Pension problems?

[heirloom]

I don't know of any instances in the private sector where an ongoing company rewrote history and reduced the pensions of retirees or told current employees that the credits earned in prior years and already in the books were being reduced.

No, they just go bankrupt because they can't afford the pensions and re-open later under a different name. Look at the older airlines who messed their employees pensions.

 

[imoldernu]

Central Falls is about a half mile from my original home (for 21 years) in Pawtucket RI, so many of my old neighbors and classmates will be affected. The entire state has been a political merry-go-round since the 1940's and is in no position to bail out Central Central Falls... indeed. In some ways RI is even worse than IL. You might want to go back to the article and scoll down to read some of the 1600+ comments... a good indication of the amount of controversy that surrounds the issue. The comments present some serious expansion of facts and issues that have only been touched on in the media.
'It's degrading': Bankrupt New England mill town offers Detroit a bleak preview - In Plain Sight

I see the problem as being much worse than anyone has forecast... and it's not just in the municipal pensions where the employees have no Social Security. The PBGC which was supposed to guarantee private pension plans, is currently nearing a $300 Billion deficit... and that shortage does not include the $500 Billion is projected shortages based on today's liability. The oversight that was supposed to keep the pensions safe, was basically ignored.

Many of the plans which looked to be safe are facing closer scrutiny that show the numbers are based on unrealistic projections. In addition, in an effort to recoup losses, the shortage was worsened the status by looking to risky investments, or (in the case of municipalities) covered the shortage by issuing bonds, and using reserve monies to fund the pensions, but, as in the case of Central Falls, resulted in a net loss, and bankruptcy. Either way, the money is just not there. In my FL city, the bond rates went to nearly 10% on some projects. On paper the budget balances, but reality for some, is just a few years away.

The Illinois Teachers Pension Fund is a fascinating story of mismanagement of about $40 Billion (the assets that are currently there to support the $136 Billion in liabilities). The fund has already sold its most solid assets... CD's and Triple A assets... to pay current liabilities. This left many, many billions in hedge funds, and questionable real estate portfolios.

The basic pension question that will have to be answered is. "When there is a net loss, who will pay, and who will lose?" As you all have pointed out, the legal decisions will require the wisdom of Solomon, and no one will be happy with the result.

 

[heirloom]

SS should be reserved for the unfortunate people who, despite having made the same money in their working life and contributed the same into SS, managed to spend it all and are now broke. That's what some pols have been thinking aloud. It's called means testing, baby!

Yes, I hear McCain, the senator who can't remember how many homes he owns, say this all the time. Wonder if he has to pay into SS....he was military and now a senator. Are either of these req'd to pay into SS?

Either way, when we first started working, SS wan't taxable. NOW...if you make over $32K your unearned income(including SS) is taxable. THEN, they keep adjusting the way they calculate the COLA for SS. Do they do that for public COLA...I doubt that.

I wish I would have had a choice whether I wanted to have SS withdrawn, I definitely would have said no.

 

[NW-Bound]

I wish I would have had a choice whether I wanted to have SS withdrawn, I definitely would have said no.

Then, in the war against savers, they will have asset tax, which will take from your checking account and your savings account even if they may pay just 0 interest.

In some European countries that have this asset tax, it's illegal to have money stashed under the mattress and not declaring it. Same for gold coins, collectibles, rare paintings, etc... If I recall correctly, there's even a branch of tax police to enforce it. When there's a will to get money, there will be a way. Heh heh heh...

 

[aja8888]

Yes, I hear McCain, the senator who can't remember how many homes he owns, say this all the time. Wonder if he has to pay into SS....he was military and now a senator. Are either of these req'd to pay into SS?

Either way, when we first started working, SS wan't taxable. NOW...if you make over $32K your unearned income(including SS) is taxable. THEN, they keep adjusting the way they calculate the COLA for SS. Do they do that for public COLA...I doubt that.

I wish I would have had a choice whether I wanted to have SS withdrawn, I definitely would have said no.

I believe military personnel pay into SS. Didn't SS become taxable under Clinton and the base amount back then not indexed for inflation?

 

[NW-Bound]

About SS being cut back, I have no problem with that, as it is fairer to the younger generation. I have to think about my children's future too.

