Pension obligations are killing budgets. This is no secret. We cannot pull back on promises to those we have already committed pensions to. We CAN stop promising them to new government employees we have not hired yet. This is a no brainer. Yet, I am not aware of the state, county, university, and cities do a single thing about it.
We do not budget appropriately for pension obligations and we counting on our grandchildren to deal with the problem.
In my last post, I demonstrated the frustration that I have with the city's phenomenal growth and our ability to only break even. We cannot maintain this level of growth because it is unrealistic. The city only so big and we're pushing for in-fill development.
What we can do is start addressing one of the major cost drivers on every budget and start doing it TODAY. Unions have mopped the floor with our tax dollars for longer than I can remember. Someone has to guts to stand up and tell government employees that you're to have get a 401(k) just like all the rest of us.
Just like all the rest of they should be encourage to hold back 2-3% of their earning into a retirement account. Check out http://www.retireearlyhomepage.com/pension.html. If we replace the words "large companies" with "government". We can change the assumptions, but the debt obligation that our grand children could avoid would be STAGGERING and avoided by simply requiring govt employees to behave like the rest of us.
From the website:
"While they're becoming less and less common, many large companies still offer "defined benefit" pension plans. Defined benefit plans are arrangments where your annual pension benefit is determined by years of service. Typically, you would multiply the annual salary in your final year of employment by the number of years of service times 1%. For example, if you worked for a company for 40 years, your pension would be equal to 40% of your final salary. Just about everyone who's been able to weather the mind-numbing boredom of working in a large bureacracy long enough to collect a pension thinks it's a fabulous deal.
But is it? Suprisingly, you could fund a pension equal to those offered by big, blue chip companies (i.e. General Motors, General Electric, Exxon, etc.) by saving and investing just 2% to 3% of your salary. And if you do it yourself, you don't have to worry about getting "downsized" six months before your pension vests. The money already belongs to you."
WE HAVE REPUBLICANS ON THE CHAMPAIGN CITY COUNCIL. ARE THEY GOING TO APPROVE ANOTHER AGREEMENT WITH A UNION WHO PAYS AN 18 YO KID A PENSION RIGHT OUT OF THE GATE EVEN THOUGH NOBODY ELSE IN THE PRIVATE SECTOR GETS THEM? If we have any fiscal conservatives left in this world who are serious about managing spending, it would be nice if they actually did something about the biggest problem staring us in the face.
I know that I'm dreaming, but maybe one day smart spending will be an influential election issue like the smoking ban was.
I agree with you,,,,,all new hires must be on a different plan. The private sector can no longer afford to fund a pension system for public employees,,,,and it is even worse when the politicians will not fund the existing one at acceptable levels,,,,I had this discussion a few weeks ago with a a retired CPD officer,,,who stated we had to pay into our pension,,,,,,,Duh! what doe's he think the rest of us must do. Most of those public sector pensions are paid even if the employee doe's not pay a dime,,,,,,,,my 401K?? Nope if I dont pay something in, my employer will not either,,,hard as this sounds,,,the public sector needs to live in the same water we all do,and that time is now,,
I've got an idea. How about instead of belly-aching and whining that your benefits suck and therefore so should everybody's, maybe you should all do what public employees and employees of large corporations did: lobby for a pension. It is not pension-drawing people's fault that your employers choose not to give a pension, that was a conscious decision your employer made. For all your demands that "the free market should decide everything", when the market does decide something and it turns out that someone has something better than you, that's apparently just not fair and they should be made to suffer with you. That doesn't sound like you want the free market to do it's job. How very anti-Republican of you.
You chose to work for an employer who gives a larger paycheck now in lieu of a pension later, as opposed to those who chose to take a smaller paycheck now with the anticipation of getting paid for life later. If you don't like it, there are plenty of jobs out there that have pension plans, including a large quantity in the private sector. Pensions are not the sole domain of governmental employees. These liabilities in the public sector pensions could probably be resolved if business would stop skirting taxes by weaving their way through loopholes in the code, and just "live in the same water as everyone else" by paying their obligations instead of lobbying to keep taxes down while reaping all the profits.
Spoken like a true believer in the public sector,,,,not saying it is your fault,,,,just time to live like the rest of us..please do not tell tell me about larger paychecks,,,,,with those nice 3, 4, 5 % percent raises negotiated for public sector employees,,,actually if is were in my power I would fire everyone of you, (them),,,,and replace all with temps from Manpower!
