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Wow, utrecht, what a bad situation. Thanks for the reminder that relying on any one source of income for retirement can have dangers. Hope things get straightened out and glad you made a good choice there.
Poll:Complicated retirement withdrawal options
- Thread starter utrecht
- Start date
Read a number of the articles. Boy, did you dodge a bullet! The prior board and the investment management firm managed to keep the shine on that Pile of Dung for a good while...
W2R
Moderator Emeritus
So glad it all worked out for you, utrecht, and that you didn't get caught in the middle of that mess! What a shock and what a relief it must be to know that your retirement was not affected. I wonder what will happen to those retirees who did not fare so well. 
I think that having several different income streams from different sources for retirement, and then being able to manage without any one particular income stream is important. Along those lines I think many of us have run FIRECalc without SS included, or without a pension included, and so on, to see what would happen.
+1
I think that having several different income streams from different sources for retirement, and then being able to manage without any one particular income stream is important. Along those lines I think many of us have run FIRECalc without SS included, or without a pension included, and so on, to see what would happen.
Isn't it nice to be retired, and to not have to interact with such evil people? I can't possibly imagine someone chastising and mocking a co-worker simply because of their retirement income choices.
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Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Glad to hear you dodged the Pension Bomb, seems this is a hidden problem in lots of places.
Hopefully the reduced COLA won't hurt too much, even though I'm sure it's a disappointment.
The reduced COLA actually makes a bigger difference than you would think. It wont be much at the beginning but as each year goes by, the deficit between what we will get and what we thought we would get gets bigger. Because of that, we have to lower our withdrawals now so that our portfolio balance is bigger down the road to make up for the increasingly smaller pension amount (compared to what our original planned included).
Still, we have planned for all kinds of contingencies and we are fine.
What really ticks me off is that even though its a $3 billion fund, all the board had (has) to do is invest the proper percentages in index funds with the correct AA and it would be fine. There is no need to buy timber farms, wineries, raw land or $20 million luxury houses. They could stick that money in a REIT index fund and save million in investment advisors fees....but what to do I know.
Still, we have planned for all kinds of contingencies and we are fine.
What really ticks me off is that even though its a $3 billion fund, all the board had (has) to do is invest the proper percentages in index funds with the correct AA and it would be fine. There is no need to buy timber farms, wineries, raw land or $20 million luxury houses. They could stick that money in a REIT index fund and save million in investment advisors fees....but what to do I know.
4 years later . . .
Glad to hear that you guys avoided this huge problem. You were smart to ignore us and the poll results! So much for the "wisdom of crowds" (here, or among your fellow employees).
Fermion
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The 8% to 10% "guaranteed" return was a red flag and congrats to you and others on here for seeing it back in 2012.
We live in a world where you can't even get 5% guaranteed and people are happy with 2% CDs.
We live in a world where you can't even get 5% guaranteed and people are happy with 2% CDs.
Not all the same
Seeing as not all defined benefit pensions are the same, it is hard to judge in this case. A lot depends on the strength of your pension system. My DW and I are both in DB COLA'd pensions, but they are legislated, run statewide and one of the strongest in the country. They also do not offer a DROP plan. When we hit our points, we both plan on retiring and immediately getting our pension plus cola for life. On the other hand we have been feed money into separate 401k's and 457 fc, for years as well to have just a little extra out there beyond the pensions and add another leg to the stool.
I know your pension system has been tested for strength. On August 11th, the following headline came out: Can Dallas Police and Fire Pension fund be saved? Officials propose changes to head off insolvency? The link to the article is here: Can Dallas Police and Fire Pension fund be saved? Officials propose changes to head off insolvency | Dallas Morning News
The bottom line is you have to protect your financial future against those that may have done damage to your pension protection. This DROP program sounds like it will give you that added protection and after reading that, assuming that I am discussing the same pension system that you are, I would definitely diversify from just your pension, I don't know that I would even take a lump sum payment out as that is generally a very bad idea.
Seeing as not all defined benefit pensions are the same, it is hard to judge in this case. A lot depends on the strength of your pension system. My DW and I are both in DB COLA'd pensions, but they are legislated, run statewide and one of the strongest in the country. They also do not offer a DROP plan. When we hit our points, we both plan on retiring and immediately getting our pension plus cola for life. On the other hand we have been feed money into separate 401k's and 457 fc, for years as well to have just a little extra out there beyond the pensions and add another leg to the stool.
