888]

Do you think this is the norm for the vast majority of public employees nationwide?

The Houston police department gets headlines for this same stuff every now and then. recently, about a dozen higher up's in the police department got nabbed for faking time sheets while working off duty police work. I don't know what their pensions are like, but probably as lucrative as in other big cities and based on historical earnings somehow.

 

[timo2]

I don't know what their pensions are like, but probably as lucrative as in other big cities and based on historical earnings somehow.

The only article on this I've seen lately is this one Just how generous are Detroit's worker pensions for retirees? - Jul. 23, 2013

 

[aja8888]

The only article on this I've seen lately is this one Just how generous are Detroit's worker pensions for retirees? - Jul. 23, 2013

Good article, thanks. Some points brought out indicate they have other benefits that go along with their pensions:

"Since Detroit's firefighters and police offers are able to retire a decade (or more) before they reach the typical retirement age of 65, retirees can receive their benefits for decades. In addition, many retired officers have time to pursue other careers and accumulate additional savings.

In addition to a lifetime of payouts, city workers also receive retiree healthcare, a benefit that is rarely offered by private sector employers.

They can also extend their pension benefits to a spouse after they die by opting for smaller monthly pension checks, said Don Taylor, president of the Retired Detroit Police and Firefighters Association. The amount the payments are reduced by depends on the spouse's age"

 

[Chuckanut]

Why that question? He didn't say, nor imply, that it was the 'norm'.

I saw it simply as a response to the earlier comment (underline mine) "I've never heard of a pension which provides 80% of a person's salary". So he gave some examples. Apparently, they exist, but that in no way indicates they are the norm.

My observations indicate that these type of super great public pensions are ususally reserved for police officers, firemen, and other public safety personnel. Connie Office Clerk, Amy Accountant, and Edward Engineer rarely get such deals.

Nor do they get deals similar to the ones from MegaCorp: http://www.early-retirement.org/for...ical-benefit-good-deal-67644.html#post1341799

 

[utrecht]

My observations indicate that these type of super great public pensions are ususally reserved for police officers, firemen, and other public safety personnel. Connie Office Clerk, Amy Accountant, and Edward Engineer rarely get such deals.

Nor do they get deals similar to the ones from MegaCorp: http://www.early-retirement.org/for...ical-benefit-good-deal-67644.html#post1341799

There's a reason for that. People expect cops to be counselors, paramedics, lawyers, social workers, protectors, and baby sitters. They expect us to being compassionate on one call ten minutes after seeing a guys head blown off on the previous call. They expect us to be brave and run towards danger, then they want to sue us when we have to shoot someone. They want us to be tough on crime and keep them safe but they video record everything we do and if a cop slips up in the heat of the moment hes all over CNN and his career is over. We are expected to perform at 100% capacity in 100 degree heat wearing a ballistic vest. They want us to catch bad guys but if we wreck a car during a pursuit we can get fired. If Edward Engineer gets a DWI, he gets probation and pays a fine. If a cop gets one he gets fired and he will never be hired in that field ever again. I could go on and on, but the point is that cops do what 99% of the rest of America doesn't want to do and doesn't want to see. We see the worst of society and are expected to handle it with no after affects and come out the other side just like we came in. When Connie Office Clerk can do all of that for 25+ years, she will deserve a healthy pension also.

 

[ERD50]

There's a reason for that. ....

I don't think anyone was looking for a justification/critique of any particular pension. Those discussions usually don't last long before porky ends it all anyway.

The question was - do they (pensions at the commented level) exist? And they do, and they will either need to be paid for, or promises broken, or some combo.

-ERD50

 

[Mulligan]

There's a reason for that. People expect cops to be counselors, paramedics, lawyers, social workers, protectors, and baby sitters. They expect us to being compassionate on one call ten minutes after seeing a guys head blown off on the previous call. They expect us to be brave and run towards danger, then they want to sue us when we have to shoot someone. They want us to be tough on crime and keep them safe but they video record everything we do and if a cop slips up in the heat of the moment hes all over CNN and his career is over. We are expected to perform at 100% capacity in 100 degree heat wearing a ballistic vest. They want us to catch bad guys but if we wreck a car during a pursuit we can get fired. If Edward Engineer gets a DWI, he gets probation and pays a fine. If a cop gets one he gets fired and he will never be hired in that field ever again. I could go on and on, but the point is that cops do what 99% of the rest of America doesn't want to do and doesn't want to see. We see the worst of society and are expected to handle it with no after affects and come out the other side just like we came in. When Connie Office Clerk can do all of that for 25+ years, she will deserve a healthy pension also.

