Pension question and resentment

[hakuna matata]

I often hear and read that people will be or are resentful of public employees that have pensions. I guess I am a bit confused about this though. It seems that many people seem to think that this is tax dollar supported and my understanding is that it isn't. Or maybe I have a fundamental misunderstanding of the pension program which is certainly possible!

I personally work in the private sector, so my understanding of public pensions is limited. But my wife works for a public agency and will have 20 years in about 4 years and thus will be able to draw a partial pension and if she works for 30 years she can draw a full pension. As I recall at 20 years she gets like 30% of her best two years salary and even at 30 years she can only get like 60% of her best two years salary. Obviously thie pension is a part of our retirement plan and I would like to have a better understanding of how public pensions work.

But she has to pay a certain amount each month into her pension plan. She has no choice it is a mandatory requirement for employment, as I recall she automatically has 8% of her base salary drawn out for her contribution to the pension. As I understand it that is the money that is invested and then paid out. I do know the city matches that amount but she only gets that contribution if she stays until retirement. Is it this city contribution that is the source of the resentment? I assume though that her pension monies come from her contribution and the city monies are there to keep the plan solvent based on actuary charts.

On top of that but totally separate she can also contribute voluntarily to a 401k type program (which she does). So right now she has this 8% automatically taken out and then she does the additional $22k that a 401k allows. So a hell of a lot of money gets taken out of her paycheck!

So is her pension unique? Don't most public pension programs require participation and payment by the employees? Or am I totally misunderstanding how the public pension program works?

 

[LOL!]

An article about this: http://www.nytimes.com/2011/01/02/business/02showdown.html
Note that the article says that money was supposed to go to public pensions, but it was never paid in. Instead public employee unions negotiated higher pay with the pension money to be paid in later.

 

[mountaintosea]

I worked for the county and paid into the pension system for over 30 years and county also contributed. I received 60% on the 12 highest months. And we do not receive health care benefits once retired.

P.S. Our county's pension is solvent according to them and receives awards for maintaining one of the best pension systems.

 

[Danmar]

I think some people resent public sector pensions because they think the employer contribution is very high and the pensions are very good. I have no problem with them but that may be because my pension is also very good. Some people also resent their taxes and feel these may be going to support the pensions. There has been several acrimonious threads on this topic.

 

[79protons]

probably the resentment comes from the guarantee of the pension payout and the added benefit of COLA in some cases. Not very many companies will guarantee that your 401K will not drop in value...are there any companies that guarantee 401K? Also, non-pensioners sometimes feel that they also have paid into a pension called social security (12.4% of their pay was taken out for this) and wonder why its benefits can be cut/taxed/reduced while pensions are sacred. Just a guess.

 

[hakuna matata]

probably the resentment comes from the guarantee of the pension payout and the added benefit of COLA in some cases. Not very many companies will guarantee that your 401K will not drop in value...are there any companies that guarantee 401K? Also, non-pensioners sometimes feel that they also have paid into a pension called social security (12.4% of their pay was taken out for this) and wonder why its benefits can be cut/taxed/reduced while pensions are sacred. Just a guess.

I think this is the reason. That makes sense and I can understand why someone would feel that way. This probably explains it more then anything.

 

[Khan]

It's part of the plan of the Haves to have the not-haves fighting against each other. Seems to work.

 

[mountaintosea]

When the private sector went from pensions to 401ks I told anyone who would listen that it was a bad deal even as it was being hailed as this great asset. I remember the talking heads mentioning how this great new plan would follow you from job to job etc. I kept telling people that it was a rip off. I also told fellow workers that it would effect public employees down the line. And sure enough it has! It seems to me that unhappy people always go after their peers instead of looking at the real cause behind the tax increases, job losses, wage cuts etc. And it was my experience that often we would have a wage freeze or days without pay and nobody noticed. When working for the county became a real bear because of local politics or whatever I stuck those times out for the years I spent paying into the pension system.

 

[Amethyst]

I learned on this forum that public pensions are handled in all kinds of ways. Some people pay into their pensions and some don't. Some get to retire at 20 years, some must work 30. Some get SS, some don't. Examples may be found in this and other threads:

http://www.early-retirement.org/forums/f28/those-w-pensions-how-much-do-you-pay-in-41737.html

Amethyst

 

[clifp]

In a nutshell the resentment is because the benefits are too good compared to the contribution that is made by both the employer and the city or state government.

