Early Retirement & Financial Independence Community

Early Retirement & Financial Independence Community (https://www.early-retirement.org/forums/)
-   Other topics (https://www.early-retirement.org/forums/f27/)
-   -   'Insane' even by Illinois standards? (https://www.early-retirement.org/forums/f27/insane-even-by-illinois-standards-58314.html)

KingB 10-12-2011 11:39 AM

'Insane' even by Illinois standards?
 
Quote:

A labor leader in Chicago is expected to receive pension payments of nearly $500,000 a year, while another could get about $438,000 a year...
$500,000 in pensions: 'Insane' even for Illinois? - US news - Life - msnbc.com

Quote:

"It's highly unlikely that the federal government would ever bail out a spend-thrift state. Therefore, Illinois needs to fix this on its own,"
And part of how to do this is by raising our property taxes. I recently received my tax bill and it went up by 12% - a $1K increase, this after our property values have gone down. Most of the tax are for the school district which don't get enough aid from the state.

ERD50 10-12-2011 12:33 PM

Yes, it is insane.

The insane part is, this guy worked for the city for years at a moderate salary. He retired, then worked for the union at a $240,000(!) annual salary. And it is that $240,000 that determines the pension he gets from the city(!?). Let the Union pay that pension if that's who gave him the salary - what it this insane tie-in between the Union and the city? Here's a little more info from linked articles:



1-day rehire nets $158,000 pension for ex-labor chief - US news - Life - msnbc.com

Quote:

Gannon, former president of the Chicago Federation of Labor, was able to take a long leave from a city job to work for a union and then receive a city pension based on a high union salary. That arrangement is allowed under a state law signed by Gov. Jim Thompson on his last day in office in 1991, according to an investigation by the Tribune and WGN-TV.
More at: One-day rehiring nets former Chicago labor leader a $158,000 city pension - chicagotribune.com

Sounds worthy of a protest, no? One with specific actionable items.

-ERD50

clifp 10-12-2011 12:42 PM

Quote:

Originally Posted by ERD50 (Post 1120548)
Yes, it is insane.


Sounds worthy of a protest, no? One with specific actionable items.

-ERD50

I predict in a few years we will see storied about Blago's pension as he organizes the prison workers and makes himself the head of the prison local.

I wonder if Rahm or President Obama's IL pension will be based on their White House salaries.

As far as protesting goes I am looking forward to the pictures ;D

Mulligan 10-12-2011 12:56 PM

Let's see.. Illinois well known financial problems, under funded pension systems, and it seems all the time there is released articles about extremely high pensions in state. I read last month an HS English teacher in Illinois had an almost $150,000 year pension. It doesn't take much imagination to see the possibility of the common pensioner (who I'm sure are the vast majority) who has a very modest pension to sustain themselves being the one holding the bag at the end. I have a pension and support pensions, but at some point there probably should be a max cap to protect the system, the common pensioner and also the taxpayer shouldn't there?

check6 10-12-2011 01:24 PM

My union had to reimburse the company 100% pay plus an additional 28% over ride to cover pension and medical when an employee did union work. I do not understand how these city governments allow this to happen.

Bimmerbill 10-12-2011 01:24 PM

I always shake my head when I read about stuff like this.
I just want in on the action.

Texas Proud 10-12-2011 01:28 PM

I hope this does not get to political, but IMO if there are any pensions out there where the final pension is not based on the average salary that they get from the gvmt it needs to be changed...


I remember in Houston a police chief got a big pension bump when the outgoing mayor gave him a big raise... there was a big stink about it, but the city counsel could not do anything about it in time.... all he needed was one paycheck and it was set...

I also find it amusing that these people can defend this with a straight face... like they deserve it....

ziggy29 10-12-2011 01:32 PM

Quote:

Originally Posted by Texas Proud (Post 1120574)
I hope this does not get to political, but IMO if there are any pensions out there where the final pension is not based on the average salary that they get from the gvmt it needs to be changed...

There is no question in my mind that loopholes like these need to be closed and the practice of "pension spiking" should be banned pretty much everywhere.

donheff 10-12-2011 01:42 PM

It is infuriating but your anger seems somewhat limited to me. The far great pension ripoff is the corporate pension plan ripoffs that destroyed well funded employee pension funds to the benefit of high level execs and CIOs. If you want to really drive yourself over the wall, read The Retirement Heist, How Companies Plunder and Profit from the Nest Eggs of American Workers, by Ellen Schultz. I read about it on another thread around here and got it from the library. It turns everything you thought was the case with "unfunded" employee pension funds upside down. The rapacious destruction of top corporate execs is horrifying. By contrast, this union ripoff almost seems trivial.

Texas Proud 10-12-2011 01:52 PM

Quote:

Originally Posted by donheff (Post 1120583)
It is infuriating but your anger seems somewhat limited to me. The far great pension ripoff is the corporate pension plan ripoffs that destroyed well funded employee pension funds to the benefit of high level execs and CIOs. If you want to really drive yourself over the wall, read The Retirement Heist, How Companies Plunder and Profit from the Nest Eggs of American Workers, by Ellen Schultz. I read about it on another thread around here and got it from the library. It turns everything you thought was the case with "unfunded" employee pension funds upside down. The rapacious destruction of top corporate execs is horrifying. By contrast, this union ripoff almost seems trivial.


Have not read the book... but I did know someone who worked for a company that did plunder a good number of pension plans... after awhile he decided to change jobs....

Back in the 80s, there were some companies that were bought just because their pension plan was so overfunded... the buying company could close it down, pay off the loans they took to buy the comapny and then sell what was left for a tidy sum....


But the other side of that coin is the employees were given everything they were promised.... and some got even more since if you were not vested you became 100% vested at the time they closed down a plan... sure, they were not getting the same going forward, but who said things do not change???

I am sure there are a few people who see that the state is going to try and change the law and are hoping they can cash out before it happens...

MichaelB 10-12-2011 01:54 PM

All pensions - public, corporate, union alike have been subject to abuse and bad behaviour by "the few". It is shameful how some people exploit others and how they are helped in that task by those that should be protecting, not enabling.

The real damage is not the abuse by the few but the pension loss that so many suffer. Most people receiving corporate, union or public pensions get very little, earned fairly what they get, and are portrayed harshly as a result of this abuse.

ziggy29 10-12-2011 01:59 PM

Quote:

Originally Posted by MichaelB (Post 1120590)
All pensions - public, corporate, union alike have been subject to abuse and bad behaviour by "the few". It is shameful how some people exploit others and how they are helped in that task by those that should be protecting, not enabling.

The real damage is not the abuse by the few but the pension loss that so many suffer. Most people receiving corporate, union or public pensions get very little, earned fairly what they get, and are portrayed harshly as a result of this abuse.

Not only that -- it's not about pensions and unions per se but that there are abuses and loopholes that are the real problem but are all too often (IMO) used as ammunition against the concepts entirely.

What I find egregious in this case is that not only is the taxpayer getting skewered, but in a sense the "rank and file" in these unions is getting victimized twice -- once by the guy who was supposed to be looking out for them but made their pension fund less solvent, and again by a public who will often scapegoat all pensioners because of the abuse of a few.

FIREd 10-12-2011 02:08 PM

I am usually pretty indifferent to the pension debate, but this is truly insane.

Bestwifeever 10-12-2011 02:22 PM

I think the disconnect between the employing body and the pensioning body is key.

The "3-or-5-or-whateverr-highest-year average X whatever variable = pension" led to the employing body granting big raises in the last three years (because the pension law didn't say they couldn't) or the employees boosting their own salary with personal funds to achieve a higher average (because the pension law didn't say they couldn't). All tidy and legal, but against the spirit of the law if there is such a thing. Had the employing bodies been managing their own pension funds, perhaps there would have been a sense of fiscal responsibility and accountability in the end-career raises or the personal spiking.

samclem 10-12-2011 02:33 PM

Quote:

Originally Posted by donheff (Post 1120583)
. . . The far great pension ripoff is the corporate pension plan ripoffs that destroyed well funded employee pension funds to the benefit of high level execs and CIOs.

"Yabut", the big difference is in who pays. If a private corporation wants to plunder their pension plans, that's not a public issue (unless it gets to the point that the PBGC gets involved). This Illinois situation looks like some type of unholy union/govt alliance whereby a person can legally raid the government pension fund. If the union wants to have a corrupt system, that's between the leadership and the members. But who represents the taxpayers of Illinois when these decisions are being made? The same pol who just won an election courtesy of union support? It stinks.

Mulligan 10-12-2011 03:01 PM

Quote:

Originally Posted by Bestwifeever
I think the disconnect between the employing body and the pensioning body is key.

The "3-or-5-or-whateverr-highest-year average X whatever variable = pension" led to the employing body granting big raises in the last three years (because the pension law didn't say they couldn't) or the employees boosting their own salary with personal funds to achieve a higher average (because the pension law didn't say they couldn't). All tidy and legal, but against the spirit of the law if there is such a thing. Had the employing bodies been managing their own pension funds, perhaps there would have been a sense of fiscal responsibility and accountability in the end-career raises or the personal spiking.

