Under funded pension plan tidal wave ...

Sunset said:
But FL and a bunch of other States have that plus zero tax on dividends, capital gains, earnings, or put another way: zero State tax....:greetings10:
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Having no state income tax and collecting revenue in other ways is very different from having a state income tax but exempting retirement income leaving the burden to young workers.
 
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steelyman said:
I don't know if it got much airplay outside of IL, but one of the attorneys arguing on behalf of state employees who had filed suit to protect their benefits had an interesting point to make to the Supreme Court justices regarding the State's defense in the Pension Reform case.

He said the State was trying to use the Lizzie Borden defense: "I know I killed my parents, but have mercy on me. I'm an orphan."
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\

Yes, that was a clever way to describe the situation.

It's all about under-funding.
 
Well, in IL the latest news (just today) is interesting to say the least. I'd say what but it would fall too close to the wise forum political guidelines. Interested people can fact-check around.

A fact-check I forgot to mention is the name of the attorney who made the "Lizzie Borden" observation. It was Aaron Maduff.
 
rayinpenn said:
In my humble opinion Illinois will find a way to reduce benefits in the years to come. It is inevitable as the spring, summer fall and winter. They are in too deep but there is one hope...

Freeze benefits and pray for inflation.


Sent from my iPad using Early Retirement Forum.
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Are you not aware That Illinois dramatically reduced teacher pensions 4 years ago? New folks are hired under a plan called "Tier 2" and pay in over 9% to the fund while the benefits resemble SS. The main problem is that the plan may not allow school districts to continue to deny SS benefits to teachers because in order to do so, the pension plan must be substantially equal or better than SS, and Tier 2 really isn't. Or so some groups are claiming.

The potential future cost of SS to local school districts (paying the employer share) is an aspect of the problem not often discussed. Local school boards seem to dread having that 6+% employer contribution added to their local costs. OTOH, teachers are absolutely whacko to not be demanding SS. At least in my opinion. Counting on a pension delivered only at the whim of Illinois politicians and no SS is a sure formula for a financially challenged retirement.
 
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I didn't want to start a new thread, so I looked for another pension thread to add this to. It's sort of hard to find one that hasn't been closed by Porky.

Anyway, Arizona has voted to make changes that will (eventually) return their system to fully funded - Arizona Voters Approve Public Employee Pension Reforms.

Here’s what the changes do:

  • Cost of living increases (COLA) will be based on the consumer price index for Phoenix and capped at 2 percent and will be pre-funded (which is currently not happening).
  • New hires will be able to choose between defined contribution plan (like a 401(k)-style savings plan) or a hybrid defined benefit plan rather than the traditional pension system.
  • New hires will have the salary cap for pension calculations reduced from $265,000 to 110,000 per year, seriously limiting incentives for finding ways to "spike" pensions with bonuses or unused vacation time to jack up what retiring employees will be receiving.
  • The eligibility age for new hires will be increased from 52.5 to 55.
  • New employees will have to pay 50 percent of plan costs if the plan doesn't meet return assumptions.
  • Employers (that is to say, the government) will be forbidden from having "pension holidays," where they stop paying into pension funds when they are overperforming (which then turns into a crisis when pensions later underperform).
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The article by Reason Magazine is somewhat self congratulatory, but still it's a real step in the right direction. And it passed 70% to 30%. It's a shame most of the changes will be loaded onto the new hires, but that's really the only way to make it work. And blocking the gov't from funding holidays will make a huge difference. Hooray for progress!
 
harley said:
I didn't want to start a new thread, so I looked for another pension thread to add this to. It's sort of hard to find one that hasn't been closed by Porky.

Anyway, Arizona has voted to make changes that will (eventually) return their system to fully funded - Arizona Voters Approve Public Employee Pension Reforms.

The article by Reason Magazine is somewhat self congratulatory, but still it's a real step in the right direction. And it passed 70% to 30%. It's a shame most of the changes will be loaded onto the new hires, but that's really the only way to make it work. And blocking the gov't from funding holidays will make a huge difference. Hooray for progress!
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Interesting. It looks like a comprehensive reform and everyone is sharing in the pain but it will save a pension that was in poor shape.
 
Arizonan here. We finally are able to close down the pension spiking using bonus and accrued vacation and sick days, but only for new hires. Earlier, a judge had ruled that spiking would continue for existing employees, even though that practice was defacto and never formally sanctioned.
 
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well, I hate to be a Debbie downer but you can't spike pay in most hybrid DB or any DC plans...

also, since these changes only apply to new hires, it may be a decade or more before meaningful cost reductions are realized
 
There's a big change that applies to current members, which is the cap on COLA. This can have a pretty big impact on younger retirees.

Also, it appears that the goal was to insure the viability of the pension. We would need to see scrutinized numbers to determine if that has been accomplished, but my guess is yes. Now they just need to stick with the plan.
 
The last item about forbidding 'pension holidays' is quite welcome and makes a lot of sense. One of my pet peeves is governments that find a reason to not make the required payment into the pensions system for a year or more. Then, 5, 10, 20 years later people complain how the pension system is draining the public treasury and impacting important programs.