I know your pension system has been tested for strength. On August 11th, the following headline came out: Can Dallas Police and Fire Pension fund be saved? Officials propose changes to head off insolvency? The link to the article is here: Can Dallas Police and Fire Pension fund be saved? Officials propose changes to head off insolvency | Dallas Morning News
The bottom line is you have to protect your financial future against those that may have done damage to your pension protection. This DROP program sounds like it will give you that added protection and after reading that, assuming that I am discussing the same pension system that you are, I would definitely diversify from just your pension, I don't know that I would even take a lump sum payment out as that is generally a very bad idea.
There was a vote in 2014 to lower the guaranteed interest 1% each year until it reached 5%, but part of the vote included the clause that triggered the drop to 0% if funding levels went below 55%. Triggers were hit right away when the assumed rate of return was lowered from 8.5% to 7.25% (which shouldve been done a long time ago as well and another reason why I sensed trouble).
As a quick follow up, I am also a very soon to FIRE officer (27 years), who has spent amazing amounts of time making sure I have checked everything twice. Our pension payout is 85% funded, which ranks 8th in the nation, but we also have a lower pension payout of roughly 60% of highest average 42 months of salary. Two things can happen to your pension as they try to climb out of being only 45% funded. First they will increase the level of every active member paying in, then they may look at as a last resort reducing the pension payout, or changing the funding formula.
Dallas is a good agency and I hope you guys get that system fixed. You put your lives on the line for your career expecting that someone else had you back come retirement time.
Hang in there, and I hope they let you invest in the DROP at those rates you have shown!!
LT
Dallas is a good agency and I hope you guys get that system fixed. You put your lives on the line for your career expecting that someone else had you back come retirement time.
Hang in there, and I hope they let you invest in the DROP at those rates you have shown!!
LT
Yes, my pension fund is the one you listed....and it was voted #1 best run mid sized pension fund in the country just a few years ago, so dont be too sure that yours is as strong as they are telling you it is. Apparently its pretty easy to cook the books for years.
Amazing isn't it, we spend our career taking care of others and then have the ones watching our future turn out to be the ones we should have really been watching.
If they make all the proposed changes, which are mostly listed in that article, things should be fine. Higher contributions and lowered benefits. Its complicated but simple at the same time. Everyone will take a hit, but honestly its not THAT bad. People are pissed of course, but they are pissed at the wrong people and they just dont understand financial matters. Most of the retirees dont care about the situation and are trying to demand they get what they thought they would get. Its literally impossible, and they think the pension board is trying to rip them off.
The actual pension benefit (monthly check) wont change. Its guaranteed and protected by the Texas Constitution. The changes will be for new hires, lower COLA, lower DROP interest (3% fixed), and things like that that aren't considered "accrued benefits" and arent protected by law.
As it usually does it falls on the ones still working and of course that can hit you guys when it comes to recruiting too. Hope it all works out well for you and they get that ship in shape for all the rest of them too.
Broken promises can take a long time to get over, they should make a point of explaining it to the members clearly, maybe even have FOP or other union put it out to all the members so they know exactly who is to blame for the mess they are left with.
Broken promises can take a long time to get over, they should make a point of explaining it to the members clearly, maybe even have FOP or other union put it out to all the members so they know exactly who is to blame for the mess they are left with.
Another update related to ongoing pension saga
I tried to update a thread but its too old. I started it in 2012 and have given a couple updates. Here is a link
http://www.early-retirement.org/for...t-withdrawal-options-63111-2.html#post1768419
This saga has gotten more crazy. As I mentioned in the bolded section there was a vote of the pension members to make drastic cuts to fix the pension. The pension amendments were voted down. The amendments would've helped fix the issues but they were voted down basically because the members had already voluntarily given up benefits in 2 previous votes in recent years and also because there was nothing being done by the City at all to assist with the problem (no additional money being kicked in).