Generally 401K contributions are restricted to 12.5% of your salary a good corporate match (which were often cut during the recession ) is 4%. The combined contribution is 16.5% Very similar to combined contribution by your wife and her city.

Imagine saving for 30 years and at 55 deciding you want to retire. You then go buy a pension (aka an annuity). How big a pension would you get? The answer of course would depend how well your 401K did and current interest rates. In general the private employee would get a pension that would be equal to 40-45% of his current salary and would have a partial COLA. In order to get a pension equivalent to your wives he would have to work for 40 years to get something in the 60-65% of his salary.

So in order to get same benefits as your wife the private sector guy the would have to contribute 50% more of his salary and work 10 more years.

To put it another way the typical state or local pension plan that allows public employees to retire in their early 60s (62 being typical) with a pension that is between 2-3% times the number of years worked, requires combined contribution in the 25-35% range. It is very rare pension where these levels of contributions are made.
The 16% level is far more typical. So who is on the hook for the extra 10-20% that didn't get made. Why us taxpayers of course.

Of course this assumes: that government actually made the contributions they promised, many state and local government didn't actually make the contributions for a variety of reasons; that the pension funds didn't make foolish investments, many did. It also assumes that unions didn't negotiate some sweetheart deals to allow their members to spike the pensions so that their last two year salary is much higher than normal due to adding overtime, vacation, or sick leave to the total. Many pensions allow this.

Overall state and local pension are in the hole by 3 trillion or so or about $30,000 per household. Needless to say most people aren't in position to fork over an additional $3,000/year in taxes over the next decade to bail out the pension funds, hence the resentment.

 

[GregLee]

... she automatically has 8% of her base salary drawn out for her contribution to the pension. As I understand it that is the money that is invested and then paid out.

For my state pension, so far as I know, there is no specified relationship between the amount I contributed (7% of gross pay) and the amount of the pension (which is 38% of my base pay in my last year of work). I expect to get in pension benefits considerably more than I paid in (as of course I should, considering that money has interest value), but whether the money I receive is a fair investment return from the money I contributed, well, who knows? The state's retirement plan doesn't require that it should be. It would take some analysis to figure out whether I will be getting back more than I should, given my contributions.

 

[thefinancebuff]

In a nutshell the resentment is because the benefits are too good compared to the contribution that is made by both the employer and the city or state government.

Yes that's it. Even though she contributes, the amount of her contribution is not nearly enough to fund the level of benefits. Plus her benefits are guaranteed whereas a 401k isn't. Having a pension basically means a better pay. Perhaps to the tune of 30% higher than the stated salary. That better pay is also very tax efficient. No tax when you are working. No-to-low taxes after you retire due to progressive tax brackets.

 

[79protons]

A possible fix to the whole problem would be to have the government add contributions to anyone's 401K that did not earn 10% per year. They could get this money from the same place the underfunded pensions plan to get theirs.

 

[Nords]

In a nutshell the resentment is because the benefits are too good compared to the contribution that is made by both the employer and the city or state government.
Overall state and local pension are in the hole by 3 trillion or so or about $30,000 per household. Needless to say most people aren't in position to fork over an additional $3,000/year in taxes over the next decade to bail out the pension funds, hence the resentment.

Imagine if corporations had the power to fund their pension-plan gaps through taxation...

 

[Texas Proud]

I will take a stab at the OP question... even though some have put down good reasons....


Some pensions (and I repeat... some) have very big multiples that just do not make sense... there is a thread that someone might find... but it is not out of the realm that you could get 3x or 4x% of years worked... and it used to be that you did not have to wait until 60 to get your pension.... there are many examples of police and fire fighters getting 100% or more working 20 to 25 years... starting when they leave work...

The other is that the pensions are 'guaranteed' in a sense (we will see how this works in Illinois and California in the future... I think the guarantee is not as strong as some of the workers might think)...

Lastly, some of these pensions are COLA even though the amount of money put into them by the employee was not even enough to pay for a non COLA plan... that money comes from the taxpayers....