While I am not knowledgable enough to determine what percent of a pension fund is effected by this, I agree this certainly is a problem. The employing body can spike the salary to get them to stay on longer. That cost is short term. The pension body which generally can't set any laws is the entity that is stuck long term with the payout problem. Our system just recently capped a maximum 10% yearly increase in final years to tone this down, so it must have been a problem. A 10% yearly cap increase for same position pay in public work still seems very generous and still open to a little abuse, though.
On a humorous side note, yesterday a friend of mine who is a school superintendent told me he asked an older teacher who started her career later in years if she was going to attend the retirement informational meeting. She said she said she only had 7 years in and wasn't close enough to benefit from it. He asked her that he thought she had taught longer than that. She replied- Well I have taught 12, but the first 5 don't count because those are the vesting years. Sounded to me she should have been the first in line to learn about her retirement!

Leonidas 10-12-2011 03:24 PM

Quote:

Originally Posted by Mulligan (Post 1120621)
The employing body can spike the salary to get them to stay on longer. That cost is short term. The pension body which generally can't set any laws is the entity that is stuck long term with the payout problem.

And it's not just a case of spiking salaries to keep experienced employees on the job, but the governmental employers frequently have tried to weasel their way out of agreed upon obligations to the pension systems.

My system started working with the employer in the 1990's, when we were 100% funded, to address anticipated future funding issues. The city pleaded poverty and got the pension system to agree to allow them to gradually increase to the new contribution rate over a 6-year period. While the ink on that agreement was still wet, the city gave the union a contract that threatened to bankrupt the pension. Then the city claimed it couldn't pay its already too-small contribution and played hardball trying to reduce the already too-small amount they were paying into the system.

It was a case of playing the pension system against the employee's union to underfund everything and keep a steady level of employees without the expense of hiring new ones in a good economy. Eventually the union supported the pension board's lawsuit against the city to force it to comply, but it was ugly for a while.

donheff 10-12-2011 05:53 PM

Quote:

Originally Posted by Texas Proud (Post 1120588)

But the other side of that coin is the employees were given everything they were promised.... and some got even more since if you were not vested you became 100% vested at the time they closed down a plan... sure, they were not getting the same going forward, but who said things do not change???

Not really. The companies took an "over funded plan" (i.e. one that could effectively pay what was expected by its participants) add in a pile of unfunded executive pensions and then close out the whole lot. The employees got what they had already earned --- way, way different than what they expected since they were approaching high earning years and high multiple pension calculation periods. The companies got to capture the "over funding" as earnings and got to capture take the immense liabilities that would now never be realized as earnings. And, guess what. They got to blame the employees and the unions because pensions were supposedly a problem.

donheff 10-12-2011 06:10 PM

Quote:

Originally Posted by Bestwifeever (Post 1120606)
I think the disconnect between the employing body and the pensioning body is key.

The "3-or-5-or-whateverr-highest-year average X whatever variable = pension" led to the employing body granting big raises in the last three years (because the pension law didn't say they couldn't) or the employees boosting their own salary with personal funds to achieve a higher average (because the pension law didn't say they couldn't). All tidy and legal, but against the spirit of the law if there is such a thing. Had the employing bodies been managing their own pension funds, perhaps there would have been a sense of fiscal responsibility and accountability in the end-career raises or the personal spiking.

I was blown away to discover how this ruse worked too. Raiders bought companies with good pension plans for the rank and file. Then they moved mid managers and execs (with vast unfunded liabilities) into the "over funded" rank and file plans. Then they offered the mid managers and execs "double nickles" (5 years service, 5 years age) to retire (which they could do because the fund was "over funded" so the $ was available for such buyouts). After the downsizing they froze the pension plan and captured the suddenly reduced liabilities as income (which could be dribbled onto the books quarter after quarter to meet 'expectations"). Then they slashed promised life time retiree health benefits because it was cheaper to litigate than pay (ERISA doesn't permit damages). Or they slowly cut health on the argument that they were in financial trouble tricking the unions into letting it go by (past practice) after which they slashed benefits to nothing. Then they packaged up the devastated divisions (including the empty pension fund) into a subsidiary. Then the subsidiary went bankrupt and gave the CEO a $45M package.

There is a whole consulting industry available to show corporate execs how to play the system so they can remain "legal" or close enough to legal to profit from these despicable practices.

donheff 10-12-2011 06:21 PM

Apologies for my ranting. If you haven't figured it out, Retirement Heist pissed me off about corporate greed more than anything I have previously read. And I have read all of the recent books on how Wall Street took down America. How these management dogs ripped of American workers is so despicable I am amazed some of the private sector people who were devastated by these practices didn't bring their guns into headquarters.

I am sure there is at least some modicum of a story on the other side. I welcome the more cool headed on the forum to read this book and then inform me of how it is not accurate. In the meantime, I am ready to "occupy" something. >:(

ERD50 10-12-2011 06:42 PM

Quote:

Originally Posted by donheff (Post 1120687)
Apologies for my ranting. ....

IMO, no apology needed. These are issues where injustices are going to get us worked up. And it's not really a 'rant' since you are providing references, not just bellyaching (assuming the ref is credible, which I don't know for certain, but will take at face value for now).

But I was starting to wonder, what does this have to do with the OP subject of municipal pensions in Illinois? It's not like 2 wrongs make a right.


And I do wonder, are the problems in the private sector as bad (in total magnitude) as those in the public? While the OP highlighted some extreme and relatively rare occurrences, 'spiking' in general is a very wide-spread problem. But I don't have any numbers at hand for now, just asking the question.

Quote:

How these management dogs ripped of American workers is so despicable ...
And there are people who wonder that about some too-powerful Unions also.

Quote:

I welcome the more cool headed on the forum to read this book and then inform me of how it is not accurate.
I hope someone does, I assume I'm excluded? :laugh: :coolsmiley:

Quote:

Originally Posted by donheff (Post 1120681)
There is a whole consulting industry available to show corporate execs how to play the system so they can remain "legal" or close enough to legal to profit from these despicable practices.

This is exactly why I'd like to see all the pensions and other 'promises' done away with (private and public). I'm not knocking politicians when I say this (for once), it's just the nature of how things get done, but the fact is that a consulting industry and corporate execs are going to be able to run circles around any laws. It just takes too long to get things through Congress, those firms can move faster, and respond to change faster.

Put some % of salary in a fund with my name on it, let me decide what to do with it, and no corporate raider can take it from me.

-ERD50

youbet 10-12-2011 09:25 PM

Quote:

Originally Posted by ERD50 (Post 1120694)
This is exactly why I'd like to see all the pensions and other 'promises' done away with (private and public). I'm not knocking politicians when I say this (for once), it's just the nature of how things get done, but the fact is that a consulting industry and corporate execs are going to be able to run circles around any laws.

ERD50,

In Illinois, converting public DBP pensions to 401k-like products will eventually be necessary. The concept of "playing the system" and actual outright corruption is so common and so accepted, it is actually embedded in our culture. It's the way we are. And here in Illinois, they're cheered and admired for their skill and cunning at playing the game. It's only a few downstate hicks and outsiders that are outraged........

Despite recent legislation which limits spiking, public employee unions are already collaborating with state legislators to establish work-arounds. And, of course, it goes far beyond unionized employees as evidenced by the characters in OP's article.

Veteran employees are currently in an uproar. Yes, they can retire with their "promised" pensions. But the tacit, yet always expected, 20% - 50% extra from spiking is being limited.

I have to admit, the way these 2 guys, and the head of the pension board, worked the spiking game is clever and somewhat unique. The con artists are getting smarter and the con games more sophisticated.

clifp 10-13-2011 01:02 AM

Don

I checked out the book reviews on Amazons. The fact that it was WSJ reporter and not a Rolling Stones or Mother Jones reporter gives some credibility to your outrages. I'll put on my library list although I suspect that it will be a while before I get my hands on it. It appears from the reviews that there is another side to story. I certainly have followed the story of pension plan raid for a number of decades. It has been a stable trick of corporate raider that after conducting a leveraged buy out, to sell off any excess pensions funds. To the extent that saddled the public via the PBGG I am outraged.

