Pension ERISA anti-cutback Rule at Risk?

[2B]

I suspect that it may either be a Detroit type thing, where the top pensioners get cut slightly. Or the pensions get transferred to the

Or I can even see where the State(s) turnover the pensions to the PBGC.

Or even the States take a low-interest loan out from the feds to pay the pension obligations.

I just really do not see the majority of pensions getting cut. Most Cities are behind the curve on funding their pensions.

Illinois is in one of the worst situations of any state. A "slight" cut on the top pensioners only worked for Detroit because they also defaulted on their bonds. Illinois has no hope of making "slight" cuts to only a few people within their current plan.

There would be a number of states that would seriously object to the Feds taking over any ownership of the underfunding of any state or municipal pension plan. As mentioned earlier, the PBGC is "insurance" that is funded by other private pension plans. Your options imply all states would have to enter into the plan and pay premiums for their brethren who would immediately be in default. Ain't gonna happen.

Many public pensions are well behind the curve. I personally can't see it ending well. Who gets cut and by how much? How badly do taxpayers get shafted for years of political mismanagement? These are all unknowns but we see what happened to Detroit when they tried to make it all up on the backs of the taxpayers.

 

[jd0850]

This may sound silly but one reason for the under-funding of these plans now is because they were over funded in the '80s & '90s. The plans cannot save in good times for the rainy days that always seem to show up. The IRS has ruled any over funding acts as a tax shelter so further contributions by the employers are not tax deductible. Being that employer contributions cannot be stopped or lowered, the trustees must raise the benefits of retirees and in so doing, raise the cost of future obligations.

 

[Beststash]

I'm expecting 100% of SS to be taxed within the next 20 years or so and then the Feds will allow chained CPI to do the dirty work of reducing benefits over the long term. Going to a means tested version is political suicide, but allowing the value of benefits to erode at a very slow pace is easy.

If that is the case then the American voter has got to be the stupidest being on the planet. Why would we knowingly elect someone that would do that? The idea of cutting our benefits in order to save a system that designed to be a safety net doesn't make sense.

The sustainability of SS is simply a matter of spending priorities.

There has been much debate on developing a new/different sort of retirement system in the US. Our present system of defined contribution plans doesn't seem to be a good replacement for the defined benefit plan.

I'm quite sure the financial engineers can develop a better plan for the next generation of American workers.

Peace

 

[FUEGO]

Pardon my asking, but how can someone be down 6.5% when the market is hitting all time highs?

International investments. I just happened to dump my whole $11k pension rollover check into developed international index fund.

 

[pb4uski]

International investments. I just happened to dump my whole $11k pension rollover check into developed international index fund.

I suspected that might be the case sine they are my only loser for the year but when you said the "market" if didn't sound so concentrated. But I think you are right, it will come back eventually. Ying and yang.

 

[Hermit]

According to the Wharton article in the OP unfunded bennifits were included in some of these pensions. How does a union agree to unfunded bennifits? And how does the PBGC allow that to happen on their watch? So exctly who should pay for unfunded bennifits promissed such workers?

 

[foxfirev5]

I'm expecting 100% of SS to be taxed within the next 20 years or so and then the Feds will allow chained CPI to do the dirty work of reducing benefits over the long term. Going to a means tested version is political suicide, but allowing the value of benefits to erode at a very slow pace is easy.

BINGO. I agree that this is nearly certain. Any projections I do include 100% taxable SS and virtually no increases.

 

[2B]

This may sound silly but one reason for the under-funding of these plans now is because they were over funded in the '80s & '90s. The plans cannot save in good times for the rainy days that always seem to show up. The IRS has ruled any over funding acts as a tax shelter so further contributions by the employers are not tax deductible. Being that employer contributions cannot be stopped or lowered, the trustees must raise the benefits of retirees and in so doing, raise the cost of future obligations.

+1

"Excessive" pension contributions was a key factor in the LBO mania of the 1980s and early 1990s. Corporate raiders bought stakes in companies and greenmailed them or other companies just bought companies with plump pension funds and took the "excess."

Congress passed a law to keep companies from over-funding pensions rather than protect the pension assets.

None of this applied to municipal pensions. Here underfunding has been common practice since they first started. We're only seeing the problems here when population and economic growth couldn't paper over the issues.