The State Legislature which governs these matters stepped in and told all parties that if they could not negotiate a settlement, that the Legislature would come in and fix the problem themselves and neither party would like it. Months of negotiations went on but no agreement was reached. I feel like Im somewhat of an unbiased person and I can tell you that the City was not negotiating in good faith. The Mayor tried everything he could to force an end to the pension as we know it. He wants a DB program instead of a DC. He lied to the citizens in TV ads. He lied to the State Legislators. It was so bad that the Chairman of the State Finance committee who is in charge of fixing entire mess sent out several public tweets telling the Mayor to quit lying to the public. I couldnt find a link to them but here's an interesting article.
https://www.dmagazine.com/frontburn...or-mike-rawlings-handling-of-pension-problem/
No settlement was ever reached and the State did go forward and passed a new state law which mandates changes to the pension. I dont have exact details but here are some changes:
1) Retirement age is raised to 58 from 50
2) COLA is ELIMINATED until the pension has a funding ratio of 70%. This alone will cost my wife and I approx $750,000 over 20 years. What we had was a 4% non compounding COLA which I believe is pretty fair. 4% of your original amount and that same amount every year going forward so the actual percentage decreases every year. Compounded 2% COLA would be fine also, but NO COLA? That's a huge hit to people like me who just recently retired.
3) All DROP money is frozen from withdrawals and will be paid out as an annuity based on lifespan. 2% interest will be paid on balances going forward.
4) Contributions for active members go from 8.5% to 13%
5) The City's contributions increase from 24.5% to 27%
There are other monetary changes that I cant remember and dont affect me and there are also administrative changes. For example: Pension board members must now have certain degrees, experience or other credentials in the finance area. WOW! Who wouldve thought that wasnt already a requirement? Ive had many conversations with board members in the past and their eyes glazed over as I talked about certain specifics. It was clear they knew less about investment and pension relates issues that I do.
There is also a clause written into this new law that addresses "clawback" of DROP interest. This is a major hot button because a lot of people who were paid 8-10% interest on their DROP accounts for years could be made to pay some of that money back. During this whole debacle, many of them made a run on the bank and withdrew a total of over $500 million of DROP money from the pension fund in fear that they would never get it. This caused the problem with the pension fund to get even worse and if 'clawback" is enacted, those people will have their future pension checks garnished until the overpayment of interest is collected.
Most people believe that if "clawback" is ever used, it will be determined by the Supreme Court to be illegal. Also, on Aug 1st when the next round of cost of living increases shouldve been given out, a lawsuit will be filed. It is already prepared and ready for filing. A Federal Court has already rule in another case that future COLA increases are earned "as you go", which would mean COLA increases could not be taken away for past years worked and only for future new hires. We will see how that ends up. What a mess!
For us this means, Im happy as hell that I had the foresight to research and plan for the future and not just assume everything will be OK like the majority of people did. We are lowering our anticipated income for the near future until this COLA situation is settled, but we still have more than enough. However, a lot of retirees are literally selling their houses right now.
To make matters worse, the City is of Dallas is in a world of hurt because people are retiring in droves right now to get out before the new rules kick in Sept 1st. Just about anyone over 50 is leaving and the dept is already understaffed by like 700 officers. They are struggling mightily to recruit people due to all of this mess.
The City of San Antonio is recruiting in Dallas using billboards like this on major Dallas highways.
San Antonio uses billboards, promise of 'strong pension' to recruit Dallas officers - Story | KDFW
I tried to update a thread but its too old. I started it in 2012 and have given a couple updates. Here is a link
http://www.early-retirement.org/for...t-withdrawal-options-63111-2.html#post1768419
This saga has gotten more crazy. As I mentioned in the bolded section there was a vote of the pension members to make drastic cuts to fix the pension. The pension amendments were voted down. The amendments would've helped fix the issues but they were voted down basically because the members had already voluntarily given up benefits in 2 previous votes in recent years and also because there was nothing being done by the City at all to assist with the problem (no additional money being kicked in).