However the reason I am not as outraged as I am with union boss collecting outrageous pension is the following.
  • For the most part this is old news starting in the mid 80s peaking in the mid 90s and I guess continuing in the the early 2000 corporations have been replaced defined benefits with defined contributions. I suspect 90% of the time the workers got screwed. This has all been reported on for a long time in many cases in the WSJ.
  • I fundamentally believe that concept of working for 30 years for an employer (public or private) and having them primarily responsible for a persons retirement regardless of companies or countries economic condition is horrible and dangerous idea which will make American companies and workers uncompetitive with the rest of the world. To the extent that greedy management hasten the demise of DB plans I am happy they did it.
  • I expect corporation management to look out for their and the shareholders interests. At least in Silicon Valley expensive retirement plans were not a good recruitment or even retention tool, almost all the folks I worked with and interviewed preferred higher salary or more stock, or other benefits. So I can make a pretty strong case that ditching these plans were in the shareholder interests. Now it sucks that in many cases the main beneficiaries were folks in the C-suite and corporate raiders rather than shareholders. However, as shareholder I am pretty sure that I benefited from the lower retirement cost American companies now have from these tricks. I may not feel great about enriching myself at the expense of American workers losing retirement benefits, but hey I'm just a passive owner.
  • In contrast I have gain nothing from these union pension tricks. In an ideal world I expect politicians to put the public needs first. In the real world I am ok with politicians doing things that help them get relected and also help the public. I'll tolerate them doing things that help themselves as long as the don't hurt the public. But I draw the line at doing stuff the helps themselves and screws the public. This union trick is so far over the line it should be criminal or at the very least confined to IL and LA.

obgyn65 10-13-2011 05:11 AM

Where were the auditors ?
Quote:

Originally Posted by youbet (Post 1120729)
I have to admit, the way these 2 guys, and the head of the pension board, worked the spiking game is clever and somewhat unique. The con artists are getting smarter and the con games more sophisticated.


Tadpole 10-13-2011 05:59 AM

One of the problems I note in the entire debate is that somehow people latch onto a few individual cases of people that were in a position to game a pension system. This seems to get applied to all pensions of the rank and file who are not in a position to game anything. It is not as often that the story that goes rabid is one about people having the rug pulled out from under them with pensions that would have been rather modest and hard earned. What is creepy is that one starts getting the similar questions about ways people's private retirement savings are decreased in potential value by forces larger than themselves like the zero return for years on simple savings accounts. No place to hide? No way to win? Sometimes I think I will see a giant clawback of any wages that were not spent as they were earned. (Just a paranoid thought.)

ERD50 10-13-2011 07:16 AM

Quote:

Originally Posted by clifp (Post 1120746)
Don

I checked out the book reviews on Amazons. The fact that it was WSJ reporter and not a Rolling Stones or Mother Jones reporter gives some credibility to your outrages. I'll put on my library list although I suspect that it will be a while before I get my hands on it. It appears from the reviews that there is another side to story. ...

I look forward to your cool-headed review.


Quote:

This union trick is so far over the line it should be criminal or at the very least confined to IL and LA.
Thanks for putting it in perspective! Dang, that is bad! :laugh: :( :frown: :mad: >:(


Quote:

Originally Posted by obgyn65 (Post 1120755)
Where were the auditors ?

You may have missed my quote in post #2 - this was made legal -

Quote:

Gannon, former president of the Chicago Federation of Labor, was able to take a long leave from a city job to work for a union and then receive a city pension based on a high union salary. That arrangement is allowed under a state law signed by Gov. Jim Thompson on his last day in office in 1991, according to an investigation by the Tribune and WGN-TV.
Now, the people concerned with the solidity of the pension fund should be waving the red flag on this, but THAT is the crux of this problem. You've got the higher-up Union guys negotiating with politicians, but the politicians are typically put in office with the support of the Unions. So the Union is essentially represented on BOTH sides of the table. The taxpayers, and to some degree, the 'rank and file' Union workers are not represented to the same degree. So the Union higher-ups are able to wrangle these outrageous deals at the expense of taxpayers AND the people they are supposed to be representing. This system needs to be trashed.

Quote:

Originally Posted by Tadpole (Post 1120760)
One of the problems I note in the entire debate is that somehow people latch onto a few individual cases of people that were in a position to game a pension system. This seems to get applied to all pensions of the rank and file who are not in a position to game anything. ...


This seems to come up in these pension discussions, and I disagree. I absolutely know that not all rank and file are able to game the system. But that doesn't make these cases any less wrong. And they are not rare. The spiking issue is particularly wide-spread.


Quote:

It is not as often that the story that goes rabid is one about people having the rug pulled out from under them with pensions that would have been rather modest and hard earned. ...
I think maybe you are looking at things through filtered lenses. I'm quite certain that any pension cuts made to rank and file public workers would make plenty of news. For one, I think it is pretty rare, but it would be outrageous and, I suspect, widely reported. In fact, I think there was a thread on this recently, some town that just can't afford to pay the pensions now? The prospect of making adjustments to FUTURE pensions of people not even hired yet got plenty of air-time here in IL - that's no changes to previous earned benefits, and no changes for any current workers, but it still made headlines. I can't even imagine the fever pitch of reporting if any rank-and-file got 'the rug pulled out from under them' for previously earned benefits (in fact, it appears to be unconstitutional in IL).

Quote:

What is creepy is that one starts getting the similar questions about ways people's private retirement savings are decreased in potential value by forces larger than themselves like the zero return for years on simple savings accounts. No place to hide? No way to win? Sometimes I think I will see a giant clawback of any wages that were not spent as they were earned. (Just a paranoid thought.)
Are you looking for guarantees? Who is going to provide those, and how? I think we need to be honest with ourselves, and acknowledge there is risk in everything, and deal with it.

-ERD50

Texas Proud 10-13-2011 08:02 AM

Quote:

Originally Posted by donheff (Post 1120677)
Not really. The companies took an "over funded plan" (i.e. one that could effectively pay what was expected by its participants) add in a pile of unfunded executive pensions and then close out the whole lot. The employees got what they had already earned --- way, way different than what they expected since they were approaching high earning years and high multiple pension calculation periods. The companies got to capture the "over funding" as earnings and got to capture take the immense liabilities that would now never be realized as earnings. And, guess what. They got to blame the employees and the unions because pensions were supposedly a problem.


I did not say they got 'what they expected'.... I said they got what they were promised... a lot different meaning...

The day the plan was closed, all earned benefits (the promise) were paid by either cash to the participant or buying an annuity to pay them when they retire... no promise was made that the plan could not be changed or elminated at the whim of management...

I agree with you in that what was expected by the employees was a lot more than what they got.... but guess what??? They could have voted with their feet and moved to another company that had better benefits.. (yea, I know, it is not the same... and I am not trying to get in an argument here)...

When companies make these major changes to pensions or other benefits and nothing happens... then other companies do the same thing... that is why in the private sector pensions have basically gone away because the employees that had them did not do much when they were taken away...

But back to my point... the employees got what was 'promised'... the overfunding of the plan would never have gone to the employees in any case...

ziggy29 10-13-2011 08:15 AM

Quote:

Originally Posted by Texas Proud (Post 1120781)
that is why in the private sector pensions have basically gone away because the employees that had them did not do much when they were taken away...

It sure made me willing to leave and look for greener pastures.

MichaelB 10-13-2011 08:18 AM

Private sector pensions have not gone away, they were changed from defined benefit to defined contribution plans for employees and most management. Most senior executives still have defined benefit plans.

ziggy29 10-13-2011 08:20 AM

Quote:

Originally Posted by MichaelB (Post 1120789)
Most senior executives still have defined benefit plans.

Why am I not surprised? Talk about "haves" and "have nots" and the decline of the middle class...

That might explain why we stiffs in the trenches haven't sniffed a raise in several years.

MichaelB 10-13-2011 08:28 AM

Quote:

Originally Posted by ziggy29 (Post 1120790)
Why am I not surprised? Talk about "haves" and "have nots" and the decline of the middle class...

That might explain why we stiffs in the trenches haven't sniffed a raise in several years.

A different set of rules are in place for executives compensation vs most workers. Employees and workers compensation is subject to global marketplace competition while executives manipulate influence their own compensation and restrict competition for their own positions.

youbet 10-13-2011 08:40 AM

Quote:

Originally Posted by obgyn65 (Post 1120755)
Where were the auditors ?

I watched some fairly in-depth local news coverage on the boob tube last night after my last post.

There seem to be 2 issues:

1. The head of the pension board is using a very "loose interpretation" of pension legislation to allow the shenanigans to occur as opposed to outright fraud. I don't think there was actually anything for auditors to catch as far as the 2 union bosses go. It's an issue with the legislation and the interpretation. And that's typical of most public pension "spiking" and double/triple dipping scenarios.

2. The head of the pension board himself may be in more trouble. This is just surfacing. He's been filling out time cards as an employee of the union but never actually doing any work for the union. This yields him a current paycheck and is setting him up for a double dip pension situation as well.

It'll be interesting to see who winds up "sleeping with the fish" over this. Like our situation with former Gov Blagojevich, someone will be punished for getting caught and causing the negative publicity (NOT for the actual deed which in itself is an accepted part of our culture) and will do some time or wind up as land fill at one of our "shovel ready projects."

Mayor Rahm Emanuel is saying we need a long term investigation and corrective action plan rather than any knee jerk reactions to the specifics of this particular revelation.

