Should publicly funded pensions start later?

[ERD50]

I agree with Nords that most people don't join the military for the pension, but I think the promise of a good pension after 20 years of honorable service certainly influences people's decision to stay in past their initial commitment and make it a career...it certainly did for me. I originally joined the military because:
...

I chose to stay in the military because:

1) I view the profession of arms to be a noble profession
2) I enjoy the high caliber of people with whom I work
3) there is a promise of a generous pension after 20 years of service

...

The promise of a pension after 20 years of service is what convinced me to stay in the military and make it a career...without it, I would not have stayed in this line of work. I suspect that I'm not alone.

Hey - this is on topic!

So getting back to the OP, it does seem that this would still hold if the pension wasn't paid out until a later age (65, reduced if taken earlier) . There would still be motivation to earn it. And I imagine there are plenty of jobs for these people in their later years, ones not requiring the same level of physical demands. Why wouldn't we want to keep these trained people on for another 5, 10 or more years?

And if I understand it, most of these pensions are a "gate" little/nothing at 19 years, the whole enchilada at 20 years? If that's the case, it's not good (I think "gates" are bad in almost all cases). There clearly are people (I know some of them), who did what they needed to to 'hang on' for those last few years. I'm sure they weren't performing at their peak (and I don't blame them, it the way it goes sometimes). It's a "golden handcuffs" situation. We'd be better of with a more linear "earn as you go" system - some people would leave earlier and that might be best for all, and some would stay longer and that might be best for all.

-ERD50

 

[ERD50]

It might not be called spiking, but I also think that using final 3 or 5 years of salary is not correct... I have a real life example...

Person worked full time a few years... then went part time for a long time... then went full time at the end... got a great pension that was not based on their lifetime contributions.... someone has to make up for the higher pension....

You are absolutely correct. Their career contributions do not match their pension payments - it does cause underfunding of the system which is bad for all. I don't know if there are enough cases to be significant, but it does seem like it should be based on lifetime contributions, not a short snapshot.

BTW, out of pure coincidence, DW will probably hit the 'sweet spot' of getting the most out with the minimum in (though it will be a small pension anyhow). She worked part time long enough to vest, then the position went full time, and she may very well retire just as she hits the max X out of Y years with X being the full time years. No planning on her part and no intentional spiking, it just will work out that way. But it isn't good for funding the system.

-ERD50

 

[Texas Proud]

It couldn't be changed here in Hawaii for the state retirement system, and in some other states, because the state constitutions prohibit such a change. In other places, there are laws that could prevent impairing a contract made with current retirees and possibly current workers. I understand there is some litigation going on about this -- don't know the details.

I agree... and the politicians were the ones who got those laws put in place that do not allow them to be changed... but then again, you can change a state constitution...

Also, it is not impairing a contract... unless you are in a union... I do not know of very many people who have a long term contract to work in the public sector... but, you put it out there... this is what is going to change and when it is going to change... the employees get to look at it and then decide if they want to continue their employement or not.

As an example... they changed the Texas system... it went from the top 3 to the top 5 years... the age you could start to get 100% of benefits went up... etc. etc... if you were at a certain level, you stayed under the old system.... if you were not there... well, tough... I did not see a lot of teachers running for the door when their benefits were reduced (and to be quite frank, they were really not reduced that much)...

I also don't think there would be a mass exit of workers from the public sector if their benefits were reduced... as mentioned by someone else, a file clerk is already paid a lot more than a private file clerk without the pension... at the end of the day... we (in meaning the taxpayers) would have a true cost of our gvmt and then we can decide if we want to tax ourselves more to pay for it or live with less... as it stands today, even if we got rid of 100% of the workers, we would still be taxed to pay for benefits long into the future... or at a minimum be on the hook for any underfunding of the pension plan...

 

[Texas Proud]

You are absolutely correct. Their career contributions do not match their pension payments - it does cause underfunding of the system which is bad for all. I don't know if there are enough cases to be significant, but it does seem like it should be based on lifetime contributions, not a short snapshot.