What 3, 4, 5% raise? We've been on a salary freeze here for almost 3 years now, apparently. No "cost of living", no "merit pay", no "time in service". Salaries have been frozen, period. Maybe you should try living like us and try to be proactive about making positive changes in your workplace. If your employer sees the value in them, he'll agree, if not, he'll probably fire your ass for being a rabble-rouser. My employer sees the benefit of providing a generous benefits package and a lower salary because they know that pay isn't as important if you like your job.
I'm making now about $10k/year less than what I'm worth in the business world, but I'm willing to take that hit considering all the other benefits associated with my position, such as a pension and good health insurance. Yes, they could pay me more, but then I'd have less benefits, and I'd have to take that extra money and do things like buy health insurance. Again, it's the free market at work. I thought you conservatives were all about freedom. Why are you so against freedom? Is it because you hate America? :)
If it were in my power, I'd fire every one of the people in your office and replace them with temps from Manpower. In fact, let's just do that for all jobs! No benefits and a barely living wage for everybody! Let's outsource everything! Oh wait, companies are already doing that....
The reality of a pension is that it is a huge signing bonus that our grandkids must pay for. If these benefits are deserved by public sector employees, let's acknowledge that and set aside that huge signing bonus right at the beginning and put it into an account so we don't have to propose casinos in downtown champaign to pay for it in the future. (I'm making a state reference, to my knowledge no one is proposing a casino in Champaign).
In the example, the discounted value of the employee's pension was $900,000+. The example shows someone with an ending salary of $240,000. This is probably not a good example for a city employee. :) It may not be $900,000, but the signing bonus we're handing out to public employees is staggering. Taxpayers probably wouldn't be willing to handout hundreds of thousands of dollars as a signing bonus if they started their own business. I don't know why we are so willing to do so with taxpayer dollars. It is as if taxpayer dollars were free.
On the flip-side, maybe it is fine to assume that we will continue to grow at this rate and that we can just raise taxes and fees all the time.
It is a win-win if the political debate 20 years from is now is whether or not to spend the money, not how are we going to generate more money to pay for the things we want...or need.
"I'm making now about $10k/year less than what I'm worth in the business world, but I'm willing to take that hit considering all the other benefits associated with my position, such as a pension and good health insurance."
Not many of us get the huge signing bonus you did. Have you ever put a value on your pension? Calculate the present day value of that pension benefit. I see so many sign-holders complaining about the poor raises or non-existent raises that union members get. I don't see any signs saying "Thank you taxpayers for the huge signing bonus". I doubt I ever will...
Not many of us get the huge signing bonus you did. Have you ever put a value on your pension? Calculate the present day value of that pension benefit. I see so many sign-holders complaining about the poor raises or non-existent raises that union members get. I don't see any signs saying "Thank you taxpayers for the huge signing bonus". I doubt I ever will...
It's not a huge signing bonus in any way. I'm paying into my pension plan directly out of my check, and if I leave before I vest, there is a sizable portion that I will never get back. When I retire, I can take it all as a lump-sum too or draw a pension. So yeah, I guess if I stay here for 35 years, I can see how you'd see that as a signing bonus, but how again does that differ from you doing the exact same thing with money from your check?
The pension "crisis" comes from public employers who, instead of sending that money to the pension plan they took from my check, they take part of it and spend it. That woudl be like your employer taking the money that they were supposed to send to social security or your 401(k) and instead taking it and building a new driveway. It's just as wrong for a private company to do this as it is a public entity, I'm not doubting that. This, of course, wouldn't be an issue if the business lobbies weren't so hell-bent on paying as little taxes as possible and instead shifting that burden onto their employees and customers. Way to look out for anybody but yourselves there....
Your understanding of how pension plans work and how they're funded is very limited. The liabilities that the state and other government agencies have wouldn't be eliminated if we didn't have these plans....they'd be just another liability on the social security system, so taking this benefit away wouldn't solve the problem in the least, and in fact would make social security even less solvent. But I guess you're probably against social security in any form, too. The kind of economic policies I've seen you promote in your postings are pretty reminiscent of the mid to late 1920's. How did that work out for us again?
I say you should be petitioning your employer to make your standard of living better instead of taking apart what another employer does. It's not my fault you chose to work for an employer who doesn't respect you enough to help ensure that you can retire at an age that allows you to enjoy your retirement. I'm very sorry that you don't have these benefits. They're awesome, and make uYou could have a job that provides these things, even in the private sector, but in the words of the Knight from Indiana Jones and the Last Crusade: "You chose.......poorly."
Oh, also, like you and the vast majority of people employed in the US, I'm not unionized. I just work for a good employer values their employees and instead of compensating them with a large salary, takes that
The pension "crisis" comes from public employers who, instead of sending that money to the pension plan they took from my check, they take part of it and spend it.