Texas Proud 10-13-2011 09:45 AM

Quote:

Originally Posted by MichaelB (Post 1120789)
Private sector pensions have not gone away, they were changed from defined benefit to defined contribution plans for employees and most management. Most senior executives still have defined benefit plans.


True... bad on my part... I should have narrowed it to DB plans...


I think that a DC plan, or a cash balance plan is the best way to go for both public and private.... you get a % of money set aside and it earns an average bond type rate (IOW, it is not at market risks)...

So, if you are working part time for most of you life, you only get cash at your part time wage.... if you are low paid, same thing.... there is no spiking, no outrageous pension based on a few days or even a few years of high salary... your pension is based on your income earned during your working career... nothing more, nothing less....

How fair is that....

youbet 10-13-2011 10:01 AM

Quote:

Originally Posted by Texas Proud (Post 1120825)
So, if you are working part time for most of you life, you only get cash at your part time wage.... if you are low paid, same thing.... there is no spiking, no outrageous pension based on a few days or even a few years of high salary... your pension is based on your income earned during your working career... nothing more, nothing less....

How fair is that....

It's very fair. But the concept is a real culture shock in many parts of the country, mine included.

Heavy duty spiking, at least for public school teachers, State of Illinois employees and City of Chicago employees has been rampant. (I can't speak for employees working for counties or smaller municipalities.) It's a major cause of pension fund underfunding.

An employee progresses to a salary of $60k over her career. And pension fund dollars are contributed by the employee and by the gov't to fund a pension based on the current formula and that level of salary. Then, suddenly, at career end the employee makes $80k, $85k and $90k for the last three years qualifying her for a much larger cola'd pension. Funds were not set aside for that level.......

Recent legislation in Illinois has subdued spiking for educators. They're now limited to having only the first 6% of raises during their final 3 years count towards pensions (with, of course, some exceptions for promotions and the like). It's causing a real uproar as generous spiking had become so common it's current limitation is being referred to as a "broken promise!" Other legislation which limits the amount "retired" public employees can work (at the same job they retired from) while collecting their pensions is also being fought. :facepalm:

ziggy29 10-13-2011 10:04 AM

Quote:

Originally Posted by Texas Proud (Post 1120825)
I think that a DC plan, or a cash balance plan is the best way to go for both public and private.... you get a % of money set aside and it earns an average bond type rate (IOW, it is not at market risks)...

So, if you are working part time for most of you life, you only get cash at your part time wage.... if you are low paid, same thing.... there is no spiking, no outrageous pension based on a few days or even a few years of high salary... your pension is based on your income earned during your working career... nothing more, nothing less....

How fair is that....

I'd add one more thought: given today's realities, this should be portable and not depend on a single "job for life." I think it would be a good idea -- if done properly -- to have some form of "portable pension" that isn't largely at the whim of the market. Too many folks in the "401K generation" are simply too dependent on the market and are participants in the "lottery" of what the market is doing at the time they want to retire.

IMO such a pension should reduce the dependency on "retiring at the right time" -- reducing the discrepancy of folks who retire in 1999 being far better off than those who retire in 2007, both of whom contributed the same amounts to their 401Ks and IRAs and used the same asset allocation but one having a MUCH more comfortable retirement than the other. The place for pensions and SS is to smooth this out somewhat.

donheff 10-13-2011 10:10 AM

Quote:

Originally Posted by Texas Proud (Post 1120781)
I did not say they got 'what they expected'.... I said they got what they were promised... a lot different meaning...

The day the plan was closed, all earned benefits (the promise) were paid by either cash to the participant or buying an annuity to pay them when they retire... no promise was made that the plan could not be changed or elminated at the whim of management...

I agree with you in that what was expected by the employees was a lot more than what they got.... but guess what??? They could have voted with their feet and moved to another company that had better benefits.. (yea, I know, it is not the same... and I am not trying to get in an argument here)...

When companies make these major changes to pensions or other benefits and nothing happens... then other companies do the same thing... that is why in the private sector pensions have basically gone away because the employees that had them did not do much when they were taken away...

But back to my point... the employees got what was 'promised'... the overfunding of the plan would never have gone to the employees in any case...

In those instances where companies managed pension plans in good faith and were forced to close plans because they were under financial stress and without a good alternative I would agree that employees got what they were promised. But in many, many cases the plans were not managed in good faith. In these cases employees got what they had earned to date. But not what they were promised because when companies set up plans like these (which they were not forced to do) there is a statutory promise (effectively unenforceable) that they will manage the programs in good faith. This book provides ample evidence that the companies did not manage the plans in good faith. They plundered the plans to the benefit of executives and share holders and they spun the resulting demise to make most of America believe the fault lay with the plans themselves.

youbet 10-13-2011 10:12 AM

Quote:

Originally Posted by ziggy29 (Post 1120839)
I'd add one more thought: given today's realities, this should be portable and not depend on a single "job for life."

The MegaCorp I retired from referred to the cash balance plan as the "Portable Plan."
Quote:

IMO such a pension should reduce the dependency on "retiring at the right time" -- reducing the discrepancy of folks who retire in 1999 being far better off than those who retire in 2007, both of whom contributed the same amounts to their 401Ks and IRAs and used the same asset allocation but one having a MUCH more comfortable retirement than the other. The place for pensions and SS is to smooth this out somewhat.
The problem here is convincing the guy who is retiring with favorable market conditions in 2007 to give some up for the guy who retired in 1999. Will you be willing to do that if you get lucky when your time comes around?

ziggy29 10-13-2011 10:14 AM

Quote:

Originally Posted by youbet (Post 1120845)
The MegaCorp I retired from referred to the cash balance plan as the "Portable Plan."
The problem here is convincing the guy who is retiring with favorable market conditions in 2007 to give some up for the guy who retired in 1999. You will to do that if you get lucky when your time comes around?

Maybe -- but the problem with the high dependence on DC plans is that retirement becomes more like a lottery. If you are born at the right time and retire at the right time, you "win" even though someone else who played by the same rules and made the same choices "loses" because they came around at the wrong time.

youbet 10-13-2011 10:20 AM

Quote:

Originally Posted by donheff (Post 1120841)
employees got what they had earned to date. But not what they were promised


This sounds much like some of our Illinois public pensions where currently employees are receiving what they earned (per formula) when they retire but are having "spiking" benefits subdued by recent legislation. Extreme spiking was so prevalent that many public employees considered it a promise and now consider receiving only the formula amount a promise broken. A lot of bitterness.

youbet 10-13-2011 10:22 AM

Quote:

Originally Posted by ziggy29 (Post 1120848)
Maybe -- but the problem with the high dependence on DC plans is that retirement becomes more like a lottery. If you are born at the right time and retire at the right time, you "win" even though someone else who played by the same rules and made the same choices "loses" because they came around at the wrong time.

I agree with you. But you missed my question. How do we average out the performance of the economy to the satisfaction of those who would have received more had we left it as is?

It really is going to be hard to ensure equal investment results vs time for people saving for retirement. I think the first page of the FireCalc instructions explains it pretty well.

MichaelB 10-13-2011 10:37 AM

Quote:

Originally Posted by youbet (Post 1120855)
I agree with you. But you missed my question. How do we average out the performance of the economy to the satisfaction of those who would have received more had we left it as is?

It really is going to be hard to ensure equal investment results vs time for people saving for retirement. I think the first page of the FireCalc instructions explains it pretty well.

The issue is that the individual faces greater investment risk than the pension fund because the fund can share the risk and the individual cannot. The individual doesn't need higher performance but lower risk. A "public pension fund" - like a non-for-profit annuity type fund would be a valuable option for the worker. Individual risk can be reduced and time horizon can be extended, which both lead to a more favorable outlook for the average person.

ziggy29 10-13-2011 10:44 AM

Quote:

Originally Posted by youbet (Post 1120855)
I agree with you. But you missed my question. How do we average out the performance of the economy to the satisfaction of those who would have received more had we left it as is?

It really is going to be hard to ensure equal investment results vs time for people saving for retirement. I think the first page of the FireCalc instructions explains it pretty well.

I'm not saying the concept of DC plans should be scrapped or replaced. I just think it would be good if people had other alternatives -- perhaps pooled investments run more like a (responsible) pension fund -- where people who are *willing* to forego potential growth for increased retirement security and certainty would have more ability to put retirement savings there.

Those who wanted to "play the birth lottery" and rely exclusively on the market could still do so -- and then if they fell short, it would be their own decision to choose the high risk/high reward route. As it is now, though, people who would prefer the stability and security of a pension instead of the risk/return of a 401K/IRA-based retirement really don't have much choice. Sure, they can "buy a pension" by rolling their DC plans into an SPIA when they retire but the amount they have is still highly dependent on the market.

youbet 10-13-2011 10:48 AM

Quote:

Originally Posted by MichaelB (Post 1120859)
A "public pension fund" - like a non-for-profit annuity type fund would be a valuable option for the worker. .

