Risk Factor for Public Pensions?

[eta2020]

Oh, absolutely agreed on that!

Every state isn't Illinois though. Some are actually fairly well run by generally honest people. It gets better at the city or county level where there is more citizen oversight over the details. Well, some of them anyway.

Generally I'd agree that one should behave as if a promised pension wasn't going to be there. That simply isn't possible for a lot of people though.

Illinois has declining population and one of the highest real estate taxes in US and more tax hikes coming soon which may result in further exodus...

Probably warning sign.... one is better of working in public sector in prospering growing region of US.

 

[daylatedollarshort]

We do not need to look up the cost of a private annuity. I do not need an annuity . I have a pension. I thought this was an online early retirement community? Why are some people criticizing their fellow members of this community whom chose to reach early retirement by putting their lives on the line,protecting their fellow citizens for 30 years,and retiring with a pension?

You quoted my post, which did not criticize pensions. I just stated what many were worth, which is simply a fact, not an opinion. ERD50 said many here with public pensions are millionaires. The net present value of more than a few of the public pensions mentioned in these forums are worth 7 figures. These pensions, if taken as lump sums instead of annuities, would be worth $1M+. The lower the interest rate the higher the lump sum value, and interest rates are historically pretty low right now.

Whether they have a beneficiary value is irrelevant, as there are commercial products available that can be turned into similar annuities with no beneficiary value. If those commercial single annuities with no beneficiary income would cost 7 figures to buy, then that is the fair market value of the equivalent public pension taken as an annuity.

 

[hnzw_rui]

Probably warning sign.... one is better of working in public sector in prospering growing region of US.

Or, you know, just work for the Feds.

Generally I'd agree that one should behave as if a promised pension wasn't going to be there. That simply isn't possible for a lot of people though.

Alas, this is a bit more difficult when you're only making $40-80K a year (minus mandatory pension contributions) and work in HCOL area where housing+transportation already consumes a good portion of your budget.

That's what I was thinking. And, if that's the case, all the more reason for prospective new Illinois employees to want to be on SS, even if it means dropping the current Tier II pension. Then they'd have their salary plus SS, period. No pension. No matching. No profit sharing. No stock options. No bonuses. It would be easy to understand the true value of your compensation. The state could set wages to attract and retain who they want. Employees could accept the simple terms (salary + SS and nothing else, nothing) or not. Employees could also leave if a more attractive situation presents itself leaving nothing behind. Everything they earned would be in their pocket when they walked out the door.

I'm not sure how easy that's gonna be for government agencies. Hiring is a bureaucratic nightmare. When a position opens, it probably takes maybe 2 or more years to fill. With the current system, it's a lot easier to keep current employees by way of holding pension hostage than it is to hire new ones. They're gonna have to change hiring policies if they switch to a model based purely on salary/wage.

The failure of Illinois to fund the pension system is notorious so I'll not beat a dead horse. But the current 40%+ level of funding is representative of the state having contributed (or contributed and borrowed back) a net of nothing. The funding level is about what it would have been if the employee 9.5% was the only inflow. Now they want to cut the pensions of people who generally funded their own pensions 100%.

Interesting. I did the math for a hypothetical $50K salary, 2.5% COLA while working, no promotions, 30 years service credit and historical 20-year annualized investment returns for our pension system (30-year annualized returns were 2% higher so I just used 20) and you're right about the 40% being funded solely by employee contributions.

Of course, the way the system often works is your pension is taken 100% from your own contributions first and when that runs out, that's the only time you start dipping into the trust fund.

 

[eta2020]

Ziggy29- Great analysis. The fact is that an individual with a pension is not truly a "millionaire" because when he dies his children are not left with a million.A person withdrawing 3.5% of a million annually will be able to still leave an estate of one million. As you said- apples and oranges.I have learned a lot from this forum, although I do not feel welcome as a member of this community because of some of the earlier comments (ie High School grads getting large pensions).

I was a person who made first reference to the fact that in some municipalities you have High School Grads getting 130k pension benefits in their 50s.

Sorry if I offended anybody about it. It is matter of fact.