No, the pension crisis comes from GASB's crappy rules for pension accounting, and the inherent flaws of defined benefit plans. Hell, FASB's aren't much better. You basically have to just declare what you think your pension assets will return (say, 12% annually), and that's what you go with. The government is worse - they don't really have to calculate their pension liability, so they just look at how much their pensions cost them now.
There's a lot of technical crap involved, but it's all analogous to the sub-prime teaser rate fiasco - companies and the government don't really look at what they'll owe tomorrow, just what they owe today.
The fact is, in our legal environment, defined benefit plans are simply awful. I doubt many (if any) conservatives would have a problem with defined contribution pensions, but this defined benefit crap is just a disaster.
Oh, and Arvid - two more things. First, private sector employees did lobby for pensions. After a while, the companies realized how much of a disaster they are and abandoned them. The government hasn't followed suit yet. Also, there's no such thing as a salary freeze - if your employer (even if it's the government) needs to give you a raise to keep you on, they'll always find a way. Usually they'll change your title slightly to upgrade you to a new pay raise.
All you got to do is look at these HUGE pensions these so called PUBLIC employees draw. How in the world can people get paid 75% of their take home pay for NOT WORKING? We need to BID OUT all of this wasteful public employee jobs just like the private sector does. WHy should the taxpayers get stuck for these folks?
The pension plan is an issue, much because of the entitlement mentality. People feel like they deserve to be paid for the rest of their life after serving some number of years. As a self employed individual I must provide for my future, no one else is saving up for me. Unfortunately many of the people on these payrolls don't have the money savy to put away for the years to come, so they count on an employer to do it for them, and all to often that employer can not or does not do such a thing. It is a pyramid scheme that has terrible repurcousions in time.
Look at GM. The unions have destroyed that business. Sure it was good for awhile, yet it can not be maintained. Over and over again we see an entitlement mentality, even from management, perhaps at this point especially from management. I have no beef with the working class, but where is the responsibility, who does it really lie with.
Republicans promote freedom of control, Democrats promote the need for management of these resources for the people, in place of the people (overbearing unions as one example). Often burdening business with unsustainable liabilities. Whose to blame, everyone. Management is very much to blame for ever commiting to some of these programs, many of these corporate tycoons get in early and take their money leaving the business vulnerable and knowing full well that is the case. Should these people be liable?
A retirement income is actually a relatively new concept, most people through out history worked for a living, all the way through. Promoted strong families!
Figure it out. Corporations are moving away from defined benefit pension plans because they need to show shareholders increasing annual profits, and pensions are a huge financial drag. Governments aren't accountable to anyone. They can just keep raising taxes, or claim they don't raise the tax rate while reaping the benefits of escalating assessed valuations (that's always a good one). The taxpayers don't seem to care becuase they keep voting in the same people who see government largess as the answer (e.g. Champaign County Board Dems and Gov Rod). You guys can bleat about taxes and assessed valuations on this blog all you want, but until you're ready to work to get the right people elected, it doesn't really change alot does it?
"Your understanding of how pension plans work and how they're funded is very limited. The liabilities that the state and other government agencies have wouldn't be eliminated if we didn't have these plans....they'd be just another liability on the social security system, so taking this benefit away wouldn't solve the problem in the least, and in fact would make social security even less solvent."
Yes, my understanding of pension plans is limited. I don't have much experience with free handouts. Your method of trying to scare us into liking pensions by claiming that it will cause more financial stress down the road is not valid. Do the crappy benefits that you mention include matching IRAs, usually up to 3%? In the example I provided, it demonstrated that holding back 2-3% pretty much solves the problem. If we have a compromised approach where the city matches contributions up to 3%, that would be 6%! That is going to be even better than a pension! In the end the city still pays, however, we'd pay for it in the current year instead having to perform creative accounting and sticking it to our grandkids.
If people can start taking some responsibility for their retirements, the burden on social security will also be reduced dramatically. If government employees argue that new employees coming in (not those we have already promised them to) are not qualified enough to take ownership of their retirement, then I don't think they are qualified to work period. There are viable options that work. It is simple and it is clear. Some may not be fortunate enough to have crappy benefits such as company match or company contributions to an IRA. It is still possible to put money away into an IRA. www.etrade.com.
After thinking about this some more, maybe this should not be considered a signing bonus. I think the better term for a pension is charity. If pensions only exist in the public sector (for the most part), then that is exactly what they are. Maybe we can start ringing a bell each holiday season to that we can help city employees employees with life's challenges. I spend a significant amount of time and resources donating to the community. I would argue there are more important charities to consider.
