pensions

[rpow53]

with california in a pickle is a calpers pension stable? I have one and am worried about it. maybe someone with more insite can help calm my nerves.

 

[MasterBlaster]

Rpow53:

The courts have ruled many times that a pension is an obligation and cannot be diminished. The courts have the power to impose taxes to support such obligations.

So based on that I beleive that you have little to worry about.

If however you are still working then you only have certainty of what you have vested in to date. Future earned benefits can be changed.

 

[mrpd114]

RPOW53,

Yes, your CalPers pension is safe. As of about 10/15 they had $201 Billion in assets, down from $260 B from a couple of years ago.. They are very well diversified in many areas around the country. If they go below a pre-determined specific balance they can make up the difference from public funds, aka tax increase.

I recently retired with a CalPers pension and have full confidence in their systemand, they have been in service since about 1932.

 

[traineeinvestor]

While the pension may be safe (a point on which I express no view), if the state runs out of money, higher taxes on the amount received could be necessary in order to meet these and other obligations. Even if the pre-tax amount is safe, the post tax amount is not.

 

[clifp]

I don't want to scare people unnecessarily because there is precious little a government employee can do about the situation. Still I would urge everyone especially those with a pension to read the recent Washington Post article and the thread I started here

I spent a few minutes looking at the CalPers financials. My quick and dirty analysis shows that CalPERs is average or slightly better than state or local public pension fund. Which means it is is serious financial trouble according to the Washington Post and my analysis.

It has just under $200 billion in assets and 1.6 millons members, with just under 500K retirees. This gives about $125K in assets per member and $400k per retiree. If you took all of the money in the pension and distributed it evenly to each retiree (thus hosing all of the current teachers, cops, government worker). You could purchase a life time annuity (using the TSP annuity calculator) for a 65 year old that paid $1,800/month with a (capped) COLA provision. According to Calpers the average retiree benefit is $2,400/month so Calpers doesn't have enough to pay current retirees much less future ones.

Another way at looking the financial health is to observe that as 6/2008 the system had around 12 billions in contributions (more than 70% was from government contributions) and paid out 11.3 billion in benefits, making it in worse shape than Social Security where the contributions to the system far exceed the benefits paid.

As of 6/2008 the system was 86% actuarial funded. I didn't fully understand all the pension systems and there was a lot of financial information, but as best I can tell that meant back in 2008 they system need an additional $30-$40 billion or about $1,000 per man, woman, and child living in the sate to be fully funded. Since that time, the value of the assets has dropped $80 billion, employee contributions have declined to furloughs etc. and god knows what tricks the Govenator and the legislator have come up with as far a state funding of Calpers.

Over the past 10 years Calpers has earned an 3.5% average annual return. Going forward the investment folks at Calpers are assuming a 7.75% return. This rate of return is considerably higher than most of the folks on the forum think is realistically but is very typical for public pension funds.

So to summarize if Calpers can come up with an additional 100-120 Billion (or about $3,000 per person ), earn 7.75% per years, and freeze any future benefit increases than the system is hunky dory great shape....

 

[Leonidas]

Nice analysis Clifp. I did the same for my pension and I have to say I like our numbers much better.

$383,000 in assets per member (active both vested and non-vested and retirees)
$650,000 in assets per active vested plus retirees
$1.1 million in assets per retiree

Total assets: 3.004 Billion

Average monthly benefit: $3,540

Annuity replacement cost: (age 55, $3,540/month, 30 years with 100% spousal survivability) $730,000.

Rate of return assumption: 8.5%
Historic annualized rates of return (through FY ending June 30, 2008):
2 years: 8.8%
3 years: 9.6%
5 years: 12.7%
10 years: 8.2%

Contribution rates were increased for employees to an average of 9.2%, and after years of the city deliberately underfunding while jacking with the contract to boost retirement costs (against pension system advice) they have finally started paying the contractually obligated percentage of payroll (18.75%). It only took a lawsuit filed by the pension system to bring it about.

Contributions are running about $95 Million annually, and payments/expenses are consistently about $133 Million. 2008-09 were/are bad years for investment returns, but in prior years the returns were bringing in 4-5 years worth of payments/expenses every year. I'm thinking I'm not going to lay awake at night worrying about this one too much.