BTW, out of pure coincidence, DW will probably hit the 'sweet spot' of getting the most out with the minimum in (though it will be a small pension anyhow). She worked part time long enough to vest, then the position went full time, and she may very well retire just as she hits the max X out of Y years with X being the full time years. No planning on her part and no intentional spiking, it just will work out that way. But it isn't good for funding the system.

-ERD50

The person I knew did not do it on purpose.... they went part time for 'the kids' in the middle of her career... and after the kids were in college went back full time... then got laid off just about the time she got the X years.... she would be working today if she had not been laid off.. I was just using her as an example of getting more than you paid for...

 

[chinaco]

If adjustments are needed (not sure if it is needed), I would not vote for raising the early retirement age to 62... but reducing the payout at a steeper rate for ER.

Most pensions reduce the payout if someone retires at 55 already. Some reductions are very steep.

Most private retirement plans (Defined Contribution and Defined Benefit) allow ER at 55 with a certain number of years of service. I see no reason to change that feature of public retirement plans.

People sometimes need the flexibility to get their money early because of life's circumstances.

Bottom line: It is owed to them and if the ER reduction is based on a reasonable actuarial model for a large pool of people... it should not matter assuming it is fully funded.... (large numbers and mortality).


There are two questions that might be more appropriate:

1. Is the pension underfunded, therefore needs some sort of adjustment to keep it solvent.
2. Is the pension paying more than it should and some reduction is needed.

If the age were raised to make the adjustment... it might be raised for full retirement and a steeper reduction for taking it earlier.

 

[GregLee]

The point is that in some states, public pensions are not being fully funded in a timely manner.

Perhaps you should make that "all states".

 

[youbet]

Perhaps you should make that "all states".

Except that the issue is NOT with all states. Some actually have fully funded public pension systems.

 

[ziggy29]

Except that the issue is NOT with all states. Some actually have fully funded public pension systems.

And the problem isn't always the current funding. As often as not there's also the issue of unrealistic ROI expectations. If you promise benefits based on assumed 8% returns as far as the eye can see, this is what you get in a prolonged lousy market. Assumptions like those are getting a serious reality check.

 

[Pete]

With an aging population, increased lifespan, better than 50% of people working for the gov't, 45% of households receiving some sort of gov't pension or assistance, 1.5 trillion dollar budget deficit this year...it would only be logical to decrease pensions in a non productive society like ours..but, as long as people from around the world will loan us the money-let's all enjoy the free ride.

 

[GregLee]

Except that the issue is NOT with all states. Some actually have fully funded public pension systems.

That surprises me, but I guess it's right:

In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.

The Trillion Dollar Gap - The Pew Center on the States

(I looked around a bit but failed to find any update of the 2008 figures.)

 

[av8er]

And my point would be.... their is a salary that would have convinced someone with your skill and rank to stay in the military... without a 'generous pension'

I'm sure that you're right, but it would require a significant increase. For reference, civilian contractors over here doing some of what I do make 20k/month for their base salary (more than twice what I currently make even after the addition of housing allowance, combat pays, etc.). Someone in management gets more.

IMO, paying the market rate which might include a DC plan, or even a DC along with a savings plan with matching funds would be more cost effective in the long run and most certainly a more known current cost than the current system...

The civilian contractors that I know do not get a pension, but they do have a 401k with a 5% match, I believe. You're right, their companies are able to easily calculate known costs...with a traditional pension, it's all based upon life expectancy.

(now, learning from Nords, the pension is not as generous as I had thought... but using your words for argument sake)...

Nords was spot on with his explanation of how a military pension is figured...I guess generous is in the eye of the beholder.

So getting back to the OP, it does seem that this would still hold if the pension wasn't paid out until a later age (65, reduced if taken earlier) . There would still be motivation to earn it. And I imagine there are plenty of jobs for these people in their later years, ones not requiring the same level of physical demands. Why wouldn't we want to keep these trained people on for another 5, 10 or more years?