I have no objections to man and women serving in our Armed Forces who spend decade in Iraq and Afghanistan having their pensions. They deserve it!!!!!

I do think that 130k pension for Firefighter in LA makes no sense. But if we have tax payers willing to pay 20k in Real Estate taxes to fund this then it will go on. If you are firefighter in Palo Alto you have nothing to worry even about 200k pension . This is how capitalism works.

So if you seek public employment ...location, location, location.

 

[ziggy29]

Or, you know, just work for the Feds.

Really? Since about 1983, new hires with the federal government have been under FERS, not CSRS. And I can assure you that new hires in FERS are not getting a sweetheart deal. FERS employees get 1% of high-3 pay per year of service, and new FERS hires (myself included) pay 4.4% of their check into that pension plan.

Yeah, CSRS retirement more closely resembled the sweetheart deals that still exist in a few state and local governments today. But only those who have been working for Uncle Sam for 35+ years are getting that great deal. The federal government was way ahead of state and local governments in terms of reining in unsustainable pension plans and finding a sustainable model which mirrors the "three-legged stool" approach to retirement.

 

[Mulligan]

You quoted my post, which did not criticize pensions. I just stated what many were worth, which is simply a fact, not an opinion. ERD50 said many here with public pensions are millionaires. The net present value of more than a few of the public pensions mentioned in these forums are worth 7 figures. These pensions, if taken as lump sums instead of annuities, would be worth $1M+. The lower the interest rate the higher the lump sum value, and interest rates are historically pretty low right now.

Whether they have a beneficiary value is irrelevant, as there are commercial products available that can be turned into similar annuities with no beneficiary value. If those commercial single annuities with no beneficiary income would cost 7 figures to buy, then that is the fair market value of the equivalent public pension taken as an annuity.

Pensioner here....Maybe I have been on this forum too long as these discussions have been had a few times. I never thought of them being in a divisive manner or critical. Just a "numbers" comment. In fact I remember the first one I read when I was about to retire 6 years ago. I was excited to find out I was a "millionaire". Because it wasn't happening anytime soon from what was in my personal accounts.


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[ziggy29]

I do think that 130k pension for Firefighter in LA makes no sense. But if we have tax payers willing to pay 20k in Real Estate taxes to fund this then it will go on. If you are firefighter in Palo Alto you have nothing to worry even about 200k pension . This is how capitalism works.

I have trouble believing this can happen without massive pension spiking with overtime. Pensions aren't the problem as much as the ability to abuse the system is.

 

[eta2020]

Pensioner here....Maybe I have been on this forum too long as these discussions have been had a few times. I never thought of them being in a divisive manner or critical. Just a "numbers" comment. In fact I remember the first one I read when I was about to retire 6 years ago. I was excited to find out I was a "millionaire". Because it wasn't happening anytime soon from what was in my personal accounts.


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Yea we had fight to see whose millions are better your or mine
Then we became friends

 

[Mulligan]

Yea we had fight to see whose millions are better your or mine

Then we became friends

I am agnostic on it now....But my GF would definitely side with you! As we are in a tough spot, and this is the drawbacks of pensions in my situation. She could retire very soon. But if she quit and I died relatively soon afterwards she would be screwed without my pension. So she almost has to go another 10 to lock in future pension and maximize SS. Still should be able to get her out at 58, which is 10 years away. But that means she will have to put up with watching her BF do nothing for 16 years while she continued working.


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[ziggy29]

I am agnostic on it now....But my GF would definitely side with you! As we are in a tough spot, and this is the drawbacks of pensions in my situation. She could retire very soon. But if she quit and I died relatively soon afterwards she would be screwed without my pension. So she almost has to go another 10 to lock in future pension and maximize SS. Still should be able to get her out at 58, which is 10 years away. But that means she will have to put up with watching her BF do nothing for 16 years while she continued working.

Frankly I'm a fan of the three-legged stool concept of retirement. The biggest problem today, IMO, is that pensions are so back-loaded that unless you stay with one employer for 20+ years, or more, you get almost nothing out of that leg. I'd love to see a way to make a "portable pension" a reality, but not sure how it could happen.