So something like voluntary extra contributions to SS (on the part of the employee) resulting in a larger payout at retirement? I could go for that.

A "risk taker" puts his contributions in a low cost 401k and choses an investment AA to suite his style and lives with the outcome........ Or, a risk adverse person sends the money as voluntary extra contributions to SS which result in higher SS payments that are perhaps higher or perhaps lower than he would have gotten going with the 401k.

Current SS would still be mandatory as a safety net.

ziggy29 10-13-2011 10:54 AM

Quote:

Originally Posted by youbet (Post 1120862)
So something like voluntary extra contributions to SS (on the part of the employee) resulting in a larger payout at retirement? I could go for that.

A "risk taker" puts his contributions in a low cost 401k and choses an investment AA to suite his style and lives with the outcome........ Or, a risk adverse person sends the money as voluntary extra contributions to SS which result in higher SS payments that are perhaps higher or perhaps lower than he would have gotten going with the 401k.

Current SS would still be mandatory as a safety net.

More or less. I think the idea is that those who don't have access to a traditional DB pension plan (but wish they had one) could at least have the option to funnel some of their 401K/IRA contributions into a somewhat "pension-like" vehicle which trades potential for certainty. And yes, it should be optional and folks should be educated about the tradeoff.

Texas Proud 10-13-2011 10:59 AM

Quote:

Originally Posted by donheff (Post 1120841)
In those instances where companies managed pension plans in good faith and were forced to close plans because they were under financial stress and without a good alternative I would agree that employees got what they were promised. But in many, many cases the plans were not managed in good faith. In these cases employees got what they had earned to date. But not what they were promised because when companies set up plans like these (which they were not forced to do) there is a statutory promise (effectively unenforceable) that they will manage the programs in good faith. This book provides ample evidence that the companies did not manage the plans in good faith. They plundered the plans to the benefit of executives and share holders and they spun the resulting demise to make most of America believe the fault lay with the plans themselves.

I love how you use the words 'plundered the plans to the benefit of executives and share holders'....

Nowhere did the companies say 'we will never change this plan... ever ever ever'.... and the companies paid what was PROMISED, which is what the employee had earned to date... you are not suggesting that an employee should be paid something they did not earn do you??? And in fact there were many employees who actually did get more than promised since if you were not vested, you became vested when they shut down a plan...

And again, the excess funding of ANY plan would not go to the benefit of the participants.... if you were in a DB plan, you got your DB.. nothing more... if the plan was fully funded or 100% over funded, you got your DB... so who actually 'owns' that excess funding??? The company... surprise....

I still do not see where the companies were not acting in 'good faith'... sure, the employees lost a benefit going forward, or was receiving a different benefit... but that is life... tomorrow my boss can come in and say 'we are cutting your salary by 20%'.... I don't view that as 'bad faith', just that I got shafted... to bad for me...

youbet 10-13-2011 10:59 AM

Quote:

Originally Posted by ziggy29 (Post 1120861)
As it is now, though, people who would prefer the stability and security of a pension instead of the risk/return of a 401K/IRA-based retirement really don't have much choice. Sure, they can "buy a pension" by rolling their DC plans into an SPIA when they retire but the amount they have is still highly dependent on the market.

I disagree. But perhaps the 401k I participated is unique. We had an investment option called "money market." It was very stable and safe. Or, if you wanted to take a tad bit of timing risk, you could go with the short term bond fund. In either case, you could at the end then buy an SPIA.

I think the problem you're battling is wanting returns like you're in risky investments but stability and security like you're in ultra-conservative investments. It's hard to have it both ways. Unless some subsidization (probably tax payer) is going on.

ziggy29 10-13-2011 11:06 AM

Quote:

Originally Posted by youbet (Post 1120868)
I disagree. But perhaps the 401k I participated is unique. We had an investment option called "money market." It was very stable and safe. Or, if you wanted to take a tad bit of timing risk, you could go with the short term bond fund. In either case, you could at the end then buy an SPIA.

But that actually highlights the point: At the individual level, the only way to "avoid risk" is to put your money into money market funds currently earning 0.1%.

Pension funds, on the other hand -- assuming they are responsibly managed and don't overpromise -- can (relatively) safely take more risk over a very long period of time and no one participant shoulders the "market risk" where the timing of their retirement determines how much they get -- and indeed, whether they can retire at all.

Again, much like insurance, the goal of a pension fund is (or should be) to offload "market risk" away from the individual. It can be done responsibly if invested appropriately (and again, if they don't overpromise benefits). In other words, many people would rather forego the potential of 10% returns on their 401K if they could participate in something that would pretty safely be able to assume (say) 5-6% returns with the risk spread out among all participants to smooth out the ride.

Seeing as this would be optional, I don't know why those who don't like the concept would oppose it. It's not like I'm suggesting the end of the 401K as Teresa Whats-her-name was doing a while back.

MichaelB 10-13-2011 11:07 AM

Quote:

Originally Posted by ziggy29 (Post 1120864)
More or less. I think the idea is that those who don't have access to a traditional DB pension plan (but wish they had one) could at least have the option to funnel some of their 401K/IRA contributions into a somewhat "pension-like" vehicle which trades potential for certainty. And yes, it should be optional and folks should be educated about the tradeoff.

+1

MichaelB 10-13-2011 11:10 AM

Quote:

Originally Posted by ziggy29 (Post 1120874)
But that actually highlights the point: At the individual level, the only way to "avoid risk" is to put your money into money market funds currently earning 0.1%.

Pension funds, on the other hand -- assuming they are responsibly managed and don't overpromise -- can (relatively) safely take more risk over a very long period of time and no one participant shoulders the "market risk" where the timing of their retirement determines how much they get -- and indeed, whether they can retire at all.

Again, much like insurance, the goal of a pension fund is (or should be) to offload "market risk" away from the individual. It can be done responsibly if invested appropriately (and again, if they don't overpromise benefits). In other words, many people would rather forego the potential of 10% returns on their 401K if they could participate in something that would pretty safely be able to assume (say) 5-6% returns with the risk spread out among all participants to smooth out the ride.

Seeing as this would be optional, I don't know why those who don't like the concept would oppose it. It's not like I'm suggesting the end of the 401K as Teresa Whats-her-name was doing a while back.

In addition to market risk, the pension fund can also deal with age and longevity risk, which the individual cannot. So the "pension-plan" type offering for someone with DC/401(k) is potentially very desirable.

ziggy29 10-13-2011 11:16 AM

Quote:

Originally Posted by MichaelB (Post 1120876)
In addition to market risk, the pension fund can also deal with age and longevity risk, which the individual cannot. So the "pension-plan" type offering for someone with DC/401(k) is potentially very desirable.

I see it as a potential way to restore the "three legged stool" of retirement that fewer and fewer people have available to them as time goes by. I think FERS pretty much got it right, and I could easily see such an "optional portable pension-lite" as serving roughly the same purpose as the DB pension portion of FERS retirement would provide.

youbet 10-13-2011 11:17 AM

Quote:

Originally Posted by ziggy29 (Post 1120874)
But that actually highlights the point: At the individual level, the only way to "avoid risk" is to put your money into money market funds currently earning 0.1%.

Pension funds, on the other hand -- assuming they are responsibly managed and don't overpromise -- can (relatively) safely take more risk over a very long period of time and no one participant shoulders the "market risk" where the timing of their retirement determines how much they get -- and indeed, whether they can retire at all.

Again, much like insurance, the goal of a pension fund is (or should be) to offload "market risk" away from the individual. It can be done responsibly if invested appropriately (and again, if they don't overpromise benefits). In other words, many people would rather forego the potential of 10% returns on their 401K if they could participate in something that would pretty safely be able to assume (say) 5-6% returns with the risk spread out among all participants to smooth out the ride.

Seeing as this would be optional, I don't know why those who don't like the concept would oppose it. It's not like I'm suggesting the end of the 401K as Teresa Whats-her-name was doing a while back.

Zig, sadly I think you're dreaming. It's a pleasant dream and I like it. But it's a dream.

Pension funds might be able to invest somewhat more aggressively than individuals and still guarantee 100% successful results, but I don't think in today's markets their ability to do so is as significant as you are portraying.

Most pension funds, Illinois comes to mind, are screaming that their underfunded status is the result of "poor market performance." I think that tells the story.

I have no issue with pension funds "offloading market risk from the backs of individuals" as you put it. But, it absolutely must NOT be done by simply putting that risk on the backs of others. Having tax payers or newer entrants to the fund shoulder the expense of paying guaranteed amounts to older plan members due to crappy market performance cannot be allowed to happen. Kicking the can down the road to the younger folks has become much too popular these days!

I will note that my son's 401k (Fidelity managed) does offer a stable value fund that is paying a few percent and looks attractive. Does your 401k have anything like that?

donheff 10-13-2011 11:19 AM

Quote:

Originally Posted by Texas Proud (Post 1120867)
I love how you use the words 'plundered the plans to the benefit of executives and share holders'....