It only irks me when they penalize savers and reward spendthrifts. What behavior would that policy encourage? What are they thinking? The pain has to be evenly spread, else people would just squander their savings so that the gummint gives them more.

 

[BLS53]

Maybe it's semantics, but as I understand it, the PBGC follows rules that are pre-defined. It's not like they look at the situation and then decide how to 'amend' the pensions. Everyone gets handled the same. Maybe that is what you meant?

And as I understand the pilot pensions, they do get whacked relative to others, since there is some built in 'early retirement' for them, and they are highly compensated. But those are the pre-defined rules that apply to everyone, regardless of occupation - the pilots fit that general profile though.

-ERD50

There are several issues related to the pilot pensions:

It's since been raised, but at the time, there was a FAA regulation that required airline pilots to retire on their 60 birthday. This regulation was put into effect in the 1950's, because it was thought to be a safety issue. Pension plans were negotiated around the age 60 rule.

When deregulation came along in 1978, a rash of bankruptcies followed. Some airlines reorganized, some merged, and some just went out of business. At some point, the BK judges started allowing the pensions to be discharged.

The lower paid union workers, were at a pay range, where the PBGC pension was not that big of a hit.

The pilots were hit hard. Their pensions were to be in the 6 figure range, and the PBGC only provided a small fraction of that. The existence of the age 60 rule, meant that their skills were useless going forward.

Prior to the financial instability of the industry, it was rare for a pilot to retire early, unless there were medical issues. A senior captain had it pretty good, with abundant time off, and a high salary. Most would have flown past age 60, if the law at the time had allowed them to do so.

 

[Mulligan]

About SS being cut back, I have no problem with that, as it is fairer to the younger generation. I have to think about my children's future too.

It only irks me when they penalize savers and reward spendthrifts. What behavior would that policy encourage? What are they thinking? The pain has to be evenly spread, else people would just squander their savings so that the gummint gives them more.

I could be wrong about this, but I think SS is the least of the countries problems (Medicare worse). Now the state level and their pensions are in trouble and I believe taxed out, as the few benefit at the expense of the many. SS, almost everyone (except me of course) has a skin in this game. The only reason younger people are scared to put money in it, is because they are afraid they won't get theirs. I think they will kick the can down the road one more time which will buy time like Reagan did 30 years ago. If SS tax was raised a little over a 1% on each side, it would fully fund the system again. Reagan's solution actuarially came out fairly accurate in its length to solve the problem until the 2030s. This would get the younger generation through and calm everyone down.
The way I see it, the poor cannot live without it, the middle class need it to survive on their lifestyle, and the rich although maybe do not need it, already are getting way less out of it than they are getting from it due to the "bend points". All things considered, I would much rather be counting on a modest check from SS, than I would of the same amount from an Illinois troubled pension in 2033!

 

[imoldernu]

From the PBGC :

For 2013, the maximum guaranteed amount is $4,789.77 per month ($57,477.24 per year) for workers who begin receiving payments from PBGC at age 65.

A pilot friend who had to retire about five years ago (age 60) had a pension of about $105K... He also had just bought a $500K new house and was paying for college for 2 kids. Pension disappeared. At the time, I think the PBGC paid a max of about $45K.

We go into retirement trusting in promises. Trust in God... all others pay cash!

 

[NW-Bound]

I could be wrong about this, but I think SS is the least of the countries problems (Medicare worse).

True. However, SS is what we talk about, and means testing has been mentioned more than once.

The way I see it, the poor cannot live without it, the middle class need it to survive on their lifestyle, and the rich although maybe do not need it, already are getting way less out of it than they are getting from it due to the "bend points"...

The poor get so little from SS, and it is really a form of welfare for people with low paying jobs. I would not be so heartless to talk about cutting it for them.

The rich already do not get out of SS in proportion to what they put in. I have pointed out in the past that a person making $100K does not get double what a $50K wage earner gets, despite contributing exactly 2X. With taxes, they are getting even less.

However, the rich are few, and even if we cut them out all together, how much would that help?