 

[hnzw_rui]

Really? Since about 1983, new hires with the federal government have been under FERS, not CSRS. And I can assure you that new hires in FERS are not getting a sweetheart deal. FERS employees get 1% of high-3 pay per year of service, and new FERS hires (myself included) pay 4.4% of their check into that pension plan.

Yeah, CSRS retirement more closely resembled the sweetheart deals that still exist in a few state and local governments today. But only those who have been working for Uncle Sam for 35+ years are getting that great deal. The federal government was way ahead of state and local governments in terms of reining in unsustainable pension plans and finding a sustainable model which mirrors the "three-legged stool" approach to retirement.

In fairness, that's 1% + SS for FERS and there's also a TSP match. I wasn't trying to imply Federal pension was a sweetheart deal. Just that as far as pension "safety" is concerned, Uncle Sam is more likely to pay out than severely underfunded state and local government retirement systems.

 

[eta2020]

I am agnostic on it now....But my GF would definitely side with you! As we are in a tough spot, and this is the drawbacks of pensions in my situation. She could retire very soon. But if she quit and I died relatively soon afterwards she would be screwed without my pension. So she almost has to go another 10 to lock in future pension and maximize SS. Still should be able to get her out at 58, which is 10 years away. But that means she will have to put up with watching her BF do nothing for 16 years while she continued working.


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That is what happens when you get a young girlfriend

 

[NW-Bound]

Really? Since about 1983, new hires with the federal government have been under FERS, not CSRS. And I can assure you that new hires in FERS are not getting a sweetheart deal. FERS employees get 1% of high-3 pay per year of service, and new FERS hires (myself included) pay 4.4% of their check into that pension plan...

That's not too shabby compared to SS. I just pulled up my SS income record for 33 years of work, and found out that I would have more under FERS than what I will get from SS. And I contributed 6.2% (not counting employer's share), not 4.4%.

Oh wait. SS earliest retirement age is 62. For FERS, at 62 one would get 1.1% for each year of service, not 1%. So, FERS would be better for me. At 62, FERS would be about 56% higher.

PS. Note that FERS scales up with income, while SS benefit is absolutely not proportional to income.

PPS. I used SS capped income, not gross income, in the above FERS estimate.

 

[Greencheese]

Illinois has declining population and one of the highest real estate taxes in US and more tax hikes coming soon which may result in further exodus...

Probably warning sign.... one is better of working in public sector in prospering growing region of US.

To see the future of Illinois I'd argue look at Cook County. For years there has been population decline, or somewhat uneven seesawing between decline and slow growth, in both the city itself and Cook County. This may not be the greatest source for information (source typically leans to the right but putting that aside...) it speaks volume to how people react to higher taxes in areas where they can still access the jobs (albeit now with an hour long train commute into the city instead). I don't know the solution for Illinois/Chicago towards fixing everything but continually increasing taxes only works to a degree before people vote with their feet...

 

[Mulligan]

That is what happens when you get a young girlfriend

Only 4 years younger...that isn't bad...I was just a young retiree!


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[utrecht]

I have trouble believing this can happen without massive pension spiking with overtime. Pensions aren't the problem as much as the ability to abuse the system is.

Amen to that. Also, someone already pointed out that the $130K includes health benefits. I doubt there are many, if any, LA firefighters collecting $130K in cash benefits every year.

Besides it doesn't matter what the subject is, from welfare to a tax deductions, we can all search and find someone somewhere who is abusing the system. That doesn't mean the entire system is broken. The vast majority of people collecting public pensions are not collecting anywhere near that number and they have to stay with the same employer just about their entire working life even if they hate working there just to collect much of anything. There are so many reasons NOT to work as a public servant that once someone actually pulls it off and starts collecting we should not be making them feel guilty about it.

 

[hnzw_rui]

I do think that 130k pension for Firefighter in LA makes no sense. But if we have tax payers willing to pay 20k in Real Estate taxes to fund this then it will go on. If you are firefighter in Palo Alto you have nothing to worry even about 200k pension . This is how capitalism works.