Nowhere did the companies say 'we will never change this plan... ever ever ever'.... and the companies paid what was PROMISED, which is what the employee had earned to date... you are not suggesting that an employee should be paid something they did not earn do you??? And in fact there were many employees who actually did get more than promised since if you were not vested, you became vested when they shut down a plan...

And again, the excess funding of ANY plan would not go to the benefit of the participants.... if you were in a DB plan, you got your DB.. nothing more... if the plan was fully funded or 100% over funded, you got your DB... so who actually 'owns' that excess funding??? The company... surprise....

I still do not see where the companies were not acting in 'good faith'... sure, the employees lost a benefit going forward, or was receiving a different benefit... but that is life... tomorrow my boss can come in and say 'we are cutting your salary by 20%'.... I don't view that as 'bad faith', just that I got shafted... to bad for me...

I purposely chose the word plunder because that is what she documents. I am willing to concede that I may have been deceived by a Wall Street Journal reporter who has a bias against business. I would recommend that you read the book and then either agree or disagree with what she found.

Employers chose to set up DB plans and were then obliged by law and regulation to administer the plans to the benefit of the plan enrollees. The author very explicitly documents that they intentionally did otherwise. Usually they could exploit loopholes to avoid penalty. But under ERISA, even if the employers were determined to have done wrong, employees have no right to punitive damages so corporations could "plunder" the plans with relative impunity - so they did.

The bottom line is that this book alleges and attempts to document that many, many employers intentionally and wrongly misused otherwise healthy DB plans. She is either wrong or right about that. I came away thinking she is right and it infuriated me. There is nothing to be done about it now, that song is sung. But so what? I want to rage about the practices. Please read the book cover to cover and disabuse me of my perceptions so I can chill out. :)

ziggy29 10-13-2011 11:23 AM

Quote:

Originally Posted by youbet (Post 1120881)
Zig, sadly I think you're dreaming. It's a pleasant dream and I like it. But it's a dream.

Pension funds might be able to invest somewhat more aggressively than individuals and still guarantee 100% successful results, but I don't think in today's markets their ability to do so is as significant as you are portraying.

A couple of things here.

1 -- I'm not suggesting this "pension" has to guarantee a certain level of benefits unless the benefits are computed much more conservatively than they have been in legacy plans.

2 -- Even with more conservative benefit estimates, you'd almost certainly beat the only "certainty" available to the 401K crowd -- an AA of 100% cash.

And with the more conservative growth estimates (say 5-6% instead of the 8% or so commonly assumed with legacy plans) -- these funds could significantly overperform in bull markets which would cushion the blow in bear markets. And such a plan would eliminate several factors which make traditional legacy pensions less sustainable: for example there would be no spiking mechanism, and because it is 100% participant funded, there would be no companies or government bodies "underfunding" the plan when it's convenient for them to do so. A person's benefit only rises to the extent to which they contribute. You don't fund it, your projected benefit doesn't rise.

youbet 10-13-2011 11:32 AM

Quote:

Originally Posted by ziggy29 (Post 1120885)
A couple of things here.

1 -- I'm not suggesting this "pension" has to guarantee a certain level of benefits unless the benefits are computed much more conservatively than they have been in legacy plans.

2 -- Even with more conservative benefit estimates, you'd almost certainly beat the only "certainty" available to the 401K crowd -- an AA of 100% cash.

And with the more conservative growth estimates (say 5-6% instead of the 8% or so commonly assumed with legacy plans) -- these funds could significantly overperform in bull markets which would cushion the blow in bear markets. And such a plan would eliminate several factors which make traditional legacy pensions less sustainable: for example there would be no spiking mechanism, and because it is 100% participant funded, there would be no companies or government bodies "underfunding" the plan when it's convenient for them to do so. A person's benefit only rises to the extent to which they contribute. You don't fund it, your projected benefit doesn't rise.

So who would run this plan thats guaranteed to "overperform in bull markets?" Who would govern it? Would there be some kind of bailout mechanism if investment returns did stumble below their ability to support the prosmised pension levels?

Perhaps we could all have access to FERS? That might be close to what you're talking about.

Or, google the Wisconsin Retirement System. It's close to what you're talking about. It's 100% funded and the cola, if any, depends on investment returns. Right now, no cola which is appropriate for economic conditions. They can even reduce your pension due to poor investment returns, but not below the original level you received on day #1. Of couse, you'd have to substitute private funding for gov't funding.

Mulligan 10-13-2011 11:33 AM

Quote:

Originally Posted by MichaelB

The issue is that the individual faces greater investment risk than the pension fund because the fund can share the risk and the individual cannot. The individual doesn't need higher performance but lower risk. A "public pension fund" - like a non-for-profit annuity type fund would be a valuable option for the worker. Individual risk can be reduced and time horizon can be extended, which both lead to a more favorable outlook for the average person.

You are spot on with this comment. Most forum posters here without pensions know how to handle their money, but are still at risk to the whims of the market. The "average person" you mention Michael has double the risk, not only are they subject to the whims, they don't even understand what they are trying to do.

youbet 10-13-2011 11:41 AM

Quote:

Originally Posted by Mulligan (Post 1120890)
You are spot on with this comment. Most forum posters here without pensions know how to handle their money, but are still at risk to the whims of the market. The "average person" you mention Michael has double the risk, not only are they subject to the whims, they don't even understand what they are trying to do.

There it is! The youbet "understatement of the day." Congratulations on your award! :dance:

Here in Illinois (this thread did start out being about Illinois.......) our ability to be dumb and greedy when making investments is exceeded only by our love and admiration of corruption, graft, payola, scams, machine politics and the public servants who pull them off.

ziggy29 10-13-2011 11:44 AM

Quote:

Originally Posted by youbet (Post 1120889)
Would there be some kind of bailout mechanism if investment returns did stumble below their ability to support the prosmised pension levels?

Perhaps we could all have access to FERS? That might be close to what you're talking about.

Wouldn't the second paragraph make the first even worse? Make it a part of FERS and Uncle Sam is on the hook for all the underperformance -- not just of its own employees but for everyone who bought into it. I'm not necessarily opposed to that idea but it *is* in conflict with the concern over "bailouts" for underperformance.

And keep in mind that I am referring to concepts, not details. You are stuck on the details which would have to be worked out at a later time. First you need the concept, then you work the details to see if it can be feasibly done. I would think if nothing else you could pretty safely remove a lot of "market risk" in such a fund without needing to rely on the pathetic returns of cash and short-term investment grade bonds.

In reality, I think the greatest risk would be political risk -- resisting the pressure to increase benefits in bull markets because the pension fund is so "overfunded". Avoid that temptation (this helped ruin the solvency of some pension funds) and it becomes much more likely to survive prolonged bear markets like 1966-1982 or 2000-20xx -- and be sustainable for many decades.

youbet 10-13-2011 11:52 AM

Quote:

Originally Posted by ziggy29 (Post 1120893)
Make it a part of FERS and Uncle Sam is on the hook for all the underperformance --

Good point. Hey, I was just throwing out an idea.
Quote:

And keep in mind that I am referring to concepts, not details. You are stuck on the details which would have to be worked out at a later time.
I was accepting your concept as a good idea. But sometimes you have to probe the details to see if it could actually be implemented. For example, Roosevelt thought it was a good concept to provide a safety net for retirees called SS and fund it with 1% of participants payroll dollars. Hmmmmmmm..... While it's a good idea to have the safety net, the 1% part hasn't worked out all that well.......

Zig, if ya don't look at the details and challenge concepts, it's pretty hard to formulate an implementation plan and actually make it happen.

As I stated earlier, your concept sounds like a sweet dream to me. I'm just having trouble thinking of a way it could actually happen and, if it did, how we could keep greedy managers and politicians from fouling it up in short order.

Bear in mind, I'm a Chicago boy and always assume that both private and public sector folks who run anything are always completely in it for themselves. It's our culture.

ziggy29 10-13-2011 11:56 AM

Quote:

Originally Posted by youbet (Post 1120896)
As I stated earlier, your concept sounds like a sweet dream to me. I'm just having trouble thinking of a way it could actually happen and, if it did, how we could keep greedy managers and politicians from fouling it up in short order.

Bear in mind, I'm a Chicago boy and always assume that both private and public sector folks who run anything are always completely in it for themselves. It's our culture.

Yeah, I added a paragraph to my post above to reflect that -- here it is again, repeated. This is probably the greatest "risk" of them all with such a proposal:

Quote:

In reality, I think the greatest risk would be political risk -- resisting the pressure to increase benefits in bull markets because the pension fund is so "overfunded". Avoid that temptation (this helped ruin the solvency of some pension funds) and it becomes much more likely to survive prolonged bear markets like 1966-1982 or 2000-20xx -- and be sustainable for many decades.
Basically the fear is that someone could "buy votes" by promising them a higher benefit if they are elected... and they just undermined the relatively conservative actuarial assumptions of the fund and put it at risk of going insolvent in a long bear market. That would need some way to be avoided, for sure.