What concerns me is among the middle class, two guys making the same amount, contributing the same in their working life, the guy who manages to save extra via 401k or IRA now gets penalized. If you need to cut, then cut them equally. No rewards for big spenders. Else, nobody would save anything!

 

[Mulligan]

True. However, SS is what we talk about, and means testing has been mentioned more than once.

The poor get so little from SS, and it is really a form of welfare for people with low paying jobs. I would not be so heartless to talk about cutting it for them.

The rich already do not get out of SS in proportion to what they put in. I have pointed out in the past that a person making $100K does not get double what a $50K wage earner gets, despite contributing exactly 2X. With taxes, they are getting even less.

However, the rich are few, and even if we cut them out all together, how much would that help?

What concerns me is among the middle class, two guys making the same amount, contributing the same in their working life, the guy who manages to save extra via 401k or IRA now gets penalized. If you need to cut, then cut them equally. No rewards for big spenders. Else, nobody would save anything!

This short article link shows some of the prominent options and solutions to fix SS and what the surveyed Americans thought was the best option. Only 31% of Americans favored means testing to help solve the funding problem, while 69% of the 2,000 Americans surveyed favored increasing the social security tax 1%. They did not want to change retirement age or use chained CPI. They didn't want to deprive the wealthy people of their SS, but were positive in their response to lifting the income limit that is taxed on SS. So it appears Americans are willing to pony up to keep SS benefits at status quo.
http://money.usnews.com/money/blogs/planning-to-retire/2013/02/13/5-ways-to-fix-social-security

 

[NW-Bound]

I will read the article, but according to your summary, it appears to be a workable solution, or a decent starting point for a debate anyhow.

 

[chasesfish]

That article is accurate, the fixes to social security are not difficult. They left out making all income up to $113,000, not just earned income part of it. I see plenty people who have substantial passive income (rental property, side business) that isn't subject to FICA and are not of retirement age.

 

[Chuckanut]

What concerns me is among the middle class, two guys making the same amount, contributing the same in their working life, the guy who manages to save extra via 401k or IRA now gets penalized. If you need to cut, then cut them equally. No rewards for big spenders. Else, nobody would save anything!

+1

NW, you are very wise.

Many times I have heard a peer tell me how 'lucky' I am that I managed to retire earlier than he. But, Joe forgets that while I was at home making dinner, he was at happy hour spending, while I drove a modest sedan he drove a sports car, while I cleaned my house every weekend he had a maid come in and do it for him, etc. Now when I get to eat the fruits of my effort, Joe wants the government to take some from me and give them to him since he ate his years before.

 

[Walt34]

Either way, I don't think any public emp should be able to retire at 55 with a full pension and benefits. This is the reason cities/states are going bankrupt and it is only beginning.

Taxpayers can't afford to have their taxes increased when their raises don't keep up with COL. I'm sure you have read the middle class person hasn't seen a real increase since 1995, so they can't afford to keep paying your healthy benefits when you reach 55. If you want to retire at 55, take a reduction in pension like the private employee does and pay into your healthcare like the private retiree.

Full disclosure: I was one of those public employees and I receive a DB COLA'd pension that (for now, anyway) includes health insurance. I pay 30% of the premium.

During the inflation of the 1970's and '80's, when private industry employees were getting 10% or 12% raises to compensate for inflation, I got 1%, or perhaps 2%, or zip. The same happened in every other area that I knew about. That's one reason the comparison with private/public doesn't wash. One compensation was that I knew that I had a better pension plan than most in private industry. Now I'm hearing private industry people say they want to have their cake and eat it too.

And not every state, city or county mismanaged their pensions. The pension in the location I retired from is fully funded and doing quite well. But the headline "Local govt. is financially solvent!" doesn't make for selling papers or articles. The fact is, that's the rule, not the exception, as the articles lead one to believe.

And here in WV the state pension plan was heading for some serious shortfalls. The politicians got their act together and implemented a plan that will resolve that shortfall in the next five years or so. It helps that the state constitution requires a balanced budget.

What I'm reading is that some people believe it is fine to make promises, let people plan their lives as if those promises will be kept, and then pull the rug out from under them when it's too late for them to take any corrective action. Somehow that doesn't strike me as the right thing to do either. Where I come from people and institutions, and taxpayers, keep their promises.