Government budgets are folding under the weight of pension obligations. Companies that did not stand up to the unions idiotic demands are going into or near bankruptcy. It's time to make some smart decisions for our grandkids and handing out their money. There are common sense options that we can implement TODAY. The good news is that a city will never go bankrupt. It will just keep raising taxes and fees. That is the most important reason why it is not fair to compare business with a city.
On top of all this, our grandkids will be spending money by sending it to places like Florida and Arizona. It doesn't even stay here in our community if the retirees decide to move away. I'm struggling trying to understand how we could have allowed it to get this bad. I'm really struggling to understand why not even republicans are willing to do anything about this crisis.
And you once again show your bitter jealousy and complete lack of comprehension of how this actually works. You'd rather paint it to your pre-conceived notions. How is it a "free handout" if I am taking 8% of my salary and having it put into a pension plan over 30 years that pays an annuity just like a 401(k) that is rolled over at retirement into an annuity? Seriously, how is that any different? Especially considering the fact that I don't qualify for social security anymore, which is basically a pension plan for everybody else.
The end result is the same, and the methods are pretty much the same way to get there, too: My employer takes that money and gives it to the pension management agency. Your employer takes the same money from you and gives it to the Social Security Administration. When I retire, I draw a percentage of my salary from the pension agency (not my former employer) for the rest of my life. When you retire, you draw a percentage of your salary from the SSA (not your former employer) for the rest of your life. Tell me how this is ok for you, but not for me? Is it because my pension management agency (another governmental entity) is better than the SSA about managing the money they've been trusted with? Or is it because you hate the free market (and by association, America) and that everybody should be stuck with the same choice as everybody else, which just happens to be the same choice as yours? You have a 401(k), I have a 403(b). Your employer most likely matches that 401(k), whereas nobody is matching my 403(b).
Your proposal to do away with pension plans and move everything over to "private accounts" wouldn't solve anything about unfunded liabilities, since the governmental agencies will do the same things with the money they are supposed to be sending to the IRAs or 403(b) or social security. This would be the "financial stress down the road". The answer isn't to do away with pensions, the answer is to have less excessive government spending and have the government live within its means.
You want people to "take responsibility for their retirement", but you don't support laws that make it so people actually have the money to invest because it's "bad for business". Maybe republicans aren't doing anything about this because maybe they are starting to believe that having a stable workforce that is doing their job instead of worrying about their employer deciding that it's better to uproot the plant and move it overseas where they don't have to worry about pesky things like "social security", "minimum wage", "child labor laws", etc. But I guess that and other workplace protections are just bad for business, and we should all be thankful for the great and glorious corporations that allow us the honor of working for them.
Arvid – Let me see if I can help, the state is suppose to be putting their part of what would be a Social Security Payment in our retirement fund and they don't. If a private company did not pay their SSN payments that private company owner would go to jail. Of course this lack of funding by the state is used as a scapegoat to blame the funding problems (huge funding liability) of the state on. When actually the opposite is the true we as state employees end up subsidizing the general fund budget with our pension putting our retirement in question as they rob us while not allowing us to get full SSN payment.
You can’t have it both ways give me back my SSN payments and my SSN retirement benefits when I retire or fully fund my current retirement. Either way it will cost the state the same, unless like any employee I negotiate an additional retirements benefit say a 2 or 3% match like some private employers provide over and above SSN. Just so you know the current return for SURS is set at 6% I wonder what the state is doing with the balance.
Let me see if I can help, the state is suppose to be putting their part of what would be a Social Security Payment in our retirement fund and they don't. If a private company did not pay their SSN payments that private company owner would go to jail. Of course this lack of funding by the state is used as a scapegoat to blame the funding problems (huge funding liability) of the state on. When actually the opposite is the true we as state employees end up subsidizing the general fund budget with our pension putting our retirement in question as they rob us while not allowing us to get full SSN payment.
Oh, I never said this was acceptable for the state to do. There is a huge, huge, HUGE problem with the fact that the state (or any level of government) is allowed to get away with this. If a private employer did this, they would go to jail and be expected to repay the deficit. Since we can't throw the legislature in jail for underpaying SURS, IMRF, etc., the least we should do is expect them to repay their deficit. Since it's easy to compare the government to a business in the sense that we are all stockholders with mandatory-by-virtue-of-citizenship shares in the company, we should be doing what any responsible group of shareholders would do: make the board of directors do what is right with the investment funds, or get a new board of directors.