 

[ziggy29]

Your accrued benefit for service already completed should be absolutely safe. Having said that, if many state and local financial positions continue to become more dire, there's no certainty that the current deal will remain in the future.

 

[W2R]

Elegant analysis, Clifp!

As opposed to Clifp, my post will be based not on assets and numerical facts, but on feminine intuition.

Based on that, I would say that it will probably be fine. But if it was me, I'd be putting everything I had into setting up some other income streams for retirement. Taxable investments, inflation adjusted immediate lifetime annuities , 401K, Roth, rentals... whatever you can come up with. Otherwise it is just too nerve-wracking.

 

[Leonidas]

Your accrued benefit for service already completed should be absolutely safe. Having said that, if many state and local financial positions continue to become more dire, there's no certainty that the current deal will remain in the future.

I agree, and I think that the benefits in my system for all the vested active employees is pretty safe as well. The non-vested folks all have years to go (although they retire later and at a reduced payout) so it's questionable there as the system's current assets are about half funded if we include them.

We screwed up by letting the city underfund its payments while creating higher pension payouts. But our pension board reacted by forcing the city to come to the bargaining table and work out a solution that made sense. We increased our contribution rates, made the city pay the agreed upon percentage, and totally changed the system for new hires (later retirement ages, increased contributions, and lower percentage payout - plus we took out the abusive benefits the city had cooked up).

These pensions come in all different kinds of flavors. Too many of them are almost solely controlled by the employing governments' politicians who have a free hand to underfund like crazy with one hand while promising increasingly insane benefits with the other - all without anyone calling them on it until it's way too late.

That almost happened here, but I have to credit the pension board, an independent quasi-governmental agency, with working to fix it. The majority of the board is comprised of active and retired employees, with representation from the city as a minority. The MBA, which played a part in the earlier mess (collusion with the city), doesn't have a hand in it. The result is, as I see it, a much better watchdog over the assets in the system with the power to negotiate a separate contract and legally enforce the provisions.

Many governments are suffering right now because they overcommited to rich pensions because it attracted/retained employees while pushing costs off to some future date. It looks like a lot of calendars are showing that future date right now and it probably couldn't come at a worse time considering the state of the economy. And too many of the pension systems were run by politicians who have the investment sense of a goat and the ethics of a pimp.

 

[clifp]

Leonidas thanks for doing the analysis. When I started looking at public pensions a few weeks ago, in the back of the mind was your pension. Which on the downside struck me as being very generous. (As taxpayer, I am less resentful of pensions for cops, firefighters, and the military; how does one put a price on risking ones life). However,you had said that your board was really keeping watch.


I must say I am impressed with those numbers, the assets per person are 2-4x times larger than any other plan. Plus you 10 year returns only slightly lag the folks at Harvard and Yale. You actually have a secure pension.

I also wouldn't worry about federal pensions, which after the reforms are less generous. The government had done a admirable job with TSP, which IMO provides the right number of choices, low expenses, and also excellent education on the work force to get participation. Of course Uncle Sam can (and as we have seen will) print money in large quantities to pay for it.


Ziggy is also probably right, current benefits are probably completely safe. Still when you are asking the public to come up with $3,000 - $4,000 a person to fund existing pension benefits for government workers, it doesn't see far fetch to imagine a taxpayer revolt.

 

[ziggy29]

Ziggy is also probably right, current benefits are probably completely safe. Still when you are asking the public to come up with $3,000 - $4,000 a person to fund existing pension benefits for government workers, it doesn't see far fetch to imagine a taxpayer revolt.

Even if there was such a taxpayer revolt, it could not (and as I understand it, CAN not per federal law) erase the benefit for service already accrued. I believe ERISA mandates that what has already been earned can't be taken away.

I think it prudent to discount anticipated benefits to accrue in the future to conservatively plan for the uncertainty of what could happen if budget situations keep getting worse and pension liabilities continue to grow as a percentage of the state budget, as it could force very unpleasant and divisive actions (much as many younger folks "discount" or even zero out Social Security in their planning). To do it right would probably need to consider each situation differently, because some pension plans are pretty solid and conservatively run while others are driving municipal budgets to the brink.

As for the feds, between the power to print money and the increased sustainability of the FERS program (compared to CSRS and many state/local plans), I wouldn't worry at all there and probably wouldn't discount the expected future entitlements.