When I was hired as a police officer in 1973 there was no union. We didn't need or want one. It wasn't until the paltry pay raises in the 1970's and '80's that a union was formed, mostly for that reason. It takes a huge amount of effort, time, and money to start one and that doesn't happen where employees are being treated fairly. I've often said the County was "penny-wise and pound-foolish" for that reason. My retirement income is 10% that it would have been without the union because the union negotiated for it, trading by giving up on some short-term benefits.

One other note on the "early" retirements for police officers and firefighters. Those are physically demanding young person's jobs. With some very rare exceptions you really don't want 60-year-olds in those positions. Where I worked, we had to pass a physical that included a stress test every three years up to age 30 or 35. Then it became every other year and at 50, every year. If you didn't pass the physical you were done.

And you wrote

There are servicemen who are in trouble now because they shot people overseas when "supposedly" they shouldn't have...not fair.

The same thing happens with police officers. It comes with the territory when you carry a weapon. So, by the way, does the high disability rate from on-the-job injuries.

When I retired and moved to WV one of the thoughts that came to me was that I'm glad I can still walk across the room and get a glass of water without being in pain. I know a lot of guys who can't. About 20-25% go out on permanent disability. And I went to eight line-of-duty funerals.

On this board we often write about taking risks in the financial sense. I took physical risks, and I won the bet. I earned it.

 

[aja8888]

Nice summary, Walt.

Around here (greater Houston area), the police have their hands very full with the remaining scum from Katrina that relocated here (yes, that was and is a big problem), the local crime movement of a huge city, and the major funneling of drugs and captive humans into the southwest from south of the boarder. I would not want a job in law enforcement in this region and highly respect the ones who risk their lives every day here.

 

[Cruisinthru]

Thanks Walt34, well said. I also retired with a great pension after 27 years in law enforcement. I know I met some tough challenges, took the risks, and did a job that 98% of the public would not choose to do. I consider myself very lucky to have come out the other end of my career with a pension and my health.

 

[Chuckanut]

Either way, I don't think any public emp should be able to retire at 55 with a full pension and benefits. This is the reason cities/states are going bankrupt and it is only beginning.

I agree that full retirement at 55 is not a reasonable expectation. But, I think a few things need to be added.

First, while it varies from state to state and city to city, most public employees cannot retire at 55 with a full pension. The ones who can are most often public safety employees such as policemen, firemen, etc. We can each have our own opinion on whether or not they deserve special treatment compared to teachers, accountants, engineers, clerks, etc. who work for the government.

Second, public employee pensions are not THE reason cities/states are going bankrupt. At least not for most of them. The main reason is the decrease in tax revenues that resulted from the economic collapse we suffered a few years ago. Tax revenues in my state have yet to return to what they were before the collapse. Public employeess did not cause the economic collapse. We can discuss who is to blame, but I think we can agree it was not the people who work for the government. I have seen no evidence that they are responsible.

Third, some states and cities knowingly and intentionally underfunded the pension system by skipping or reducing contributions. (Note: employees almost always still made their personal contributions to the pension system.) It's the government institution that did not keep up their part of the bargain. Alas, 300 million not paid in today, can cost the state one billion 30 years in the future.

No doubt pension rules need to be changed, and abuses need to be curbed. But, that is only one part of getting our public fiscal house in order.

 

[Gatordoc50]

I agree that full retirement at 55 is not a reasonable expectation. But, I think a few things need to be added.

First, while it varies from state to state and city to city, most public employees cannot retire at 55 with a full pension. The ones who can are most often public safety employees such as policemen, firemen, etc. We can each have our own opinion on whether or not they deserve special treatment compared to teachers, accountants, engineers, clerks, etc. who work for the government.

Second, public employee pensions are not THE reason cities/states are going bankrupt. At least not for most of them. The main reason is the decrease in tax revenues that resulted from the economic collapse we suffered a few years ago. Tax revenues in my state have yet to return to what they were before the collapse. Public employeess did not cause the economic collapse. We can discuss who is to blame, but I think we can agree it was not the people who work for the government. I have seen no evidence that they are responsible.