So if you seek public employment ...location, location, location.

I checked LA Fire and Police Pension. Average monthly pension for 2013-14 is $5,247. Out of 12,502 pensioners (I believe this includes disability and survivors), less than 10% receive pension of $100+K (likely chiefs, captains, etc). There is a total of 253 pensioners (~2%) collecting more than $10,000 per month. I haven't averaged out the monthly health and dental benefits but maximum medical subsidy is $1,344/mo or $16,133/yr. I guess that's not quite as catchy in the news, though, and wouldn't generate as much outrage.

I have trouble believing this can happen without massive pension spiking with overtime. Pensions aren't the problem as much as the ability to abuse the system is.

According to the LAFPP Summary Plan Description, overtime is not counted for calculating pension so can't really use OT to spike pension.

 

[Mulligan]

I don't think the long term safety of pensions isn't endangered by some forum members assigning mathematical values to a pension. Its going to be when the next generation who doesn't have any money needs to retire as private pensions are fading fast. This wont be a question of whether the pension is deserved or they pi$$ed all their money away and should have been saving better. It is going to be the few having something the many don't. In other words "the perception". Right or wrong, funded or not, deserved or not Im afraid eventually it could be framed on just perception.


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[hnzw_rui]

Its going to be when the next generation who doesn't have any money needs to retire as private pensions are fading fast. This wont be a question of whether the pension is deserved or they pi$$ed all their money away and should have been saving better. It is going to be the few having something the many don't. In other words "the perception". Right or wrong, funded or not, deserved or not Im afraid eventually it could be framed on just perception.

Unfortunate but quite likely. It seems like it's already starting now.

Sad thing is 401k plans are like the wild, wild west. There are some good ones but plenty of bad ones. Instead of myRA, Obama would have done better opening TSP to everyone.

 

[Texas Proud]

Yes, lots of folks here have private pensions. Someone who worked for the MegaCorp I toiled at and was, say, a white collar professional of some type (It, engineering, finance, etc.) did very well. A DB pension. Generous profit sharing and 401k matching. Stock options. Company contribution to their SS. Retiree medical. Other ongoing benefits. Many of these have been dropped or reduced for the younger crowd but for those at or nearing retirement today, it was a pretty sweet deal. Oh, we all like to think of ourselves as the underdog, but your cash balance pension and company contribution towards your SS alone puts you out of the "sympathy range." If you get any kind of 401k match and/or retiree med benefits, you're in sweet shape.

I was not looking for sympathy.... but the difference in a pension from a gvmt agency and what I can get is night and day... If I wait until I am 65 and get an annuity with DW, my cash balance will provide me $450 per month... one of my sisters gets $5,400, another gets $4,000 and even my mom who worked only 11 years and retired 35 years ago get $1700... All three also get SS, so that is a wash....

Just as an FYI, I had 15 years at this mega... my time at a previous one did not yield much money.... a few thousand dollars....


Hmmmm, I wonder how much match I have received over the years.... that would be an interesting number to know.... wonder if I can figure it out or not...

 

[Texas Proud]

Only 4 years younger...that isn't bad...I was just a young retiree!


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Is she going to stay GF or become DW


Not saying to do it, or if you even can.... but you might be able to change your pension to have a survivor for a lower monthly amount...


Now THAT shows love if you do....

 

[youbet]

Really? Since about 1983, new hires with the federal government have been under FERS, not CSRS. And I can assure you that new hires in FERS are not getting a sweetheart deal. FERS employees get 1% of high-3 pay per year of service, and new FERS hires (myself included) pay 4.4% of their check into that pension plan.

Yeah, CSRS retirement more closely resembled the sweetheart deals that still exist in a few state and local governments today. But only those who have been working for Uncle Sam for 35+ years are getting that great deal. The federal government was way ahead of state and local governments in terms of reining in unsustainable pension plans and finding a sustainable model which mirrors the "three-legged stool" approach to retirement.

It seems to alternate back and forth. The current Illinois Tier II plan (in effect for five years) is much less generous than the current Fed FERS plan.