The State Legislature which governs these matters stepped in and told all parties that if they could not negotiate a settlement, that the Legislature would come in and fix the problem themselves and neither party would like it. Months of negotiations went on but no agreement was reached. I feel like Im somewhat of an unbiased person and I can tell you that the City was not negotiating in good faith. The Mayor tried everything he could to force an end to the pension as we know it. He wants a DB program instead of a DC. He lied to the citizens in TV ads. He lied to the State Legislators. It was so bad that the Chairman of the State Finance committee who is in charge of fixing entire mess sent out several public tweets telling the Mayor to quit lying to the public. I couldnt find a link to them but here's an interesting article.
https://www.dmagazine.com/frontburn...or-mike-rawlings-handling-of-pension-problem/
No settlement was ever reached and the State did go forward and passed a new state law which mandates changes to the pension. I dont have exact details but here are some changes:
1) Retirement age is raised to 58 from 50
2) COLA is ELIMINATED until the pension has a funding ratio of 70%. This alone will cost my wife and I approx $750,000 over 20 years. What we had was a 4% non compounding COLA which I believe is pretty fair. 4% of your original amount and that same amount every year going forward so the actual percentage decreases every year. Compounded 2% COLA would be fine also, but NO COLA? That's a huge hit to people like me who just recently retired.
3) All DROP money is frozen from withdrawals and will be paid out as an annuity based on lifespan. 2% interest will be paid on balances going forward.
4) Contributions for active members go from 8.5% to 13%
5) The City's contributions increase from 24.5% to 27%
There are other monetary changes that I cant remember and dont affect me and there are also administrative changes. For example: Pension board members must now have certain degrees, experience or other credentials in the finance area. WOW! Who wouldve thought that wasnt already a requirement? Ive had many conversations with board members in the past and their eyes glazed over as I talked about certain specifics. It was clear they knew less about investment and pension relates issues that I do.
There is also a clause written into this new law that addresses "clawback" of DROP interest. This is a major hot button because a lot of people who were paid 8-10% interest on their DROP accounts for years could be made to pay some of that money back. During this whole debacle, many of them made a run on the bank and withdrew a total of over $500 million of DROP money from the pension fund in fear that they would never get it. This caused the problem with the pension fund to get even worse and if 'clawback" is enacted, those people will have their future pension checks garnished until the overpayment of interest is collected.
Most people believe that if "clawback" is ever used, it will be determined by the Supreme Court to be illegal. Also, on Aug 1st when the next round of cost of living increases shouldve been given out, a lawsuit will be filed. It is already prepared and ready for filing. A Federal Court has already rule in another case that future COLA increases are earned "as you go", which would mean COLA increases could not be taken away for past years worked and only for future new hires. We will see how that ends up. What a mess!
For us this means, Im happy as hell that I had the foresight to research and plan for the future and not just assume everything will be OK like the majority of people did. We are lowering our anticipated income for the near future until this COLA situation is settled, but we still have more than enough. However, a lot of retirees are literally selling their houses right now.
To make matters worse, the City is of Dallas is in a world of hurt because people are retiring in droves right now to get out before the new rules kick in Sept 1st. Just about anyone over 50 is leaving and the dept is already understaffed by like 700 officers. They are struggling mightily to recruit people due to all of this mess.
The City of San Antonio is recruiting in Dallas using billboards like this on major Dallas highways.
San Antonio uses billboards, promise of 'strong pension' to recruit Dallas officers - Story | KDFW
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I suspect your situation will be repeated many times and with much more dire consequences as governmental pensions set up years ago begin to fail. The issue(s) were not unknown IMO. It's just that they were rarely addressed and the can was kicked ever further down the road. Suddenly, "We have seen the future - and it doesn't work" could be the new mantra.
I hope it works out for you. It will NOT work out for some of the systems around the country IMO. We could talk about the "causes" all day long, but Porky would appear very soon.
My modest, non-COLAd pension was well enough funded by Megacorp to keep it quite solvent. I have no worries about it being "honored" in the future. It just won't go very far, especially as inflation heats up. Modest as it was, shortly before I left, Megacorp changed the pension system for "new" folks and for those not yet close (enough) to retirement. The effect was dramatic if you didn't have the right number of "points" just before the change became active. Had I not left early for other reasons, I would have (like the Dallas Municipal folks) left "early" just to lock in my modest pension before it became even more modest. YMMV
I hope it works out for you. It will NOT work out for some of the systems around the country IMO. We could talk about the "causes" all day long, but Porky would appear very soon.
My modest, non-COLAd pension was well enough funded by Megacorp to keep it quite solvent. I have no worries about it being "honored" in the future. It just won't go very far, especially as inflation heats up. Modest as it was, shortly before I left, Megacorp changed the pension system for "new" folks and for those not yet close (enough) to retirement. The effect was dramatic if you didn't have the right number of "points" just before the change became active. Had I not left early for other reasons, I would have (like the Dallas Municipal folks) left "early" just to lock in my modest pension before it became even more modest. YMMV
I merged the threads to ensure the continuity of the topic.