Taking away public employee pension plans is not a real solution. It isn't going to solve the problem no matter how much anybody thinks it will. All this would succed in doing is moving the current problem (unfunded liabilities) somewhere else (Social Security, 401(k) plans, etc.). In fact, the only solution this provides is one to the question: "Hmm, how could I screw up Social Security and other people's retirement savings more than they already are? I know, let's add several thousand more people to the system, give them benefits, but not pay for them!"
You can’t have it both ways give me back my SSA payments and my SSA retirement benefits when I retire or fully fund my current retirement. Either way it will cost the state the same, unless like any employee I negotiate an additional retirements benefit say a 2 or 3% match like some private employers provide over and above SSA.
Another way non-pension individuals benefit from those of us who draw a pension: all that money we gave to be invested prior to joining various SSA-exempt pension programs never comes back to us in full!
Just so you know the current return for SURS is set at 6% I wonder what the state is doing with the balance.
I'd hope that they is keeping that money out of the legislature's hands and making wise investment choices with it. By the way 'B is for Business', this benefits the private sector as these funds are invested into the market, at least according to the last information I received from my pension plan. So how are these pension plans destroying America again, if the money that actually finds its way to the pension plans gets invested in the private sector? :) I guess it's destroying it because the state is squandering some of the money into it before business can. So I can see your gripe there :)
IMRF is not state funded, it's funded by the hiring agency and currently it's strong and solvent. That's the problem here. Each year, the ILGA needs to seperately appropriate funds for SURS, TRS and others, and they decide to play politics, just like they do with every other appropriation item (in this case, they count debt as income to also get away with having a balanced budget when we really dont'g, $110 Billion and climbing). It the hiring agency had to pay the tab and had no other requirements except those already in the law, there would be no problem. Since the ILGA has to appropriate, no judge can really order the ILGA to do their job and interfere with the legislative process.
http://www.ci.champaign.il.us/government/budget/pdfs/03-budget-summary-2007-2008.pdf
From the city budget directly:
37% personnel expenditures.
"The increase is the personnel cost in the budget year can be attributed to higher pension costs, ..."
I would like to emphasize the words EXPENDITURES and COSTS. If people are paying into their own pensions (1) why would they trust a government with their money (2) why would they would they be classified as expenditures and costs?
I read back through this post. The idea that free market is referenced at all by arvid is scary. We cannot compare government and services subsidized through taxpayer dollars to the free market. If anyone on this blog gets a pension from their employer, I'm betting revenues come from taxpayer dollars and do not respect laws of supply and demand. If there is an exception, I'd like to understand it. A pension could be considered a free market "benefit" if the skills are so in demand and we need to go over and above to recruit and retain top talent. I don't figure this to be the case. If anyone knows someone who is trying to get on the fire department, you really know this isn't the situation.
As long as I see the pension EXPENDITURES AND COSTS raising and making up a larger and larger % of the city budget, I'm going to assume that is an COST we can control and start managing better.
I think the city council members might consider and end to paying city employees over and above what they would be paid in the marketplace and stop sticking our grandkids with the tab.
1. Gina Jackson. I admire Gina for proposing new programs to help the less fortunate. The taxpayers don't like it so much when you have to raise taxes to these types of things. If council member Jackson is willing to address unnecessary COSTS now, maybe she will have an easier time convincing taxpayer that the money we SAVE can get allocated for some of her ideas.
2. Marci Dodds. I know firsthand that council member Dodds is passionate about schools. The school budgets are getting crushed under the weight of pensions just like the city. Maybe the city can reallocate some of the money they SAVE to education and demonstrate to the schools that they can ALSO start to SAVE.
3. Ken Pirok. Council member Pirok has a financial background. I think if he applied advanced financial techniques to estimate how much pensions are really costing us, he'd realize these are unecessary and will start considering the clear and simple alternatives that are currently available to us.
4. Tom Bruno. No way in hell we're ever going to be able to afford a Tram if we don't put an end to wasting taxpayer money right now.
5. Deb Feinen. As an attorney, I bet she has some attorney friends who are divorce attorneys. Those divorce attorneys appreciate how much a pension is worth.
6. Karen Foster. She is a grandparent. If we stop paying city employees benefits over and above what are available on the free market, it will create less of a burden on our grandkids.
7. Michael La Due. I wonder if he lobbied his employer for a pension and how that conversation went. Does he get a IRA? He might have some better perspective about the real world that is not subsidized by taxpayer dollars.
8. Vic Mcintosh. I don't know much about him. I got the impression he does not like wasteful spending on things like trams. We have an opportunity to stop wasting more money and it is staring us right in the face. We can do something about it.