 

[Leonidas]

I must say I am impressed with those numbers, the assets per person are 2-4x times larger than any other plan. Plus you 10 year returns only slightly lag the folks at Harvard and Yale. You actually have a secure pension.

The board is comprised of some smart guys who are scrupulously honest - they know what would happen to them if they weren't. And the business manager is a retired cop who was my very first sergeant - and he was legendary for being the king of LBYM guys in the agency. He makes every dime squeal before it claws its way out the door.

Ziggy is also probably right, current benefits are probably completely safe. Still when you are asking the public to come up with $3,000 - $4,000 a person to fund existing pension benefits for government workers, it doesn't see far fetch to imagine a taxpayer revolt.

I agree completely. The situation here is somewhat different in that the pension is not going to the city and saying "we're underfunded because of investment losses and because we promised too much. Please give us more money".

Our situation was that we were 100% funded, and while the pension did increase some things, it was all well within what it was capable of doing with room for error. They did screw up when the city came and pleaded poverty and begged to be allowed to temporarily reduce what they had been paying all along. Something that had been in the budget every year up to that point. It was supposed to be paid back when the city got back on its financial feet, but the pension demanded an agreed upon date when they city would resume making its normal percentage.

The strange and questionable thing is that the city should have been doing well at that time. I wonder why nobody has ever stepped forward to ask "where did all the money go?"

At the time there was no contract between the city and its employees, the police union or the pension board. There was a written agreement between the city and the pension, but not as part of an employment contract because one had never existed up to that point.

The real disaster came when they agreed to let the police have meet and confer powers to negotiate a contract. The city, still pleading poverty, set out a somewhat ambitious agreement with the cops (the mayor hated firemen and told them to go screw). But put a number of hooks on how the money could be paid out (like minimal across the board raises so the firemen wouldn't benefit).

The city was facing massive retirements from the police department with a horribly uncompetitive salary structure. They were desperate to hang on to the police they had because they couldn't attract new hires to save their lives. So, knowing that a lot of us were well past minimum retirement age, and many of us were thinking about retiring soon, they forced the union to stack a lot of the increases as things that dramatically boosted pensions - if you would only stay a few more years. The result was a bunch of grumpy old cops hanging around saying "if I can just make it to 2004". My 60 something desk officer was dying from cancer but hung in for another couple of years just to get the money for his future widow.

There was even a bumper sticker floating around that said "Out the door in 2004!"

2004 also happened to be when the sitting mayor would be out of office due to term limits.

The union, being the sole employee bargaining agent, took the city's offer because the city said "it's that or nothing". The didn't bother to call the pension board and ask what they thought. The pension was presented with the bill as a fait accompli.

There was bad blood between the pension and the MBA.

The city announced that they would not be able to pay the overdue percentage of salary as they had promised just yet, and to be honest, it didn't think it could go back to paying the regular percentage either - the pension board was told to to stuff it.

The pension board ran down to the courthouse with their hotshot outside litigators they just hired and filed a lawsuit. The new mayor came into office and promptly puked all over the place. "I can either pay the scheduled raises to active employees, or fund the pension properly, but I can't do both."

The pension board's lawsuit was still sitting at the courthouse, and the MBA started looking at litigators and rattling its sabers. But the pension board was realistic. They held the line on what the city owed from its past normal obligations, held the line on anybody already retired getting what the contract gave them, but threw everything else up for negotiation. As the president of the board told me at the time, "We never agreed to any of that s&%t in the first place, why should we cash checks somebody else wrote when we don't have the money to pay for it?"

The city negotiated a separate contract with just the pension board, although I'm sure the union had some say. The majority of the really egregious BS was tossed and new hires got a whole new deal. Anybody already vested had a three year grandfathering on some elements of the old contract before they were converted to all of the provisions of the new contract, while some things went into effect immediately. I was lucky enough to be just about completely maxed out in every category under the old contract so I yanked the pin and said adios mother something-or-anothers.

In some respects the pension is culpable in this mess because they let the city neglect its obligations for a period of time. In retrospect, it was like lending money to a crack fiend.

I think the city's catchup provisions, and some concessions they had to make in order to get the pension to give up some claims, put the city in the hole about 60-70 million. And of course the city is paying more than they were for the preceding few years, but those prior years contributions were artificially lowered.