I have said that I do not have a problem with reasonable plans... and there are a LOT of them out there... where the employee puts in 8% or so and the local gvmt puts in 8% or so and there is not a COLA... fully funded (this does not address the spiking issue though).... but I would still like to see a more 'cash basis' plan... you have yours put in, it is matched, you invest and then you can decide what to do when you retire.... with the amount of money you have built up...

 

[utrecht]

As long as the public employees' pay and pension contributions aren't out of line with the pay of someone with a similar job in the private sector, and the promised benefits aren't so ridiculous that the pension fund is underfunded, then nobody should mind at all. If someone still resentful of a pension under these circumstances then it is nothing but pure jealousy.

I ran numbers in another thread and showed that based on my and my employers contributions, my pension benefit is no better than if those contributions were made in a standard 401k that earned 8% or so long term. Obviously some pension are underfunded and / or pay out non realistic amounts of money and THAT should tick off the taxpayers.

 

[79protons]

As long as the public employees' pay and pension contributions aren't out of line with the pay of someone with a similar job in the private sector, and the promised benefits aren't so ridiculous that the pension fund is underfunded, then nobody should mind at all. If someone still resentful of a pension under these circumstances then it is nothing but pure jealousy.

I ran numbers in another thread and showed that based on my and my employers contributions, my pension benefit is no better than if those contributions were made in a standard 401k that earned 8% or so long term. Obviously some pension are underfunded and / or pay out non realistic amounts of money and THAT should tick off the taxpayers.

Even your pension benefit, which sounds more modest than some of the ones we have seen discussed, is better than the 401K at 8% though because you are guaranteed the payment. You don't have to run firecalc or anything...you know that you will get x money (and is your's COLA'd? that would make it even better).

The jealousy is that nobody is going to guarantee the 8% return in the 401K, and plenty of firecalc runs show it going to zero if the market conditions were not ideal. Certainly there are 401K that are correctly funded and have enough contributions to mostly guarantee not being depleted in retirement, just like there are pensions that are fully funded and not in danger. I don't think either of these two groups is jealous of each other. The jealous groups are the 401K guy who only earned 2% instead of 8% and the city worker whose pension is 60% underfunded. Both want the other guy to pay without making sacrifices themselves, because they both feel they deserve what was promised to them.

 

[clifp]

As long as the public employees' pay and pension contributions aren't out of line with the pay of someone with a similar job in the private sector, and the promised benefits aren't so ridiculous that the pension fund is underfunded, then nobody should mind at all. If someone still resentful of a pension under these circumstances then it is nothing but pure jealousy.

I ran numbers in another thread and showed that based on my and my employers contributions, my pension benefit is no better than if those contributions were made in a standard 401k that earned 8% or so long term. Obviously some pension are underfunded and / or pay out non realistic amounts of money and THAT should tick off the taxpayers.

I agree there is no reason for people to be resentful as long the pension isn't underfunded. Sadly not many pension are in the financial shape yours is in IIRC, you contributed 12.5% of your salary and the city kicked in 15 or 16%. Your benefits are higher than the OPs wife but the combined contributions is like 27 or 28%, right in line with my recommendations. But yours is the only pension fund that I've seen that has those level of contributions. Leonidas pension is also in good shape, for some reason Texas cities do a good job funding their pensions and you all are lucky or smart.

I'd also point that earning 8% in a pension fund over the last decade is virtually impossible and not that easy over the last 20 years.

 

[sheehs1]

As has been mentioned here...all public pensions are not the same. Part of the resentment comes from the calculation used by each pension system. The ones I have heard of allow a public employee to retire using a combined average of the highest paid 5 to 6 years. Where else does someone get that benefit or guarantee? Not in the private sector. I know a man who was a state employee for North Carolina most of his life and headed up the mental health program for one local region. He bled and worked the system (as do others). He retired and was pulling in close to $400,000 a year...while the mental health organization he was in charge of became insolvent and had to be "rescued".
The governor of NC publicly made a statement and called this gentlemen out on it. It was all over the papers. The state investigated, he was fired from his job...but still is pulling in over $250,000 a year from the NC retirement system. He is the largest paid state pensioner....and was .making more "in retirement" than the governor. How does this happen?
BTW...this is the guy my husbands ex -wife left her 2nd husband for. So I know these details are not gossip or rumor or make believe.
It is these stories and more that incite those in the private sector. State governments are slow to change disclosure laws or laws to the pension systems ...or do much about it...since they too are the beneficiaries of the holes in the system. It also is probably more about those that are in a position to work the holes in the laws such that they are paid more than what the laws were originally intended to provide.