9. Gerry Schweighart. As a retired police officer who is probably pulling in a pension, we can address the problem without affecting those who were promised them. I can't imagine anyone with a pension having confidence in having the government manage this money, especially when there are clear and simple alternatives currently available that were not in past decades.
The pension mess is not as complicated as some above believe and is certainly a functional employment benefit to entice qualified individuals to provide your company or government with their skills. Any Pension plan will work as long as the math works for amount of pension investment by the individual and the company or government are properly calculated with a reasonable interest return.
Properly done, there is NO burden on present day workers or government employees or taxpayers to pay for retirees. An interest bearing account will compound into a very nice "nest egg" over a pretty short period of time.
THE PROBLEM IS GREED AND FAILURE TO MEET PRESENT OBLIGATIONS.
Pension funds are too big of a pile of money for irresponsible politicians to ignore, when they can be used for political gain (votes) without accountability. LBJ funded the Viet Nam conflict with Social Security.
"The funds will be temporarily used and replaced with interest."
Didn't happen.
Two failures will destroy any pension fund.
1. Failure to make present day contributions
2. Failure to keep principal in the interest bearing retirement accounts.
The State of Illinois has violated both the above, General Motors is lowering its benefits to retired workers because the present day workforce is too small to support the hand to mouth payments. (The workers are overseas) The Teamsters are suffering because Jimmy Hoffa, used the retirement funds in illegal non interest producing accounts. The Federal Government has spent social security on everything but social security and it is now beyond repair, as is the State of Illinois retirement fund.
There is nothing wrong with pension funds to attract skilled workers and they should be continued. BUT the laws need to be changed that ANY BODY that misuses those funds, private, legislators, governors, presidents, should be imprisoned. Period.
Will that help the present day problems, probably because the investment rates are always on the rise, so keeping principal in the fund, may make up the difference.
If this one simple rule were followed we would not have this problem.
If it is NOT your money, then DO NOT spend it.
Every time I heard Naomi proclaim to what good shape the Illinois Retirement fund was in, I wanted to throw up.
B you got it correct, but just like me, you aren't elected.
To that end, I am, and shall always remain;
Rex Bradfield
The Republican Party is not the party of business; it is the party of management.
Any Pension plan will work as long as the math works for amount of pension investment by the individual and the company or government are properly calculated with a reasonable interest return.
So, short of a crystal ball, how do you expect this to occur?
A lot of well-managed pension funds still encounter problems. They're screwed during a market correction. CalPERS, of all pensions, lost tons of money after 2000.
Let's not forget about the impossible-to-calculate actuarial figures for determining a pension liability. What will be the average retirement age (to the day) of your current workforce?
"There is nothing wrong with pension funds to attract skilled workers and they should be continued. BUT the laws need to be changed that ANY BODY that misuses those funds, private, legislators, governors, presidents, should be imprisoned. Period."
Not a bad idea. The easiest way to remove politicians from the pension equation is to put these funds into IRA accounts where they can't be touched. It is a win-win, plus it's one less law someone has to find a loophole for. People like Arvid know that it will always be there and taxpayers will have the assurance they will not have fund it later. The only retirement-related expense should be the the actual contribution that is equal to a percentage of a salary or a matching contribution, plus the city employees time of writing the check and entering it into the books. According to Arvid, it is the employees who fund pensions. If this is true, pensions are not technically a benefit. It is simply another opportunity for bureaucrats to mismanage. My proposal ensures retirement benefits will exist at no additional cost.
I also understand that GM recently gave the UAW control over the pension fund and out of it all together. The city should also get out of the pension business all together. After staggering economic success in our community, taxes and fees continue to rise. The city should be managing as little as possible.
I doubt you'll find any objection to defined contribution pensions, as you're proposing. In fact, I haven't read any complaint against them in this thread, only lots of support.
So you want "temps from manpower" to fight the fire in your home or to come to your aid when you need the police?
Thought,
Market corrections are not unanticipated and are considered in most responsible pension calculations, depending on the investment risk which is allowed by the pension. Anticipation of longevity is also considered in those calculations, but certainly not to the day. Curious as to why you think they should be calculated to the day.
B
I agree with your concept and support your idea, but I also agree that governments can better use payroll taxpayer dollars, if real time salaries are lower than the private sector, but the pension benefits are probably greater than the private sector. That allows workers to make a choice, or immediate benefits or long term benefits with the cost of the latter being paid by responsible investment and interest bearing accounts, not taxpayer money.
But again, it won't work unless the money is left alone by politicians. The IRA's are good, or a 90% majority vote to use those funds in case of an emergency, would be some protection.