The reality is that not all jobs in the military are all that transferable to the private sector, but they are needed for national defense. An infantry soldier (the largest branch of the Army manpower-wise), for example, has a specific set of skills which are quite valuable during wartime, but which don't carry over easily to work outside of the military. And, many Army jobs (certainly not all) are also very physically demanding, and cannot realistically be done by someone in their 60s. As soldiers become more senior, they do tend to move a little farther away from the field, but there are only so many management jobs in the Army and they still have to maintain the same skills and abilities as the average soldier in their formation. The majority of enlisted soldiers spend their entire careers at the platoon and company level, where the rubber meets the road, so to speak. So, what incentive is there for an active duty infantry soldier to remain an active duty infantry soldier if he knows that once he is no longer physically able to do his job he will not get a pension for many years and he will not have a set of job skills that are easily transferable to the private sector? The Army needs a lot of infantry soldiers...they are literally the guys with boots on the ground, presently conducting combat patrols in Afghanistan and Iraq.

At the end of the day, though, only a relatively small number of service members stay in for 20/retirement...only 10.5% of the Army. Here was a new military retirement plan that was proposed by the Quadrennial Review of Military Compensation back in 2008 (Study recommends retirement after 10 years - Army News | News from Afghanistan & Iraq - Army Times).

 

[keegs]

The issue in NJ started with a 30% income tax cut followed by successive years of budget shenanigans to make up the shortfall.

Then they blew up the financial system and the pension investments went into the toilet.

I'm almost sure the workers will pay the price. There's certainly no political will to honor the obligation given compensation trends.

 

[Texas Proud]

I'm sure that you're right, but it would require a significant increase. For reference, civilian contractors over here doing some of what I do make 20k/month for their base salary (more than twice what I currently make even after the addition of housing allowance, combat pays, etc.). Someone in management gets more.



The civilian contractors that I know do not get a pension, but they do have a 401k with a 5% match, I believe. You're right, their companies are able to easily calculate known costs...with a traditional pension, it's all based upon life expectancy.



Nords was spot on with his explanation of how a military pension is figured...I guess generous is in the eye of the beholder.



The reality is that not all jobs in the military are all that transferable to the private sector, but they are needed for national defense. An infantry soldier (the largest branch of the Army manpower-wise), for example, has a specific set of skills which are quite valuable during wartime, but which don't carry over easily to work outside of the military. And, many Army jobs (certainly not all) are also very physically demanding, and cannot realistically be done by someone in their 60s. As soldiers become more senior, they do tend to move a little farther away from the field, but there are only so many management jobs in the Army and they still have to maintain the same skills and abilities as the average soldier in their formation. The majority of enlisted soldiers spend their entire careers at the platoon and company level, where the rubber meets the road, so to speak. So, what incentive is there for an active duty infantry soldier to remain an active duty infantry soldier if he knows that once he is no longer physically able to do his job he will not get a pension for many years and he will not have a set of job skills that are easily transferable to the private sector? The Army needs a lot of infantry soldiers...they are literally the guys with boots on the ground, presently conducting combat patrols in Afghanistan and Iraq.

At the end of the day, though, only a relatively small number of service members stay in for 20/retirement...only 10.5% of the Army. Here was a new military retirement plan that was proposed by the Quadrennial Review of Military Compensation back in 2008 (Study recommends retirement after 10 years - Army News | News from Afghanistan & Iraq - Army Times).

First, the cost of the contractors at twice what you make shows that the jobs can be done... and at a price certain... and if we are in a war it seems that it does not matter how much we spend... if we are not, then it does...



I find it interesting that the proposal had in it a later date for the pension to start... from the article:

"However, the plan has one major feature likely to spark huge debate: a long deferral of retirement annuity payouts. Active-duty members with at least 20 years of service now receive annuities immediately upon retirement, with no penalty. Under the QRMC plan, those with less than 20 years of service could not begin receiving their full annuity payments until age 60; for those with 20 or more years, it would be age 57. Those with 20 or more years could withdraw the money early, but they would pay a penalty. A delay in receipt of retirement pay of perhaps 20 years “is a huge problem,” Strobridge said, “particularly in an environment like today. That’s not a retention-friendly proposal.”"


So, at 2.5X per year... a 20 year career has a pension of 50% like now, but not an immediate payment like now... would this have changed your thinking Your example of a footsoldier that went in when 18 and got out at 38 means a big loss in lifetime earnings....