 

[Mulligan]

Is she going to stay GF or become DW


Not saying to do it, or if you even can.... but you might be able to change your pension to have a survivor for a lower monthly amount...


Now THAT shows love if you do....

Nope.. It is unchangeable once retirement officially starts. At that point we had only dated about a year, so we weren't far enough along to discuss "do you want to marry me so, I can declare you my beneficiary on my pension?" . And that is a serious discussion as it is a decent haircut, and if you got divorced a month later after retirement....Too bad, the pension cut is for life.
The ironic thing is although my retirement is way more secure than hers, marriage would help me more than her. I could get a $200 a month, $150 annual deductible gold plate health insurance plan.


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[youbet]

I was not looking for sympathy.... but the difference in a pension from a gvmt agency and what I can get is night and day... If I wait until I am 65 and get an annuity with DW, my cash balance will provide me $450 per month... one of my sisters gets $5,400, another gets $4,000 and even my mom who worked only 11 years and retired 35 years ago get $1700... All three also get SS, so that is a wash....

Just as an FYI, I had 15 years at this mega... my time at a previous one did not yield much money.... a few thousand dollars....


Hmmmm, I wonder how much match I have received over the years.... that would be an interesting number to know.... wonder if I can figure it out or not...

We would have to know all the details of your total compensation package to take a stab at whether those 15 yrs at Mega were well spent or if you should have bailed and joined your sister at her gig. Lets not go there.

I agree that the portion of total compensation represented by traditional DB pensions has dropped dramatically in the private sector. We all have to look carefully at total compensation in determining for whom and for how long we want to pull the plow. Comparing only pensions or only SS or only current direct compensation or only bonuses or only profit sharing or only 401k match, etc., might not be the best way to chose between job A or job B or job C........ etc.

 

[NW-Bound]

Really? Since about 1983, new hires with the federal government have been under FERS, not CSRS. And I can assure you that new hires in FERS are not getting a sweetheart deal. FERS employees get 1% of high-3 pay per year of service, and new FERS hires (myself included) pay 4.4% of their check into that pension plan.

Yeah, CSRS retirement more closely resembled the sweetheart deals that still exist in a few state and local governments today. But only those who have been working for Uncle Sam for 35+ years are getting that great deal. The federal government was way ahead of state and local governments in terms of reining in unsustainable pension plans and finding a sustainable model which mirrors the "three-legged stool" approach to retirement.

That's not too shabby compared to SS. I just pulled up my SS income record for 33 years of work, and found out that I would have more under FERS than what I will get from SS. And I contributed 6.2% (not counting employer's share), not 4.4%.

Oh wait. SS earliest retirement age is 62. For FERS, at 62 one would get 1.1% for each year of service, not 1%. So, FERS would be better for me. At 62, FERS would be about 56% higher.

PS. Note that FERS scales up with income, while SS benefit is absolutely not proportional to income.

PPS. I used SS capped income, not gross income, in the above FERS estimate.

I never worked in the public sector, hence never knew nor cared about Federal retirement programs. But with my curiosity piqued, I did a bit of Web search and found the following.

Federal employees hired in 1984 or later are covered by the Federal Employees’ Retirement System (FERS). Employees enrolled in FERS and first hired
• before 2013 contribute 0.8% of their pay to the CSRDF,
• in 2013 contribute 3.1% of pay to the CSRDF, and
• after 2013 contribute 4.4% of pay to the CSRDF.
All FERS employees contribute 6.2% of wages up to the Social Security taxable wage base ($118,500 in 2015) to the Social Security trust fund.
​

So, there has been a large increase in required contribution. Earlier workers got a sweet deal indeed. Note that prior to 2013, they paid the same 7% as the older workers under CSRS (pre-1984).

About the CSRS benefits for Federal employees hired before 1984 who were not part of SS, "the Office of Personnel Management (OPM) estimates the cost of CSRS to be an amount equal to 29.3% of employee pay. Of this amount, the federal government pays 22.3% and employees pay 7.0%".

So, the trend is obviously less benefits for younger generations, not just in the private sector.

For what it's worth...