Any municipal pension recipients working on 'plan Bs'?

[jon-nyc]

I've been following the Detroit mess very closely, and I of course feel very sorry for the retirees who will almost certainly have their pensions slashed. Given the constitutional protections of pension payments in Michigan, I can understand how many of those retirees figured they'd be ok even if/when Detroit went pear-shaped.

But now with the Detroit example for others to learn from, I'm curious if anyone who is or will be relying on a municipal pension from one of the poorly funded pension systems is starting to think of 'Plan B'.

I know, for example, if I had a pension coming from Chicago, Philadelphia, or the state of Illinois, I'd be giving it a lot of thought.

 

[steelyman]

That's too personal, could lead to politics, and finally a visit from Porky Pig.

 

[MichaelB]

There has been quite a bit of discussion about pension risk. Far too many threads to link. They include concerns about Social Security, private pensions, annuities. Even folks without pensions that have invested in municipal bonds or businesses heavily exposed to some of these risks. No reason it cannot be discussed again, and discussing a "Plan B" really has nothing to do with politics.

 

[BLS53]

I know a bunch of retired Illinois teachers living high on the hog. They don't seem to be concerned, and I doubt they have a plan B, or much money in the bank for that matter. Not even SS for a safety net.

 

[akck]

I have no Plan B as my pension is with the state, even though about half the time I've put in has been with municipal government. As long as the municipality makes their retirement benefit payments, there should be no problems. I feel safer with a state pension because states can't declare bankruptcy. Also, with retirement benefits being part of the constitution, they can't change what was promised (court tested).

The only problem is funding. For our state, there are other sources of funds that can be transferred should the pension fund run out of money. It won't be popular, but the state is obligated to meet pension payments.

 

[ERD50]

DW will get a small pension from the Illinois Municipal Retirement Fund. For reasons I don't fully understand, the funding levels on this are not too terrible, in the 80% range. Googling.......

IMRF Online - IMRF 101

bold mine:

IMRF is not funded by the state of Illinois
IMRF is not related to local police and fire pension funds
IMRF is managed by an independent Board of Trustees elected by IMRF employers and members.
IMRF is funded by member and employer contributions and primarily by investment income
Approximately $24.8 billion in assets as of 12/31/11
Funded status on an actuarial basis as of 12/31/11: 83.0%
Funded status on a market basis as of 12/31/11: 80.2%

OK, maybe that explains it - looks like maybe it is a bit more isolated from manipulation than some other Illinois funds?

As far as 'Plan B' it is a small enough pension (though getting close to her SS benefits) that I have not even bothered to enter it into FIRECalc. Another of my conservative moves I guess. But seeing that is has a 3% 'COLA', and 50% beneficiary benefit, it definitely has some value. At 80% plus funding, and her being on the lower end of the scale, I really doubt there will be any large cuts, if any at all. So Plan B is to take any cut in stride.

But I am curious about what people who are so much more dependent on the much more shaky funded plans are doing. I know several retired Illinois teacher couples, and I'm pretty sure their pension is the only thing that is funding their retirement. Though, their pensions are such that if they got cut by 50%, they would probably still be ahead of the median income couple, so they wouldn't starve. But it would be a real adjustment for them.

-ERD50

 

[ERD50]

... Also, with retirement benefits being part of the constitution, they can't change what was promised (court tested). ...

The Illinois Constitution can be amended. I know that's a long shot, but as you say, States cannot declare bankruptcy. And you can't get blood from a stone.

The options are limited, so I would not rule it out.

-ERD50

 

[steelyman]

There's a meeting of Illinois' State Universities Annuitants Association - www.suaa.org - next week in Mattoon, IL. I'll be there and interested.

My "Plan B": I'll be fine because of having saved.

 

[clifp]

There's a meeting of Illinois' State Universities Annuitants Association - www.suaa.org - next week in Mattoon, IL. I'll be there and interested.

My "Plan B": I'll be fine because of having saved.