It is the pile of money that is the problem. Our Social Security bought Huey Helicopters manufactured in Texas. Wasn't LBJ from Texas?
To that end, I am, and shall always remain;
Rex Bradfield
Curious as to why you think they should be calculated to the day.
I've done a lot of work examining the pension assets/liabilities of large corporations. If you look at large companies, say Ford or GM, a slight adjustment (i.e., a couple days) in the expected retirement age significantly increases the pension liability. A lot of companies (especially large manufacturers with massive pension liabilities) can easily manage their earnings under the radar by making slight adjustments to their actuarial numbers. Who's to contradict Ford when they adjust their expected retirement age from 53 years 279 days to 53 years 270 days?
It is the pile of money that is the problem. Our Social Security bought Huey Helicopters manufactured in Texas. Wasn't LBJ from Texas?
That's not a problem in the private sector - the pension funds are separate entities from the parent corporations. The closest problem is underfunding pension assets to use the money for the company. This is easily justified when you make slight adjustments to actuarial or performance projections.
I'm sorry, Rex, but it's not nearly as easy to properly manage a pension fund as you make it out to be. There are far too many variables outside of your control. Adequately mitigating these risks proves too costly, and often times impossible.
Thought,
I do understand how the actuarial process works with pensions and I certainly did not say it was easy, I said:
"Any Pension plan will work as long as the math works for amount of pension investment by the individual and the company or government are properly calculated with a reasonable interest return."
remember math is something that engineers take for granted and we do not consider math difficult, hence my statement.
The management with pension funds is not difficult if you follow the two simple rules. All the math will provide for the glitches in the market or adjustments. The problem is with the MANAGERS, and misspending the assets, improper investments or just plain fraud. We are all talking about the same thing here, you, B, myself.
A pension fund, be it government or private is in deep trouble when the assets being invested now are being used to pay obligations before their maturity. Pile of money, be it government or private ..... Illinois or Enron, same thing.
The only fixes are NOW, any delay (40 years Naomi) WILL NOT WORK, investment returns take time or some damned lucky investment schemes, and any such scheme is far to risky.
To that end, I am, and shall always remain;
Rex Bradfield
remember math is something that engineers take for granted and we do not consider math difficult, hence my statement.
I can't believe this - you're still missing the point. Yes, it's really easy to figure out the liability once you know everything. Yes, it's really easy to invest money once you know how much to invest. Yes, the math is really easy - discounting cash flows and finding NPV is a joke.
The problem is: how much money will that be?
You're asked to estimate too many conditions too far in advance - you can constantly adjust those estimates, but that leads to excessive cash flow volatility.
By the way, this statement: "All the math will provide for the glitches in the market or adjustments." is just wrong. Unless you've stumbled upon that crystal ball I referenced earlier, or you have an investment strategy superior to all others. If math will provide for any "glitch," investment banks would never have VaR.
A pension fund, be it government or private is in deep trouble when the assets being invested now are being used to pay obligations before their maturity. Pile of money, be it government or private ..... Illinois or Enron, same thing
You realize that the Enron pension problem really had nothing to do with "assets being invested now are being used to pay obligations before their maturity," right? Besides the fact that the statement doesn't make much sense (assets reaching maturity? - I'm aware of derivatives reaching maturity, but not really assets), it doesn't reflect the problem at Enron...at all.
Enron's pension problems were still legal under ERISA and were extremely transparent, unlike the problems found with most government defined benefit pensions. Enron's 401(k) policies were explicity stated and adhered to. The company came through on its promises. It's pretty difficult to underfund a defined contribution pension without federal regulators noticing.
Thought,
You are having trouble taking yes for an answer, I am agreeing with both you and B.
actuary |ˈak ch oÅËŒerÄ“|
noun ( pl. -aries)
a person who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.
Statistics is one branch of math,
What you are saying is impossible, is exactly what insurance companies do for a living. They do it all the time.
Assets reach maturity means the investment asset, is planned to reach a maturity at a specific date and within a range of investment income. The asset (investment, pension contribution) matures at the time which it is planned to become a part of the disbursements.
Enron's pensions were not underfunded? Then why is no one getting a pension from them or did I misread all those press releases, or even more likely, the press didn't know what was going on?
I still have all those formulas pasted inside of my design manuals.
We are not in disagreement, take yes for an answer.
To that end, I am, and shall always remain;
Rex Bradfield
What you are saying is impossible, is exactly what insurance companies do for a living. They do it all the time.