 

[Options]

BINGO. I agree that this is nearly certain. Any projections I do include 100% taxable SS and virtually no increases.

+1

Agreed. Personally simply planning for a % benefits reduction. Too lazy to be as precise as you.

 

[Senator]

I suspect that if the minimum wage was $15 per hour, all SS would be solvent again.

 

[ERD50]

I suspect that if the minimum wage was $15 per hour, all SS would be solvent again.

How's that math work? Low income workers get a disproportionately higher 'return' from the money they put in. I would think more $ in at the lower end (and therefore more paid out) could make things worse. I don't think the difference in $8/hour in and $15/hour in is that great to move one up the curve very far in SS.

-ERD50

 

[HFWR]

My pension, the "short" leg on my four-legged stool, is relatively well funded, and they're raising the required contributions in each of the next two years, and they've changed the formulas and requirements. Luckily, I'll be FIRED before they affect me!

Also have heavily-subsidized HI, which is probably "safe", but I suspect premiums will rise, maybe dramatically.

I don't expect changes in SS will affect me "much", since I'll be safely hidden in a fairly low bracket.

Politically, there's a pretty broad spectrum of "beliefs" on this forum, but, since living within or below one's means is such an ER meme, most here would like to see our governments stop using political tricks and slights-of-hand, and actually PAY for the programs they pass. And I suppose the same could be said for implied promises made by corporations...


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[Hermit]

I would expect to see SS do away with the upper limit to annual contributions as one of the first "fixes". That bump in take-home pay I received in early December or so each year was nice, but I wouldn't have squawked too loudly if I didn't see it. That would be an easy "tax the rich" addition to money coming in to SS.

Of course, if they would have been fiscally responsible with the system from the beginning, there wouldn't be a problem.

 

[2B]

I would expect to see SS do away with the upper limit to annual contributions as one of the first "fixes". That bump in take-home pay I received in early December or so each year was nice, but I wouldn't have squawked too loudly if I didn't see it. That would be an easy "tax the rich" addition to money coming in to SS.

Of course, if they would have been fiscally responsible with the system from the beginning, there wouldn't be a problem.

There has been a slow but steady erosion of how much real return is in SS. Originally, there were a massive number of payers for every receiver. Only a complete idiot believes they have a "real account" with SS with "their" contributions in it. It's a pay-as-you-go system that has been raided for other purposes since it was started back in the 1930s. When it first started, there were several years of payments made (taxes) before anyone was eligible for benefits. The money received was spent so from day one there was no SS trust fund except in the cryptic world of government accounting which would put anyone in the private industry in jail. It has never been fiscally responsible by any rational definition. It is nothing more than a payroll tax with the implied hope that some of this money would come back to us when we're "old." The government can change everything about SS on a whim and their right to do so has been affirmed by SCOTUS. Just like any other promise from the government, SS must have a risk factor applied.

 

[Senator]

How's that math work? Low income workers get a disproportionately higher 'return' from the money they put in. I would think more $ in at the lower end (and therefore more paid out) could make things worse. I don't think the difference in $8/hour in and $15/hour in is that great to move one up the curve very far in SS.

-ERD50

The math works like this.

$8 per hour x 15.3 % = $1.224 per hr going into SS
$15 per hour x 15.3 % = $2.295 per hr going into SS

It doesn't matter when they collect, that's a long time down the road. Social Security was never a bank account, it is a pay as you go scheme. Like a Ponzi scheme. Every worker today would be paying in an extra $1.071 each hour. Raising the top end only affects a small number of people and would not bring in near as much.

More money in today, means more money for retirees today. A worker 30 years from now might have to work longer, or get less. But that's for another president and another congress to fix. Not the ones running now, whatever party they are from.

Raising up the 62 to 63 age would also be a big help to save SS. In the end, I just think it will be a larger 'amount owed', not more paid in.

Quote from the 3-stooges, "I would rather owe you, than cheat you out of it".

I would expect to see SS do away with the upper limit to annual contributions as one of the first "fixes".

That may well happen, it is raising faster than the COLA increases. But it is a small amount collected.