So, in reality, our pension is not asking for more money to make up for shortfalls due to its avarice or incompetence, but mostly asking for the repayment of a loan that was aggravated by the avarice and incompetence of the debtor.

Now, the city is in deep debt over pension issues, the 70 odd million that they owe the police pension is just a drop in the bucket. They owe ungodly amounts to the municipal employees (non police/fire) pension, which is a fund that they basically ran without any competent oversight (and was apparently the home of shady sweetheart deals for politically connected investment firms). They also owe a nice chunk to the firefighters' pension because the new mayor got jammed up into writing a nicer contract than he would have preferred to (they got for real collective bargaining, not that crappy meet and confer stuff we had).

The city also managed to write a boatload of pension obligation bonds, some of which it invested in as well (borrowing money from yourself - what a concept!), as well as signing the rights to the city's convention center hotel over to the municipal employees' pension fund.

It will be interesting watching the city dig itself out of this mess. I wish them the best of luck, no joke I really do.

In regards to a taxpayer revolt in my city over this issue, I've got to take a realistic stance. We, meaning the pension board, didn't screw this up and did everything in our power to fix it. We feel really bad that your elected officials borrowed money from us that they weren't necessarily capable of paying back responsibly, but we want our money. You should have kept a better eye on the people you hired to run the city, and it's not like they did this in secret. The budget is a very public event that is openly debated every year.

The union/MBA was stupid and greedy, but it's not like we had collective bargaining for any of the stuff we got in the first place. The city offered what it said it could afford before negotiations ever started (the mayor wrote a dollar amount on a napkin over cocktails, I'm not making this up), it even told us how to structure the money in the manner they preferred, and in the end they decided what they wanted to give us and what they didn't want to give. We had voice, but on our end there was no power because meet and confer doesn't give it. Even after the contract was done there were friendly members of city council saying to us privately "Oh, you guys got screwed - you should have asked for more money - the votes were there to get it."

I think the only thing we did wrong was doing business with a bunch of politicians.

 

[utrecht]

Leonidas,

I assume those numbers are as of the end of 2008? I doubt you could get more up to date numbers than those.

I just looked over my pension funds numbers. It seems the numbers are very close to yours, with yours being slightly better but not much.

It looks like we have a little better deal in that we contribute 8.5% and the city contributes 27.5%.

We also have active police and fire and also retired police and firemen on the board so they have a vested interest in running the thing properly. We've never had the problems that you've had with the city underfunding or anything like that, but we did have our last Mayor talk about accessing the funds in some way. I dont remember what the purpose was, but faster than a cop eating a donut, the pension board got an item put on the ballot in the next state election that made it illegal for the city to get anywhere near the money. You may remember the election, it was only a year or two ago (I know we are in the same state).

The last sentence of your previous post says it all when it comes to problems with public pensions. Its not the public pension that needs to be revamped, its the way they are run. Yours and mine dont seem to have a problem when run the proper way. I hope you dont mind if I quote you.............

"Too many of the pension systems were run by politicians who have the investment sense of a goat and the ethics of a pimp."

 

[harley]

I think it would both more fun and more accurate if inverted - "Too many of the pension systems were run by politicians who have the investment sense of a pimp and the ethics of a goat."

 

[clifp]

I think you are all slandering and insulting goats.

 

[mrpd114]

RPOW53, there have been some great comments and spot-on analysis from the folks here so far.

I assumed you have already retired. If not, although you still should be quite safe with a CalPers pension, the municipalities are working very hard to reduce their exposure to future obligations for employees that could possibly disrupt the system in future years.

 

[harley]

I think you are all slandering and insulting goats.

Are you saying WE are slandering and insulting goats?

Or that goats are being slandered and insulted by us comparing them to politicians?

The intricacies of the English language strike again.

 

[Leonidas]

I assume those numbers are as of the end of 2008? I doubt you could get more up to date numbers than those.

Your right, the latest CAFR is for FY 2008, which ended June 30th last year. The 2009 CAFR should be published soon, but I think the unofficial numbers are causing me to expect a 19% reduction in asset value.

It looks like we have a little better deal in that we contribute 8.5% and the city contributes 27.5%.

That's certainly a better contribution situation than what we have currently. Eventually, as the new hires outnumber the old hands, the employee rate will reach 10.25%. The city's portion is variable, but at a minimum of 16%.