I'm also glad they have taken steps to eliminate spiking. That was a nasty thing for everybody but the spikers.
 
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Chuckanut said:
The last item about forbidding 'pension holidays' is quite welcome and makes a lot of sense. One of my pet peeves is governments that find a reason to not make the required payment into the pensions system for a year or more. Then, 5, 10, 20 years later people complain how the pension system is draining the public treasury and impacting important programs.

I'm also glad they have taken steps to eliminate spiking. That was a nasty thing for everybody but the spikers.
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agreed - consistent funding of these systems is critical

just changing the new entrants to a DC or DB-hybrid plan eliminated the spiking. it sounds like the current members can still spike? Spiking occurs when the final average compensation is applied to prior service - DC and most DB-hybrid plans are career average plans and are almost immune to spiking
 
Personally I don't understand why they can't just stop spiking right now. I understand it would PO the people retiring in the next couple of years, but everybody not personally involved admits that it runs counter to the intent of the pension plan. If I was in charge (lol) I'd stop it immediately.
 
I also thought it would be so easy. Sorry Harley, but you are not in charge.

I have posted on this, but cannot find my old post.

Basically, the city of Phoenix wanted to stop spiking. It was taken to court by several employee unions. The plaintiff argued that they had been saving vacations for years to be able to take advantage of this, and it was not fair to take it away. The city argued that this was never written into the rules, but was allowed because there was surplus money. Now that the fund was short, they wanted to stop.

The judge ruled for the employee unions. End of story.

Once you give people something, it is very hard to take it away. Except for the Federal government that is. You can sue the city, the state, but can you sue the Congress of the US?



PS. Here's another detail. In 2012, the city of Phoenix said that vacations accrued up until 2012 could still be used to spike, but vacations accrued after 2012 would not count. The employee unions said hell no, they had to be allowed to continue to accrue till quitting. The city lost.
 
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harley said:
Personally I don't understand why they can't just stop spiking right now. I understand it would PO the people retiring in the next couple of years, but everybody not personally involved admits that it runs counter to the intent of the pension plan. If I was in charge (lol) I'd stop it immediately.
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Stopping it is not something that can be done by fiat, but IMO it does need to be done however it may be possible. It (IMO) not only shortchanges taxpayers, but makes the pension fund less solvent for those pensioners (current and future) who aren't abusing the system.
 
Well, lawyers for employee unions say that it is not abuse if it has been allowed over the years, though not explicitly sanctioned. So, the practice shall continue. They won.
 
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NW-Bound said:
Well, lawyers for employee unions say that it is not abuse if it has been allowed over the years, if not explicitly sanctioned. So, the practice shall continue. They won.
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"Gaming the system." Better?

Still, if it walks, talks and quacks like a duck.... :)
 
Lots of duck around us my friend, lots of duck... But a good lawyer will successfully argue that they are chicken.

The younger generation like my children is ignorant, but when they get older and think about all this, they will say that we, the people of retirement age now, are all duck. Quack, quack, quack...

As I explained earlier, the city of Phoenix just wanted to freeze the accrued spiking, not taking it out completely. And they still failed!

Life is not fair. But what can you do about it, other than making jokes?
 
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Chuckanut said:
The last item about forbidding 'pension holidays' is quite welcome and makes a lot of sense. One of my pet peeves is governments that find a reason to not make the required payment into the pensions system for a year or more. Then, 5, 10, 20 years later people complain how the pension system is draining the public treasury and impacting important programs.

I'm also glad they have taken steps to eliminate spiking. That was a nasty thing for everybody but the spikers.
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I agree with this... the holidays are IMO the worst... you are almost assured of it coming back to bite someone in the you know where..... but since the politicians who did it will likely be gone, who cares:confused:


One of the other things that I would like to see is them getting rid of the top 3 or top 5... say you worked as a regular Joe/Jane for 30 years... and then got a big promotion the last few years.... your pension looks like you were making the big money the whole time....

Now, compare this to someone who was in the top job for 25 of those years.... doing the hard work etc... guess what, your pension is the same as Joe/Jane who only did it 3 years!!!!

That to me is why the contribution plans are more 'fair'.... because it is based on your whole career earnings and there cannot be any spike no matter what happens.....
 
Gee, I thought as good ER forum members, we were supposed to get everything we could possibly get in the way of legal government bennies to feather our retirement nest. Why are the people retiring from Phoenix government thought of any different?
 
Well, I would not complain if they allowed me to spike my SS the same way. I couldn't, and instead, they recently took away spousal File and Suspend thinggy. Now, I will pay more for city services to pay for these pensions.

I want to quack, not to cluck!
 
Hermit said:
Gee, I thought as good ER forum members, we were supposed to get everything we could possibly get in the way of legal government bennies to feather our retirement nest. Why are the people retiring from Phoenix government thought of any different?
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Next thing you know multi-millionaires will be collecting health care subsidies and Social Security benefits for their late in life kids.

Quack, quack.
 
I should stop making fun of ducks. They can be aggressive (except for my friend redduck here).
 
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