Utrecht, like ERD said, I don't think there is any criticism for the public servants getting their deserved pension. The question is (and your system appears to not be part of the question) is the math and accounting backing up the promises to pay the pension. As long as the math is behind it and money is there, it is not a problem. Some already weakened pension systems may be susceptible to people spiking their salaries that blows up the actuary assumptions of the system. My pension system a few years ago put in a provision to modify that potential problem. Any salary above 10% of previous years salary during final 3 years is not considered part of your salary for pension purposes.

 

[NW-Bound]

A self-contained and well-maintained pension like utrecht's is beyond reproach.

What people read about the most are cases from California. It involves pays and pensions for some city managers, prison psychiatrists, etc..., not just public safety personnel.

The abuses eat into the fund for other public workers, and now there's talk about the tax payers coughing up more. That makes pensioners with other plans defensive, but they should not be.

 

[Shawn]

My observations indicate that these type of super great public pensions are ususally reserved for police officers, firemen, and other public safety personnel. Connie Office Clerk, Amy Accountant, and Edward Engineer rarely get such deals.

The University of California Retirement Plan (UCRP) is one of the largest retirement plans in the country. It has employees in essentially all occupations.

UC employees retiring at age 60 receives 2.5% of salary times years of service (salary is typically the average of the last 3 years of employment). So a person who begins employment at age 30 and works for 30 years until age 60 receives 75% of their salary. A person with 40 years of service receives 100% of their salary (the maximum).

UC employees can retire early beginning at age 50. At age 50, they receive 1.1% of salary times years of service.

Unused sick leave adds to service credit. This is roughly one additional year for every 20 years of employment for people who are never sick, such as myself.

The UC pension has a COLA, although not a full COLA. Historically, the pension loses an average of about 1.25% to inflation every year, or about 1/2 of it's real value over 50 years.

In addition, UC offers a 403b and 457, although there is no employer match. Still, age 50+ employees can contribute $46K/yr tax free to these accounts. In addition, they can make $33.5K in after tax contributions and immediately roll these funds over to a Roth using the backdoor approach.

Retirees receive medical/dental benefits (e.g., retirees with 20 or more years of service pay 20% of health insurance premiums, and nothing for dental coverage). However, these benefits are not part of the vested pension and are not guaranteed.

From about 1990 until a few years ago, the UC pension plan was so well funded (certainly not a ponzi scheme) that there were no employer or employee contributions. However, such contributions resumed a few years ago.

UC is in the process of making some changes to its defined benefit pension plan (e.g., full retirement at age 65 instead of 60).

My defined benefit pension, which is now private, is loosely tied to the UC retirement system (e.g., same age factors and payout formulas). My pension plan on a whole is about 150% funded. In fact, until last year, I never made any employee contribution in 22 years of employment. I now contribute 7% to the defined benefit plan. I have very little concern about the plan going bankrupt, although PBGC would step in if it did.

My only significant concern deals with very high inflation. While my plan has a COLA, like UC, it is only a partial COLA. I will be fine if inflation is similar to historical results (including bouts of 1970's high inflation). However, my pension could be devastated by long periods of very high inflation (e.g., 10 years of > 20% inflation). I am considering adjusting my regular investment portfolio to act as a hedge against this possibility.

 

[utrecht]

I don't think anyone was looking for a justification/critique of any particular pension. Those discussions usually don't last long before porky ends it all anyway.

The question was - do they (pensions at the commented level) exist? And they do, and they will either need to be paid for, or promises broken, or some combo.

-ERD50

They do exist. My pension plan pays 3% times years worked times highest 3 years. So 27 years would get you more than 80%. However, due to the very high combined contribution percentage the pension fund can afford to pay that much in benefits. No overtime, no spiking or any of that other funny business. It is COLA'd but we get 4% of the original amount each year, so each year the COLA percentage decreases. The City probably contributes as much or more than any other City in the country, but they also pay us less than most all of the surrounding cities pay their officers so total compensation is in line with other local cities. The younger guys don't like getting paid less and a lot of them leave after a few years, but they will regret it 20 years from now.

The non public service city employees do have a separate pension fund. Contributions by both sides are much lower. Benefits are also much lower. The money is controlled and managed by the City and what do you know? Its mismanaged and underfunded.

 

[ripper1]

Here in Illinois these legislators and unions have to come to some agreement on pension reform. I'm willing to take a hair cut as long as it is fair and all the parties are involved including big business.

 

[NW-Bound]

The pension plan described by Shawn looks very generous. Still, if a system is self-contained, it's nobody's business to envy or to criticize it.

If a pension runs a surplus, the tax payer does not get to share. So, if a pension runs short, the tax payer should not have to bail it out. It's that simple.

Nobody is going to bail me out if I draw 10% WR from my portfolio and deplete it. Well, I guess there is. It's called food stamp and Medicaid.