 

[Mulligan]

With my pension not having the PBGC protections, and SS WEP whacking me on the other end, I would be very vulnerable to pension cut. Hopefully if the system did deteriorate, they would work on adjusting the pension funding levers of the multiplier number and age of retirement for newcomers before anything drastic as a cut. The system has been proactive, so maybe that process would continue.
As far as Illinois goes, I am assuming their personal contributions are on a "pre tax" basis but yet their pensions are state tax exempt. Maybe they should tax the pension income so it is not tax free going in and coming out to help fund it. Of course that is easy for me to say as I am not paying the tax!


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[ERD50]

I suspect that if the minimum wage was $15 per hour, all SS would be solvent again.

How's that math work? ...

The math works like this.

$8 per hour x 15.3 % = $1.224 per hr going into SS
$15 per hour x 15.3 % = $2.295 per hr going into SS

It doesn't matter when they collect, that's a long time down the road. ...

That is an odd definition of 'solvent'.

-ERD50

 

[Senator]

That is an odd definition of 'solvent'.-ERD50

I agree. And its exactly what we have now...

 

[Chuckanut]

The fear is that having breached these pension promise walls, businesses and government will now find it easier to breach other walls. Sort of a slippery slope towards legally taking compensation away from people who have already earned it.

Having seen how some businesses treat their employees, I do not doubt that if they thought they could cut pensions legally they would, not matter how people suffered. I have to sound negative, but I have seen to many good workers tossed under the bus without a care.

My advice to young people remains the same: You should control your retirement finances - 100% completely. Do not leave it up to your employer, financial adviser, or a politician.

 

[Taxman59]

The math works like this.

$8 per hour x 15.3 % = $1.224 per hr going into SS
$15 per hour x 15.3 % = $2.295 per hr going into SS

Every worker today would be paying in an extra $1.071 each hour. Raising the top end only affects a small number of people and would not bring in near as much.

Raising the minimum wage would only affect those making less than that. Those workers who make more than $15 per hour wouldn't raise a dime of SS tax. Removing the cap would affect a smaller group, but at levels that are much greater!


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[pb4uski]

The math works like this.

$8 per hour x 15.3 % = $1.224 per hr going into SS
$15 per hour x 15.3 % = $2.295 per hr going into SS....

You might have a point IF employment remained the same in that everyone earnings between $8 and $15 would be paying in more, but I suspect that there would be fewer people employed at those levels so it might not work out as you think. Businesses that employ people at that level would try to make do with less people.

 

[Options]

With my pension not having the PBGC protections, and SS WEP whacking me on the other end, I would be very vulnerable to pension cut...

Imagine how vulnerable a retired 65-74 individual would be. I can't imagine the thinking behind this new law.

The fear is that having breached these pension promise walls, businesses and government will now find it easier to breach other walls. Sort of a slippery slope towards legally taking compensation away from people who have already earned it.

Having seen how some businesses treat their employees, I do not doubt that if they thought they could cut pensions legally they would, not matter how people suffered. I have to sound negative, but I have seen to many good workers tossed under the bus without a care.

Exactly my view, and I see it as being realistic and prudent as opposed to negative.

 

[Mulligan]

Imagine how vulnerable a retired 65-74 individual would be. I can't imagine the thinking behind this new law.









Exactly my view, and I see it as being realistic and prudent as opposed to negative.

I don't know Options.....In my 50s and retired I think I feel more vulnerable as odds are I have to live longer... I'm already 5 years out of career and certifications all long expired. I'm only about as good as they would be...second career as a door greeter. I guess though my knees might not be as creaky yet so I could do a double shift.


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[daylatedollarshort]

Threads like these have helped me to decide to continue at least part-time, money making hobbies until I die or get demented. Maybe that can make up for any future SS, Medicare or pension cuts.

 

[Options]

I don't know Options.....In my 50s and retired I think I feel more vulnerable as odds are I have to live longer... I'm already 5 years out of career and certifications all long expired. I'm only about as good as they would be...second career as a door greeter. I guess though my knees might not be as creaky yet so I could do a double shift.


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Yes, that's my point. What struck me about this law, if you compare it to SS, is that all talk regarding SS "reform" has usually grandfathered people 55, or even 60. Reasoning is one is older and it is really late to change course. That this new pension reform law didn't grandfather in anyone under 75 really struck me. I know people approaching retirement age who made retirement plans based on receiving their pension. Who knows where this will lead in 10 years, especially when more pension plans encounter trouble