You can post to an old thread. Below the reply window the is an "old thread warning", just click that you are aware and it posts like any other.
I clicked the button and it still said "This thread is more than 305 days old. You cant reply"...or something to that effect.
Newventurer
Recycles dryer sheets
I am sure that I don't understand the entirety of the problem but I have a philosophical question, if there are loses to a pension plan due to poor investment returns (or choices) who should bear the weight of the shortfall? Current participants, future participants, taxpayers, all of these? Are the plans just so poorly written as not to spell out the effects of poor returns on investments or was the political will (if I can ask that) just lacking? This must frighten anyone who has framed their retirement around a pension.
I guess it doesn't sound much different than the Social Security dilemma
I guess it doesn't sound much different than the Social Security dilemma
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Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I think you left out an option (if it is available)....
Delay starting your pension as the drop program freezes your pension...
Now, this might not be an option since you say you are going to retire and you are not getting any more years of credit...
But my friend was talked into a drop program which was a bad decision... when he hit 20 years his pct X years went from something like 2.5 to 3.2... he plans to work another 5 years.... so he has frozen his pension at 20 years or 50% of his 'wage' when he could be at 66% if he had not signed for drop.... and that is for the rest of his life!!!
Delay starting your pension as the drop program freezes your pension...
Now, this might not be an option since you say you are going to retire and you are not getting any more years of credit...
But my friend was talked into a drop program which was a bad decision... when he hit 20 years his pct X years went from something like 2.5 to 3.2... he plans to work another 5 years.... so he has frozen his pension at 20 years or 50% of his 'wage' when he could be at 66% if he had not signed for drop.... and that is for the rest of his life!!!
Curmudgeon
Recycles dryer sheets
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Sorry, but I only got up to "raised retirement age to 58 from 50" and "4% COLA seems fair" and I couldn't go any further. As a private-sector employee my entire life, who will see a $17K per year NON-cola'd pension when I hit the age of 65, I can't ever seem to find much sympathy for my brethren in the public sector.
(BTW, "4% per year" is not a COLA - it is just gravy. Unless it's set to be equal to the actual inflation rate, then it shouldn't be called a COLA, IMO.)
(BTW, "4% per year" is not a COLA - it is just gravy. Unless it's set to be equal to the actual inflation rate, then it shouldn't be called a COLA, IMO.)
The point of DROP is when you join, you dont accumulate any more years of service even though you keep working, but you start having your pension check deposited into a savings account. His pension check will be lower than if he hadnt joined DROP but he will have a lump sum in his DROP acct that he wouldnt have if he hadnt joined. Its pretty easy to calculate a break even age depending on the interest rate.
The problem my friends have is that they did the calculations based on an interest rate that they were getting and ow that it had been lowered tremendously the break even age is now much lower than it was and most of them wouldve been better off never joining DROP at all depending on how long they live. Also, there's a chance that they will have to pay back some of the interest making the problem even worse.
Luckily, I anticipated this and didnt join DROP at all.
Its 4% non-compounded. After 15 years, its at 2.5% and it continues to be lower percentage wise every year. The retirement age of 50 may seem low to you, but trust me it wouldnt if you put in 25-30 years of police or fire work. You have no idea how hard on the body it is.
Also, we dont get social security so the pension is not as great as it might sound. I bet if you add your $17K pension to your social security, it adds up to right around where most public pensions are.
Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Yes, I know... but the city dangled the money in his face because they have a clause that increases the annual % for the DB after 20 years... the drop is not worth it... it might have been if he kept getting the 2.5 but I doubt it...
Now, he is single and he does not have to worry about leaving money for anybody so in the end it probably will not matter.... but it was not a good decision...
When one of my sisters retired my BIL took out a lump sum and she got a lower payment... DS now knows that was a bad decision as it was money that he spent on living large... but since he passed she can see all the financial shenanigans he was doing.... lucky for her she does have a good pension and was able to sell stuff and get out of it.... OH, and her savings have doubled (or more) since he died...
Just looked... savings has gone up over 4X...
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My understanding is most private sectors don't have pensions or if they are it's a DC pension of something like 3-4% salary per year.
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