Bestwifeever 10-13-2011 12:00 PM

I could see all pensions turned into SS on steroids--no more private/municipal/state/federal pensions or social security retirement, just a mandatory contribution to a new national pension fund managed by a new agency; if you wanted to put more in, too bad, manage that on your own (like one does when they exceed limits on IRA and 401K contributions).

Mulligan 10-13-2011 12:03 PM

Quote:

Originally Posted by youbet

There it is! The youbet "understatement of the day." Congratulations on your award! :dance:

Here in Illinois (this thread did start out being about Illinois.......) our ability to be dumb and greedy when making investments is exceeded only by our love and admiration of corruption, graft, payola, scams, machine politics and the public servants who pull them off.

Why thank you, Youbet! I haven't received an award since I went to the principals office... Wait that was for a spanking... This might be my first ever!
Seriously though my 5 closest friends who don't have pensions, are putting money in their 401k. But they have no idea how much they need or how to appropriate it properly. I couldn't beat any of them with a paddle long enough or hard enough to get them to pay attention to know what funds they are investing in or what the funds investing goals are. This spring my GF complained her funds went up "only 5%" the past quarter. I could barely get her to understand that her money would double in less than 4 years at that "only" amount.

MichaelB 10-13-2011 12:23 PM

Quote:

Originally Posted by ziggy29 (Post 1120893)
In reality, I think the greatest risk would be political risk -- resisting the pressure to increase benefits in bull markets because the pension fund is so "overfunded". Avoid that temptation (this helped ruin the solvency of some pension funds) and it becomes much more likely to survive prolonged bear markets like 1966-1982 or 2000-20xx -- and be sustainable for many decades.

+1

Quote:

Originally Posted by Bestwifeever (Post 1120901)
I could see all pensions turned into SS on steroids--no more private/municipal/state/federal pensions or social security retirement, just a mandatory contribution to a new national pension fund managed by a new agency; if you wanted to put more in, too bad, manage that on your own (like one does when they exceed limits on IRA and 401K contributions).

+1

They have tried to do this in other countries. I haven't paid too much attention but I believe Australia and the UK have some version. Chile and Argentina for sure. Some suffer from high fees, killing returns. Argentina's funds were raided - the gov't forced them to buy gov't bonds when no one else would. Still, as an alternative it is alluring.

samclem 10-13-2011 12:34 PM

Quote:

Originally Posted by Bestwifeever (Post 1120901)
I could see all pensions turned into SS on steroids--no more private/municipal/state/federal pensions or social security retirement, just a mandatory contribution to a new national pension fund managed by a new agency; if you wanted to put more in, too bad, manage that on your own (like one does when they exceed limits on IRA and 401K contributions).

Re: conversion of state/local public employee plans to federal control: I'd hate to see yet more power and control move upward. Is there some reason to believe other public employers are less adept than the feds? Any reason to protect them from themselves if they are?

Re: Conversion of private pensions: Same issue, but more so. How is this the business of the federal government?

And with the new government agency making the stock and bond purchases, we'd have increased government ownership of US private companies. Can they buy tobacco companies? Of course they should preferentially invest in "green" companies. Sometimes companies get into labor disputes, I wonder if anyone in Congress might move to disinvest from such companies at strategic times. And sometimes companies need "help" so this will be a good mechanism for accomplishing that.

Please, no.

I look at our federal government, the tremendous waste there and lack of responsiveness and accountability, and wonder why there is still some sentiment for wanting to bump things up to a higher level of centralization. The terms "federal", "national" etc still have some type of special esteem in some quarters.

Bestwifeever 10-13-2011 12:36 PM

It would be like getting private and public employers out of the health insurance business. I'm just floating that out there.

Bimmerbill 10-13-2011 12:55 PM

Does anyone believe that an employer offering a pension is a good thing?
Does anyone believe that there can be well funded and well managed pensions?

samclem 10-13-2011 01:07 PM

Quote:

Originally Posted by Bimmerbill (Post 1120925)
Does anyone believe that an employer offering a pension is a good thing?

In the abstract and starting from a clean sheet of paper: No. For all the reasons we've seen, employment (compensation now for work performed now) and the concept of guaranteed lifetime income in retirement are two separate things that each do better when kept separate.

Now, if a private employer wants to attracts and keep employees with some type of deferred compensation scheme, to include a pension, they should be allowed to do that. The mechanism to do that is with a contract, and the government should have no further interest in assuring that this contract is fulfilled than it does with any other contract. No public reinsurance, no shifting of risk to other entities. The government provides the courts for use in settling contract issues.
Quote:

Originally Posted by Bimmerbill (Post 1120925)
Does anyone believe that there can be well funded and well managed pensions?

Sure. But is there any reason to believe that a company with expertise in producing toasters will be the very best choice to meet the need for lifetime income of several thousand employees? Wouldn't we expect this to be done better if they could choose a specialized manager in an open marketplace?

youbet 10-13-2011 01:26 PM

Quote:

Originally Posted by Bimmerbill (Post 1120925)
Does anyone believe that there can be well funded and well managed pensions?

I'd point you to the Wisconsin Pension System. I'm not a member, never even lived in Wisconsin. But it's structure and operation are impressive. They fully fund each retiree's pension at the beginning per actuarial standards and, apparently, realistic investment yield expectations. Then they modulate the pension amount (including going DOWN!) to accomodate investment performance.

It really looks sustainable. Participants tolerate some payment variation but are rewarded with full funding.

I'd rather DIY, but I understand that is too stressful for some and the Wis system looks like a reasonable alternative.

Bestwifeever 10-13-2011 02:13 PM

Quote:

Originally Posted by youbet (Post 1120938)
I'd point you to the Wisconsin Pension System. I'm not a member, never even lived in Wisconsin. But it's structure and operation are impressive. They fully fund each retiree's pension at the beginning per actuarial standards and, apparently, realistic investment yield expectations. Then they modulate the pension amount (including going DOWN!) to accomodate investment performance.

Is that a state agency that administers the pension? If so, couldn't a federal agency emulate it?

ziggy29 10-13-2011 02:21 PM

Quote:

Originally Posted by youbet (Post 1120938)
I'd point you to the Wisconsin Pension System. I'm not a member, never even lived in Wisconsin. But it's structure and operation are impressive. They fully fund each retiree's pension at the beginning per actuarial standards and, apparently, realistic investment yield expectations. Then they modulate the pension amount (including going DOWN!) to accomodate investment performance.

That could work -- at least if nothing else, the state funding is a sunk (and just as importantly, known and predictable) cost each year as a part of employee non-cash compensation, and the risk to the taxpayer for "underperforming" pension funds is very limited.

youbet 10-13-2011 02:42 PM

Quote:

Originally Posted by Bestwifeever (Post 1120949)
Is that a state agency that administers the pension?

Yes.
Quote:

If so, couldn't a federal agency emulate it?
I'm sure a fed agency could emulate it........ if they could sell the constitutents on a pension plan where monthly payments are recalcualted each year based on a rolling average of fund investment performance.

youbet 10-13-2011 02:48 PM

Quote:

Originally Posted by ziggy29 (Post 1120951)
the risk to the taxpayer for "underperforming" pension funds is very limited.

Yes. By actually reducing pensions (but not below their original amount), they minimize tax payer liability for investment performance in market downturns. Of course, this means that a retiree who received big increases during several years of market run up could see those increases vanish during a prolonged downturn.

They do the calculations on a rolling average basis to keep from knee jerking folks. And there are two investment categories to chose between, one more aggressive, one less aggressive. If you go to the web site and look at historical payouts, the more aggressive fund has had some significant ups and downs over the years.

The sharing of investment risk between the retirees and the tax payers seems like a good plan. At least I'd like it here in Illinois. In our case both investment risk and shenanigan risk (spiking, double/triple dipping, etc.) are on the backs of the tax payers.

GregLee 10-13-2011 02:49 PM

Quote:

Originally Posted by Bestwifeever (Post 1120949)
Is that a state agency that administers the pension? If so, couldn't a federal agency emulate it?

There would, at least, be a problem of confidence. After years of bluster and threats to reduce Social Security benefits, certain government-hating politicians have gotten people really scared about whether they'll ever actually get any SS. If I had a nickel for every poster in this very forum saying he couldn't plan on SS payments when he retires, I wouldn't even need a pension.

steelyman 10-13-2011 03:29 PM

It's conceivable that this thread could be redirected to another current one titled "The Retirement Heist".

youbet 10-13-2011 03:54 PM

Quote:

Originally Posted by GregLee (Post 1120960)
There would, at least, be a problem of confidence. After years of bluster and threats to reduce Social Security benefits, certain government-hating politicians have gotten people really scared about whether they'll ever actually get any SS. If I had a nickel for every poster in this very forum saying he couldn't plan on SS payments when he retires, I wouldn't even need a pension.