This is also more in line with the pension that I know a little about (Texas teacher plan)...


But, even with that change you still have an unknown liability that can come to bite you... I do not know... but I would think that the military pension is not funded... IOW, it is a current expense to the DOD...

 

[Nords]

But, even with that change you still have an unknown liability that can come to bite you... I do not know... but I would think that the military pension is not funded... IOW, it is a current expense to the DOD...

Even worse, it's funded by Congress.

Every year the DoD says "We need more money. We can't afford to pay these humongous retiree healthcare expenses."

Every year Congress says "Tough. Cut back on aircraft carriers. But not from my district."

What the nation is watching play out with Social Security and Medicare, the DoD is experiencing with military pensions and Tricare.

One of the factors left out in that QRMC was the relative "cost" of the military's deaths, injuries, disabilities, and problems like PTSD/antidepressants. DoD is paying out a lot less on life insurance these days, but that turned out to be cheap compared to the cost of staying healthy.

 

[beowulf]

I don't understand the proposals that public pensions should pay different amounts for different skill levels. In essence, they do that already by being based on salary (high 3, high 5, etc.). You can't have a pension system that has one level of payout (percentage-wise) for clerks, one for midlevel folks and one for rocket scientists. As has been pointed out many times, the federal government ended its pure DB plan in 1984. Anyone hired after that date gets a combo 401K (TSP), much smaller DB and their SS benefit. In time, I believe that even the smaller DB will disappear.

We are talking about a current environment where there is high unemployment and governments have their pick of the best. When unemployment drops, the incentive to have a job, any job, diminishes. In the 80s and 90s the government had a real hard time acquiring talent, especially scientific and IT talant. Now there is no problem. Things change and come full circle. What are now attractive government jobs may well be shunned after a recovery takes place.

As to the military, police, fire, all other forms of law enforcement, they deserve everything they get. Would you want a 60 year old soldier on the front line with shaky aim and other issues? Do you want those jobs? Feel free to volunteer any time you want. I understand there are openings for a few good men (and women). As I said earlier in this post, you can't have a different pension system for those who are in personnel and those in the infantry. There are times when everyone fights.

I know that I did not go into the Army for either the money ($350 or so a month) or the retirement (21 year olds have little concept of what retirement is). I went in for all the usual reasons - serve my country, get out of Dodge, go to far off wonderful places, meet friendly indiginous people and kill them. Actually the last is in reptrospect - at 21, the thought of actually having to shoot at a live target (especially one shooting back) was totally alien to me. I have no real idea what I was thinking of at the time, but it certainly wasn't pay or pension.

To everyone who has never worked for any level of government in any capacity as a direct employee, the question is why? If the pay and pensions are so wonderful, why wouldn't everyon be lining up for those jobs for the last 50 years? Think about it - there must be some reason you chose to stay with private industry.

 

[Independent]

... would you be in favor of publicly funded pensions (i.e. teachers, public sector employees, military, etc.) starting at an older age. ...

NOTE: I'm assuming that anyone currently collecting a publicly funded pension would be grandfathered in. Also, any changes should be done in a phased approach.

Like some prior posters, I see this as a band aid on a broken system. I'd rather see new workers exclusively in DC plans (and covered by SS in those states where they aren't today). DB pensions are just too subject to manipulation in both benefit computation and underfunding to be appropriate for the public sector. And, since most private jobs start new workers in DC plans, so I don't see a lot of problems hiring/retaining people. If needed, I'd rather increase cash wages then have more generous benefits.

IMO, the best public policy is that public workers have no richer benefits than similar private workers because benefits are too complex for voters to understand.

I'd also try to shift future pension credits for existing workers from DB to DC where possible. I understand that some private employers have played games there, and I wouldn't want to repeat that, but I think I could come up with reasonable rules and give existing employees a one-time choice.

 

[ziggy29]

To everyone who has never worked for any level of government in any capacity as a direct employee, the question is why? If the pay and pensions are so wonderful, why wouldn't everyon be lining up for those jobs for the last 50 years? Think about it - there must be some reason you chose to stay with private industry.