This is the situation for the city's contribution as of the 2008 CAFR, and I think it still holds in place as I'm not aware of any changes in the agreement reached on the 2004 lawsuit:

2006: 16% of total direct payroll, with a minimum payment of $53 Million (statutorily the city's total obligation was about $98 Million). In contrast, during the preceding five years the city was only paying about $32-36 Million (11% of payroll). For 2006 the payment was 16.53% of TDP.

2007-2012: $5 Million above the prior year's payment. Which means that in FY 2007 the city paid 17.73% of TDP; and 18.75%, or about $63 Million, in FY 2008.

I'm sure the 2009 FY payment will be roughly $68 Million (about 20% of TDP).

Basically what we've done is reconfigured the city's debt and allowed them to pay us on a much easier payment plan than what is required by state law. (I'm not sure how your city does it, I think I recall your system is totally outside of state law, but here we get all of our local agreements written into state civil service law/local government code).

Eventually the city will be allowed to go back to just paying the statutorily required 16% by 2013, as long as the fund is 100% funded at that time. If not there are provisions to increase the payment to get the fund to at least 75% funded.

...but we did have our last Mayor talk about accessing the funds in some way.

I remember that well. I also remember talking to some Vice guys at your department at the same time and know that she was a lovely peach of a woman who was loved greatly by all the men and women down on South Lamar.

That move she was thinking about caused great consternation around here because nobody knew if the same thing could happen here or not. My previously mentioned desk officer working his dying days to provide for his wife caught wind of it and regaled me with his detailed [-]plans[/-] fantasies involving City Hall and a deer rifle. Normally a supervisor would be disturbed that an employee was talking about the mayor while saying things like "If he touches my money I'll blow the sumbitches' head off!" But, given the situation, I merely asked for advance notice so I could come watch while hiding behind something solid.

but faster than a cop eating a donut, the pension board got an item put on the ballot in the next state election that made it illegal for the city to get anywhere near the money. You may remember the election, it was only a year or two ago (I know we are in the same state).

Yeah, I remember. There was however, a local election opt-out provision that our new mayor got behind at the same time he was screaming dire warnings and the voters responded. So, we are not covered under that law.

I hope you dont mind if I quote you.............

"Too many of the pension systems were run by politicians who have the investment sense of a goat and the ethics of a pimp."

I don't mind at all. I wish I had been a little more cerebral, but it does sound good.

On a more cerebral note, I will say that the last couple of years at w*rk exposed me to the real inner w*rkings of the police department and city government, and it scared the hell out of me. I spent years figuring out how things worked and got pretty good at it, but when I got to the very tip top of the towers down at the puzzle palace I discovered that the inhabitants were from a different universe where the normal laws of physics didn't apply.

Fixing stuff that was wrong was not a priority, but public perception of how things were running was what it was all about. And God forbid that you ever try and suggest something that made good sense but might be a little bump in the numbers for any politician's polling data. I tried a couple of times and the reaction was the same I would have received if I had peed in the coffee pot. I really retired so I could pay back a huge amount of time I owed to my family, but a close second was escaping the realities of big city politics.

 

[clifp]

Or that goats are being slandered and insulted by us comparing them to politicians?

We have a winner.

 

[utrecht]

Leonidas,

Im amazed at how much you know about your pension. The majority of cops I know, know that they have a pension coming but couldnt tell you the first detail about it. They dont know how much they contribute, how a DROP account works, how to figure exactly how much their pension will be..let alone all the detailed numbers you are able to quote. I'd wouldnt expect anyone other than a pension board member knowing as much as you do.

Theres one thing that worries me about my pension. What do yo think of this chart that shows "contributions and benefits paid" on page 148?
http://www.dpfp.org/images/PDFs/AnnualReports/2008/Parts/2008%20AR%20Statistics.pdf

As far as inner workings of the police department goes...I recently transferred to the Public Integrity Unit so Im getting a full dose of "inner workings". Its an eye opener to say the least.

 

[rpow53]

I have been keeping up with all the replies and am quite impressed by all the information I am getting. some I understand and some I don't. yes I have been retired since april 07. I left at age 54 and don't regret it. I think down the road calpers will be cutting benifits for future retirees. thanks to all that have replied. It is good to hear what other people think about this subject.
Bob