Any lack of confidence in SS that I have has its roots in the big gov't advocates who think they can add an unlimited number of folks and increase benefits without end.

There are those who want to privatize or just kill SS. And there are those who will bring it to its knees by using it far beyond its original charter, although with good intentions I suppose. Either way, the integrity of the program suffers.

In any case, the situation with Illinois public pensions and the associated ongoing "happenings" has little relation to SS other than many Illinois public pension recipients don't participate in SS.

BLS53 10-13-2011 05:49 PM

Quote:

Originally Posted by youbet (Post 1120835)
It's very fair. But the concept is a real culture shock in many parts of the country, mine included.

Heavy duty spiking, at least for public school teachers, State of Illinois employees and City of Chicago employees has been rampant. (I can't speak for employees working for counties or smaller municipalities.) It's a major cause of pension fund underfunding.

An employee progresses to a salary of $60k over her career. And pension fund dollars are contributed by the employee and by the gov't to fund a pension based on the current formula and that level of salary. Then, suddenly, at career end the employee makes $80k, $85k and $90k for the last three years qualifying her for a much larger cola'd pension. Funds were not set aside for that level.......

Recent legislation in Illinois has subdued spiking for educators. They're now limited to having only the first 6% of raises during their final 3 years count towards pensions (with, of course, some exceptions for promotions and the like). It's causing a real uproar as generous spiking had become so common it's current limitation is being referred to as a "broken promise!" Other legislation which limits the amount "retired" public employees can work (at the same job they retired from) while collecting their pensions is also being fought. :facepalm:

The inequities are even more noticeable in small, far downstate communities, where the median household income is a little over $30K, and all the teachers live in the gated subdivision with the doctors and lawyers.

It wasn't always this way. My old high school principal is 85 years old and draws a $28K pension, and lives in the same modest house he did 40 years ago.

Maybe teachers were underpaid for a long time, but the pendulum has swung too far the other way now.

The recently retired ones I know, wear those pensions like a badge of honor, and look down on those of lesser fortune.

GregLee 10-13-2011 06:49 PM

Quote:

Originally Posted by BLS53 (Post 1121001)
The inequities are even more noticeable in small, far downstate communities, where the median household income is a little over $30K, and all the teachers live in the gated subdivision with the doctors and lawyers.

I don't understand what you're trying to say here. It's inequitable for a teacher to live in a gated subdivision? What equities are involved? Does that even make any sense?

BLS53 10-13-2011 10:26 PM

Quote:

Originally Posted by GregLee (Post 1121011)
I don't understand what you're trying to say here. It's inequitable for a teacher to live in a gated subdivision? What equities are involved? Does that even make any sense?


The subdivision is just an anecdote and isn't the issue. The issue in Illinois is the overly generous salaries and pensions, that allow working stiff teachers to live an increasingly opulent lifestyle.

The inequity is between the taxpayers and the teachers. And the fact that all government entities involved are broke, while the teachers get richer.

Not to mention the local district continually fails to meet learning achievement standards, and the teens coming out of the high school are a step above animal life. But I digress.

chinaco 10-14-2011 05:05 AM

It sure make one wonder. Hopefully someone digs deep to find out if there was some sort of Quid Pro Quo for some considerations or favors.

Is it a case of political and bureaucratic corruption?

IMO - It deserves some attention from the Justice Dept and FBI!

donheff 10-14-2011 07:04 AM

Anger at the structure and abuses (spiking, etc) of pensions makes sense to me but we are also back to the argument that teachers are overpaid. Maybe I am wrong but it feels like many people who complain about teacher salaries are all about the market when it comes to entertainers, athletes, executives, etc. Why not wait for Mr. Market to straighten things out? We are in a period of turmoil and uncertainty. Suddenly people who a few years ago were described as risk averse government drones willing to work for low wages to secure modest lifetime income guarantees are now viewed as vastly overpaid, pampered rich kids. Today there are lines to get teaching jobs and other government jobs. This too shall pass.

ERD50 10-14-2011 07:09 AM

Quote:

Originally Posted by chinaco (Post 1121047)
It sure make one wonder. Hopefully someone digs deep to find out if there was some sort of Quid Pro Quo for some considerations or favors.

Is it a case of political and bureaucratic corruption?

It is no wonder, and it takes no digging to figure out if this was Quid Pro Quo for some considerations or favors or a case of political and bureaucratic corruption. It undoubtedly was.

Quote:

That arrangement is allowed under a state law signed by Gov. Jim Thompson on his last day in office in 1991, ...

Now, making the connections to prove anything is a whole 'nother matter. Recall that it took two trials (the first was a hung jury on all but one count) to find former Governor Blago guilty of using his influence inappropriately, even though they had numerous tapes of him referring to the Senate seat vacated by Pres Obama as:

Quoting the Blagojevich Complaint: Chicagoist
(edits mine)

Quote:

ďIíve got this thing and itís (eff-ing) golden, and, uh, uh, Iím just not giving it up for (eff-ing) nothing. Iím not gonna do it. And, and I can always use it. I can parachute me there.Ē (pg 59)
ROD BLAGOJEVICH said that the consultants (Advisor B and another consultant are believed to be on the call at that time) are telling him that he has to "suck it up" for two years and do nothing and give this "(m-effer) [the President-elect] his senator. (Eff) him. For nothing? (Eff) him." '

Quote:

IMO - It deserves some attention from the Justice Dept and FBI!
Agree, and I hope they could alter those pensions. But I doubt they have anything on tape, they don't have Gov Thompson saying that these pension changes are 'effen Golden', so I don't expect anything to happen. I don't think this is on the protesters list though.

-ERD50

ERD50 10-14-2011 07:18 AM

Quote:

Originally Posted by donheff (Post 1121060)
Anger at the structure and abuses (spiking, etc) of pensions makes sense to me but we are also back to the argument that teachers are overpaid. Maybe I am wrong but it feels like many people who complain about teacher salaries are all about the market when it comes to entertainers, athletes, executives, etc. Why not wait for Mr. Market to straighten things out? We are in a period of turmoil and uncertainty. Suddenly people who a few years ago were described as risk averse government drones willing to work for low wages to secure modest lifetime income guarantees are now viewed as vastly overpaid, pampered rich kids. Today there are lines to get teaching jobs and other government jobs. This too shall pass.

I don't really want the thread to derail into that area, it always ends badly. But your analogy is very, very flawed. Yes, you are wrong.

I can choose (and I most usually do) to not go to football games, not buy NFL t-shirts, not go to certain concerts, or not buy certain CDs etc. I cannot choose not to pay my property tax.

The teachers union is powerful enough that 'free market' simply does not apply. Why do higher demand math and science teachers get the same pay as teachers in high supply subjects? That says it all - that is not the free market at work. Do all NFL or entertainers get the same starting pay?

And for the record, I never 'complain' about teacher salaries directly. I only complain that there is not a free market for teacher salaries.

-ERD50

donheff 10-14-2011 07:31 AM

Quote:

Originally Posted by ERD50 (Post 1121062)
I don't really want the thread to derail into that area, it always ends badly. But your analogy is very, very flawed. Yes, you are wrong.

I can choose (and I most usually do) to not go to football games, not buy NFL t-shirts, not go to certain concerts, or not buy certain CDs etc. I cannot choose not to pay my property tax.

The teachers union is powerful enough that 'free market' simply does not apply. Why do higher demand math and science teachers get the same pay as teachers in high supply subjects? That says it all - that is not the free market at work. Do all NFL or entertainers get the same starting pay?

And for the record, I never 'complain' about teacher salaries directly. I only complain that there is not a free market for teacher salaries.

-ERD50

Fair enough and I agree to a point. I was about to start nit picking but I completely agree with your first sentence and should probably not have ventured in this direction.

Mulligan 10-14-2011 09:25 AM

Quote:

Originally Posted by BLS53

The inequities are even more noticeable in small, far downstate communities, where the median household income is a little over $30K, and all the teachers live in the gated subdivision with the doctors and lawyers.

It wasn't always this way. My old high school principal is 85 years old and draws a $28K pension, and lives in the same modest house he did 40 years ago.

Maybe teachers were underpaid for a long time, but the pendulum has swung too far the other way now.

The recently retired ones I know, wear those pensions like a badge of honor, and look down on those of lesser fortune.

I understand your concern on local public salaries being way out of line with the community in general. Maybe it's different in your location, but where I'm at locally depressed areas usually results in lower pay. In fact a neighboring district has a first year teacher salary right around that $28k mark. Appearances can sometimes be misleading. Some teachers I have known draw 2 paychecks at the same time to live their above average lifestyle. One being their work check and the other being their cash advance checks from their other employer, Visa :)

FinanceDude 10-14-2011 10:31 AM

When I think of insane and Illinois, I think of the Eden at rush hour..........:)


All times are GMT -6. The time now is 05:54 PM.

Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.