Third, some states and cities knowingly and intentionally underfunded the pension system by skipping or reducing contributions. (Note: employees almost always still made their personal contributions to the pension system.) It's the government institution that did not keep up their part of the bargain. Alas, 300 million not paid in today, can cost the state one billion 30 years in the future.

No doubt pension rules need to be changed, and abuses need to be curbed. But, that is only one part of getting our public fiscal house in order.

I agree with your assessments but you can't squeeze blood from a turnip. It wasn't my fault that housing collapsed or the stock market crashed but my NW got halved nonetheless. I feel bad for those nearing retirement and wondering about their pensions. I know exactly how it is to lose decades of savings. For those in mid career or less, I don't feel so bad. This is an opportunity to get one of those much higher paying private sector jobs.

 

[Chuckanut]

I agree with your assessments but you can't squeeze blood from a turnip. It wasn't my fault that housing collapsed or the stock market crashed but my NW got halved nonetheless. I feel bad for those nearing retirement and wondering about their pensions. I know exactly how it is to lose decades of savings. For those in mid career or less, I don't feel so bad. This is an opportunity to get one of those much higher paying private sector jobs.

Everybody in the affected areas will have to take a haircut. Finding a fair way to give the haircuts will be a huge problem. I hope the people most responsible for this mess will get a huge fiscal haircut, preferably from the prison barber.

The private sector job idea is a good one, IMHO. If I could do it over again, I would go for the money, and make sure it was in an account I controlled and that could not be touched by anybody else.

Reforming the [-] pension[/-] retirement system, public and private would be a great gift for our children and grandchildren.

 

[Exterous]

while 69% of the 2,000 Americans surveyed favored increasing the social security tax 1%. They did not want to change retirement age or use chained CPI. They didn't want to deprive the wealthy people of their SS, but were positive in their response to lifting the income limit that is taxed on SS. So it appears Americans are willing to pony up to keep SS benefits at status quo.
5 Ways to Fix Social Security - Planning to Retire (usnews.com)

Interesting. According to the SS trustees the payroll tax needs to be increased by 4.1% at the point of trust fund depletion. Given that the tax will need to be continually raised to keep up with payouts I am not sure that a single percent raise now would be enough to cover the deficit later. Unfortunately they declined to show their work which makes it a bit difficult to verify

Regardless, even the 77-72% payouts from 2033-ish to 2087 aren't terrible. Far worse are those with poorly run public pensions who don't pay into SS

 

[Mulligan]

Interesting. According to the SS trustees the payroll tax needs to be increased by 4.1% at the point of trust fund depletion. Given that the tax will need to be continually raised to keep up with payouts I am not sure that a single percent raise now would be enough to cover the deficit later. Unfortunately they declined to show their work which makes it a bit difficult to verify

Regardless, even the 77-72% payouts from 2033-ish to 2087 aren't terrible. Far worse are those with poorly run public pensions who don't pay into SS

I wouldn't be surprised if both sets of numbers are not fairly accurate. But considering that no one appears to be serious about early meaningful reform over the issue, or congress steals the Illinois play book on handling retirement shortfalls, I imagine your number will ultimately be the one closest to being used.

 

[Exterous]

I wouldn't be surprised if both sets of numbers are not fairly accurate. But considering that no one appears to be serious about early meaningful reform over the issue, or congress steals the Illinois play book on handling retirement shortfalls, I imagine your number will ultimately be the one closest to being used.

You're probably right one the first part although I've enough mistakes in the news regarding SS to make me skeptical. I definitely agree with you on the second part

 

[harley]

Obviously a hot button issue. I haven't read [-]all[/-] [-]most[/-] pretty much any of the posts, since I don't have a pension and try not to get involved in religious arguments. But I find it interesting that a member can post once and have the topic continue on for more than 100 posts without the OP ever weighing back in.

So, should I pay off the mortgage or refi for 30 years at a low low rate?

 

[meierlde]

I think the first thing to do is to end the spiking in the last year in some pension plans. That would mean one takes the average of the 3 highest years basic salary, plus perhaps up to some limit like 10% of overtime in addition. If overtime exceeds the limit it does not count towards the pension, and unused vacation and sick time get paid but don't count towards the pension.