 

[talltrees]

It's part of the plan of the Haves to have the not-haves fighting against each other. Seems to work.

Amen, brother. It has always been thus... sigh.

 

[DangerMouse]

Double-dipping is common for public-sector 'retirees' who take on additional work - San Jose Mercury News

I think another thing that might bother people a bit is when the recipients of these very generous pension plans retire on a $200k a year pension then come back the next day as a contractor. If these kind of generous benefits were being offered to a CEO of a publicly listed company everyone would be outraged.

 

[Forrest]

There's plenty of resentment to go around - you've just read some of the stories. I believe the vast majority of those receiving a pension are honest folks, but a few percent of this group has managed to scam the system with large amounts of overtime during their final two or three years - resulting in a grossly inflated pension.

www.pensiontsunami.com has links to these stories. There are thousands of California pensioner's collecting more than $100K in yearly pension benefits.

There's also a lot of resentment by pensioner's in some states - directed at state politicians. Some states such as New Jersey have collected pension contributions for the past 15 years and most of this money was NOT forwarded to the pension fund - it was spent on other projects! Politicians call this a pension holiday.

 

[kumquat]

Here in the Frozen North, it's not uncommon for teachers (usually HS science teachers) to "retire" and then work another year or two in a rural community while collecting their DB pension. This is [-]simply[/-] partly due to the fact that very few new (or old) teachers are qualified to teach sciences.

One of those anecdotal "unbelievable" stories.
A friend retired as a teacher with 30 years, DB pension etc. His specialty was math, a "science". Took a job teaching in a rural community. As a "science" teacher, one of his classes was grade 12 chemistry. He hadn't taken chemistry in grade 12 so he solicited help. Another friend who had taught it for 30 years (and retired) offered to help, gave him his lesson plans etc. He even agreed to go to the first class 150 miles away. So friend 2 goes out there, friend 1 introduces him to the class and leaves. No compensation to friend 2, but what are friends for (maybe friend 1 will buy the beer). When friend 2 left, friend 1 didn't even offer to pay for the 300 miles worth of gas that friend 2 used, not to mention the time. Needless to say, there is no friendship between 1 & 2, plus mega jokes about #1. Anyone want to hear a few "retired teacher" jokes.

Up here, double dipping is a way to get people to work in remote locations but ISTM not worth it.

 

[Delawaredave5]

For my state pension, so far as I know, there is no specified relationship between the amount I contributed (7% of gross pay) and the amount of the pension (which is 38% of my base pay in my last year of work).

This is why the public is outraged - and rightly so. If the pension funds/payout were self sustaining and state liability/exposure were limited - that would be understandable.

The promises far exceed what was paid in - with the state on the hook.

Love the earlier quotes where posters say their pension is only 30-60% of their regular salary...

I wish all the state pensions could be paid out as promised - but "that boat don't float".

 

[Purron]

This is why the public is outraged - and rightly so. If the pension funds/payout were self sustaining and state liability/exposure were limited - that would be understandable.

The promises far exceed what was paid in - with the state on the hook.

Love the earlier quotes where posters say their pension is only 30-60% of their regular salary...

I wish all the state pensions could be paid out as promised - but "that boat don't float".

I understand the public outrage but think, in many cases, it's misdirected. The outrage should be at those who created unsustainable plans or failed to fund them properly. The loopholes allowing people to "game" the system to receive huge pensions with as little as 20 years of service need to be addressed. Here in Virginia, our governor borrowed $600 million from an already underfunded state employees pension plan to balance the state budget last year. Governor McDonnell now realizes this was a mistake and has proposed big changes to get the pension plan on solid ground. Does it make sense to blame a retiring road worker or teacher for this mess?