The short answer (for me) is "because in 1987 I didn't know how things would turn out by 2010, and because I can't turn the clock back 23 years and choose a government employer." I *had* a pension and retiree health insurance when I hired in. I had them taken away. It's not like I started my career saying "forget the pension, just show me the money." Yet that seems to be what many people think was the totality of the thought process of those who entered the private sector.

 

[beowulf]

The short answer (for me) is "because in 1987 I didn't know how things would turn out by 2010, and because I can't turn the clock back 23 years and choose a government employer." I *had* a pension and retiree health insurance when I hired in. I had them taken away. It's not like I started my career saying "forget the pension, just show me the money." Yet that seems to be what many people think was the totality of the thought process of those who entered the private sector.

That's not my point at all. The fact is that you, like me, and everyone else made a conscious decision to choose the career and path in life that they did. It was your decision (and mine) based on the facts at the time. You could have chosen the military or some level of government, but you did not. I could have decided to go with industry, but I did not.

We made the choices we made, and as you say, none of us can turn back the clock. I'm sorry that your company did away with your pension and health insurance. The problem I have is that far too many people seem only to care about military/government benefits when something happens to theirs. Would you really be complaining about what we receive if your benefits were still intact? It's sounds an awful lot like benefit envy.

There is no question that there are excesses and those need to be corrected. However, they are not at the federal level. But should the CEOs and senior staff of companies that don't make a profit, that are responsible for many of our current economic problems, earn millions of dollars annually and be rewarded for their ineptitude? I don't see much anger aimed at them - of course, they are part of private enterprise and deserve what they get .

The fact is that, if the economy was rip roaring along, no one would give a tinker's damn about what the military/public employees earn or their pensions. You made your choice, I made mine. Taking away from someone else because had something taken from you is nothing more than jealousy.

 

[Texas Proud]

Would you really be complaining about what we receive if your benefits were still intact?

OK... a very clear answer to your question... YES..

I think when a pension has to be bailed out by the taxpayers, then I see a problem...

A DC plan is fully funded... there can not be games played... from either employees or employers... you know how much you have at all times... we as the taxpayer know how much gvt cost... no pushing expenses down the road...



OH... to add... I have a mother, 3 sisters and one of my best friends who are in one of these plans... so it hits 'my' family the way I think... not just you...

 

[beowulf]

"I think when a pension has to be bailed out by the taxpayers, then I see a problem..."

So you are saying that all pensions should be DC and not DB plans? I can accept that as long as everyone is treated equally and it's not applied to existing retirees or those within some defined time of retirement.

Do you believe that banks and companies should be bailed out to the tune of hundreds of billions of dollars ? How about pension plans where the government (at any level) mismanaged the money or spent it on something else ? I guess that means you want to end Social Security as that has been mismanaged and the money spent through no fault of the people who contributed ?

And you really believe the government will become fiscally responsible and not push expenses down the road ?

 

[stoutboy]

hear, hear beowulf. the real danger to our long-term economic well-being is not these pensions, but the increasing disparity of income and concentration of wealth at the high end. The CEO pay you mention (it is now over 300 times that of the average worker--in 1965 it was 24) is just one symptom of this very real threat.

"I think when a pension has to be bailed out by the taxpayers, then I see a problem..."

So you are saying that all pensions should be DC and not DB plans? I can accept that as long as everyone is treated equally and it's not applied to existing retirees or those within some defined time of retirement.

Do you believe that banks and companies should be bailed out to the tune of hundreds of billions of dollars ? How about pension plans where the government (at any level) mismanaged the money or spent it on something else ? I guess that means you want to end Social Security as that has been mismanaged and the money spent through no fault of the people who contributed ?

And you really believe the government will become fiscally responsible and not push expenses down the road ?

 

[ERD50]

But should the CEOs and senior staff of companies that don't make a profit, that are responsible for many of our current economic problems, earn millions of dollars annually and be rewarded for their ineptitude? I don't see much anger aimed at them - of course, they are part of private enterprise and deserve what they get .

Perhaps you don't see what you don't look for?