Under normal circumstance, I can't say that report on this meeting would be all that interesting. However, since these aren't normal circumstance and I have weird interest in these things, I'd appreciate if you post some key take aways from the meeting.

 

[steelyman]

Under normal circumstance, I can't say that report on this meeting would be all that interesting. However, since these aren't normal circumstance and I have weird interest in these things, I'd appreciate if you post some key take aways from the meeting.

Sure, I will do whst I can. I went to one of these before, probably 2009, and much was a snoozer, but the rest made it OK.

 

[dtbach]

The Illinois Constitution can be amended. I know that's a long shot, but as you say, States cannot declare bankruptcy. And you can't get blood from a stone.

The options are limited, so I would not rule it out.

-ERD50

The options then is to either raise taxes more, or defund other programs. Somebody is going to get gored either way.

 

[akck]

The Illinois Constitution can be amended. I know that's a long shot, but as you say, States cannot declare bankruptcy. And you can't get blood from a stone.

The options are limited, so I would not rule it out.

-ERD50

Amending the constitution is always a possibility, but highly unlikely. There's a required vote every 10 years for calling a constitutional convention, but it's always been voted down. No issue has been big enough to get the support for a convention.

As for getting blood from a stone, I went to a pension benefits seminar and the question came up. Their thoughts were the obligation is in the constitution and there are reserves available that can be re-directed to meet pension obligations.

 

[dtbach]

Amending the constitution is always a possibility, but highly unlikely. There's a required vote every 10 years for calling a constitutional convention, but it's always been voted down. No issue has been big enough to get the support for a convention.

As for getting blood from a stone, I went to a pension benefits seminar and the question came up. Their thoughts were the obligation is in the constitution and there are reserves available that can be re-directed to meet pension obligations.

What reserves?? Certainly none in Detroit or Illinois.

 

[ERD50]

What reserves?? Certainly none in Detroit or Illinois.

I'd like to hear about this also, as would Gov Quinn!

I don't want to take this further into politics, so from the 'Plan B' aspect, yes, a constitutional amendment is unlikely, but if I had a significant portion of my ER dependent on it, I would not rule it out. I would want a Plan B.

-ERD50

 

[mountaintosea]

Even though my pension is supposedly solid, I'm still leery and as I was telling someone today, if my pension went belly up, I would still be ok. I don't take anything for granted. I'm only 61 with too many years ahead (hopefully).

 

[steelyman]

No reason it cannot be discussed again, and discussing a "Plan B" really has nothing to do with politics.

Not sure I agree, Sergeant, but I'm just a private.

 

[MichaelB]

I don't want to take this further into politics, so from the 'Plan B' aspect, yes, a constitutional amendment is unlikely, but if I had a significant portion of my ER dependent on it, I would not rule it out. I would want a Plan B.

-ERD50

A plan B is a prereq IMHO, especially when Plan A relies heavily on one source of income. Doubly so when the source is financially insecure, even more when the source depends on elected officialdome. Even without any of that uncertainty, after I quit work but before I was able to acknowledge ER our Plan A was already down the toilet. So much for the best laid plans...

Not sure I agree, Sergeant, but I'm just a private.

Well, I'm no sergeant but I am private, so I guess that makes us even.

 

[nun]

When I became a state employee at the age of 42, I had the choice between a traditional defined benefit plan and a defined contribution plan. The defined benefit pension plan had ten year vesting and as I was starting state work quite late I decided with the immediate vesting of the defined contribution plan. I am now at 10 years and, depending on an IRS ruling, might have the option to use my defined contribution accumulation to buy into the traditional pension plan. I think I'll do it if it becomes possible because I have other retirement accounts and income streams.

 

[2B]

Sometimes I feel like a prophet of doom but I'll put in some cheery thoughts. Unfortunately, our greatest risks are always political. Detroit had a politically created problem that is in the process of being "solved" politically. The same is playing out in other cities and probably some states. Even more exciting things are going on at the national level - ours and others.