Yeah, but there's a huge difference. Insurance companies are the exact opposite of pension plans. It's in their best interest to get the most assets possible - if they overestimate a policy holder's risk and charge them too much, they just get extra money! A company's pension plan tries to minimize the assets, so that it can return a profit and have stable cash flows. If pensions acted like insurance companies, this country's markets wouldn't return that much.
Enron's pensions were not underfunded? Then why is no one getting a pension from them or did I misread all those press releases, or even more likely, the press didn't know what was going on?
It's most likely that the press had absolutely no idea what was going on, but chose to report on it anyway - I rarely see an accounting-related news story that contains much/any truth. Even the WSJ consistently messes up their accounting stories.
Nearly all of Enron's "pensions" (since the press wants to call them that - post -retirement benefits is a better term) were defined contribution plans. They were just typical your typical 401(k), with Enron's matching contribution coming entirely in shares of its company. This is totally legal under ERISA. Since the company folded, Enron's shares are basically worthless, so one-third of the 401(k) accounts are gone (33% were Enron-matched contributions, 67% were employee contributions). However, it's no secret that having one-third of your assets in one company is a bad thing.
Check out the DOL's Warning Signs That 401(k) Contributions Are Being Misused. I hope that most Americans actually notice things like this - I'd hate to see a 401(k) scandal.
"minimize assets"?
If the assets are the amount of investments in interest bearing accounts, why would they do that?
Of course insurance is backwards from Investments, but insurance companies also offer retirement programs. Watch the football games for Snoopy and Pacific Life, to mention a few.
B is right on track with his suggestions and I certainly agree but......
I am still having trouble understanding your point. It sounds like you are saying retirement programs are impossible?
and that obviously can't be true, they have been around long before even I was born.
If not, what is your point?
To that end, I am, and shall always remain;
Rex Bradfield
It sounds like you are saying retirement programs are impossible?
Yes, clearly, that's what I'm saying. You must be taking my quotes "out of content (sic)" again.
If you don't understand that I'm advocating defined contribution plans, while highlighting the inherent flaws in defined benefit pensions, I can't help you.
B
Care to respond to the above comment by Thought? Are benefit pensions impossible and we should give up on the idea of pensions because of inherent flaws?
One of the real problems is when retirement programs were conceived, man was not so driven by money (Gekio syndrome, "greed is good") and those who invested the money were bound by the honor of their name to do everything possible to make sure they were doing everything possible to assure people would have money when they retired. But alas, money is the root of all evil, and the honor of the investors became compromised and they used a little of the retirement money for other purposes and would just "pay it back" with the extra money. NOT!!! and the cancer began.
Thought
"content" is the correct word, meaning a person has taken a phrase of something out of the content of the whole and (sic) means you realize something has been misspelled, but quote directly.
sometimes an author will use the phrase "out of context" in a similar manner... Meaning a person has taken something out of the content of the whole and what they have left out is the context or descriptive part of the whole.
Do you say tomatoe or tomato, that kind of thing...
To that end, I am, and shall always remain;
Rex Bradfield
"content" is the correct word, meaning a person has taken a phrase of something out of the content of the whole
That's true for all quotes, Rex. All quotes are inherently out of content. As long as it's not changing the overall message, it's fine.
You seem to think that I'm cherry-picking quotes or something, which is taking them out of context (and thereby changing their meaning). I'm not, and I haven't.
and (sic) means you realize something has been misspelled, but quote directly.
I know - that's why I used it. You don't need to teach me how to use it. With your propensity to misspell words (e.g., "Cousto") and not always write clearly (which, I'm not blaming you for - it's the internet, I'm not a prescriptivist, and you write a lot so you're bound to make more mistakes), I figured you were just making a mistake. I don't mean for this to turn into some argument about language, nor as a personal attack - I'm just explaining my reasons for the comment.
"Care to respond to the above comment by Thought?"
Rex, you pointed out the pile of money is the problem and you are spot on. We need to take money out of the hands of bureaucrats whenever possible. I took special note of the point made by Thought that all the creative accounting is based off of complicated (and loose) assumptions. This is true.
Are benefit pensions impossible and we should give up on the idea of pensions because of inherent flaws?"
Pensions are not impossible, they are completely unnecessary. On top of that, it gives bureaucrats one less thing to screw up.
Thanks Thought
Thanks B
My thoughts exactly, your original post of the percentages and responsibilities for investment are pretty creative (God I love creative thinking). They may not be called pensions, but they are certainly a protection for our future. (unfortunately my not so distant future, but Hell what am I saying? Surveyors are like trees, we never retire, we just die standing up)
To that end, I am, and shall always remain;
Rex Bradfield