Do a search,and you will find plenty of anger directed at CEOs and BODs on this forum, and I'm one who has joined in.

Regardless, public pensions need to be changed or they don't need to be changed. It has nothing to do with whether CEO compensation needs to change.

Or as they say, "Do you walk to school or take your lunch?".

-ERD50

 

[kyounge1956]

(snip) To everyone who has never worked for any level of government in any capacity as a direct employee, the question is why? If the pay and pensions are so wonderful, why wouldn't everyon be lining up for those jobs for the last 50 years? Think about it - there must be some reason you chose to stay with private industry.

The short answer (for me) is "because in 1987 I didn't know how things would turn out by 2010, and because I can't turn the clock back 23 years and choose a government employer." I *had* a pension and retiree health insurance when I hired in. I had them taken away. It's not like I started my career saying "forget the pension, just show me the money." Yet that seems to be what many people think was the totality of the thought process of those who entered the private sector.

You can't turn the clock back 23 years now, but you could have decided, as soon as your company took your pension away in 1987, to find a job working for a public employer. By this time you could have built up a substantial eligibility. If you wanted to have a pension in the future, ISTM that would have been the obvious thing to do.

 

[beowulf]

"Or as they say, "Do you walk to school or take your lunch?"."

Actually, I walked to school and took my lunch . Sometimes I even chewed gum on the way .

The benefits of some public pensions need to be changed and others do not. There is no simple answer and it varies wildly by state and locale. I don't know and I doubt that there is a large scale study that covers each and every state, county city, town, etc. pension system. I also question what criteria would be used to make such an evaluation. The first question that needs to be answered is whether the benefits are fair and reasonable for the profession being performed. If they are not, then changes need to be made. However, if they are fair and the problem is that the government failed to be fund them or used the money for other purposes, then the employees should not be penalized.

There is no broad brush solution. It may sound simple to just cut everything, but that rarely works and carries large unintended consequences.

 

[Texas Proud]

"I think when a pension has to be bailed out by the taxpayers, then I see a problem..."

So you are saying that all pensions should be DC and not DB plans? I can accept that as long as everyone is treated equally and it's not applied to existing retirees or those within some defined time of retirement.

Do you believe that banks and companies should be bailed out to the tune of hundreds of billions of dollars ? How about pension plans where the government (at any level) mismanaged the money or spent it on something else ? I guess that means you want to end Social Security as that has been mismanaged and the money spent through no fault of the people who contributed ?

And you really believe the government will become fiscally responsible and not push expenses down the road ?

A DC plan by its nature is fair to everyone.... the money that goes in goes in to YOUR account... the funds get invested and you get to keep the income (or loss if you get to choose your investments)... they can not mismanage the funds because they are not managing them.... (now, the DC plan that I am in pays us the 10 year Treasury rate... so I guess there is a possibility that they could mess that up)....


NOOOOO, it would not be applied to existing retirees... they are retired... it would apply to everybody who is working... you can calculate the value of a pension right now based on all the current factors (# of year, top years of salary etc. etc.) and have the account start at that value... then going forward... you get a contribution based on current salary and hours... (sure, you can grandfather in people over 50 or allow them to choose etc... but that still leaves some game playing possibilities... get rid of the spiking and that would fix a lot of the games)...


Well, the banks are a slightly different question... I would say 'no' if you just asked without thinking... but if a bank fails, then the FDIC takes it over and it costs funds to get them fixed... with how much money it would take, a lot more would go under paying the bill as required by the FDIC... our economy might (and I do say might) have gone down hill a lot more than it did, with millions more being let go and on unemployment, food stamps etc. etc... with no chance of getting paid back... so in the end, it might have been cheaper for the gvmt to bail them out then the alternative....

Now, I would have loved to see them make the other parties take a haircut on their payments.... like, OK, we are bailing out AIG, but you smart guys who should have known better (Goldman etc.) need to take a loss.... so you get 80% of what you expected... next time you need to be more careful in what you do....


I think SS should change... but not be eliminated... I have never said it should, NOR have I said public employees pensions should be eliminated... you are putting your spin on what I say so you can add a ...