Of course, we all know the SS trust fund is an accounting illusion. The assets there are all IOUs from the US Treasury. We get to borrow or tax enough to pay them off as we need to pay benefits. We are just now experiencing the SS security trust fund of actually needing these IOUs to be redeemed. We've already reduced the SS liability by taxing a portion of the benefits and changing eligibility ages. I think its a safe assumption that other changes can be made.

In other nations more interesting things have happened. Hungary seized retirement accounts and simply said they'd pay people directly. Poland recently called all of their bonds that were in their private retirement accounts. How safe do the Poles think their equity balances are? In our country, there have been statements that 401k and IRA balances should be limited in size. It's "unfair" for some people to save too much. In the 1930s US citizens were ordered to turn in their gold and gold coins.

I don't put anything outside the bounds of a greedy government. Can we have a plan B for all eventualities? Absolutely not! We can be flexible and move to have our baskets spread around as best we can.

 

[samclem]

I wonder if it's possible to buy insurance against a failure of a government entity to pay promised retirement benefits? It would probably be impractical on an individual basis, and it would take an insurer with very deep pockets.

Is there a way to hedge this risk using the markets? If we assume that a state-wide or municipal failure to pay these benefits would be accompanied by serious concerns about the repayment of bonds issued by these same entities (and a drop in these bond prices), perhaps buying "put" options would be a way to hedge? That would probably be expensive and none-too-certain.

 

[steelyman]

Saving some money may help to hedge.

 

[akck]

What reserves?? Certainly none in Detroit or Illinois.

The state my pension is with has reserves they can tap one being a budget reserve.

 

[Chuckanut]

I have diversified my sources of income so the failure of one won't drive me to the poor house. But, if I was overly dependent on a wobbly pension, I would seriously consider taking a part time job and delaying SS.

I really feel it for those people who were opted out of SS In favor of an underfunded pension plan. Shouldn't somebody go to prison for such nonsense, or at least commit ritual suicide?

 

[imoldernu]

Many municipal funds are already "hedged" through derivatives. (2011 article) http://www.chicagobusiness.com/article/20111217/ISSUE01/312179972/pension-peril-illinois-trs-goes-higher-risk-with-investments

The Illinois Teachers' Retirement System — the worst-funded major pension plan in the U.S. — is pumping more of its assets into higher-risk investments while using accounting methods that some pension experts say understate its funding shortfall.
Springfield-based TRS, the state's largest pension provider, plans to allocate about a third of its $37.8-billion portfolio to alternative investments such as private-equity and hedge funds, a four-month Crain's investigation of TRS holdings and practices finds. These unconventional assets typically dangle the potential for higher returns, but only because they also carry greater risks and fees. TRS is shifting its portfolio while it's still developing an in-house risk-management system.

With much attention to Illinois pension funds, it may be well to note that all "municipal" funds are not equal. While some municipalities may share in certain funds, others will be separate and apart.

I think the likelyhood of sudden defunding is not in the cards. With very few exceptions, most funds have capital that will be spent down before any massive defunding... even though the end result will be the same.
Mandatory "legal" funding?... Hmmm... which stone has the blood?

Plan B was to have at least one member of family with SS.

 

[steelyman]

I attended this today. I encourage anyone who has access to this sort of thing in their state to participate. Note: this is not a union (I am not a member of any union nor are people like me who worked in Illinois).

It was informative, although began with what appeared to me to be state politicians giving double-talk. I brought a laptop with me to take notes, but have decided not to post them here for two reasons: 1) I could have misinterpreted something and don't want to spread bad information, and 2) I don't want to spark the sort of thing you can guess about. I realize there are many differing opinions.

There was, however a very good (and long) talk about state budgets, pension funding, and taxes. Of course, the focus was Illinois.

I chased down the speaker after the talk and asked if he would post his slides as I know people who are interested (not you all, but you qualify too). He said yes. If it takes too long for them to put it up, I will scan my hard copy and post. (I think you can do that?)