Author Topic: Future of State Pension Plans  (Read 24729 times)

Captain FIRE

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Re: Future of State Pension Plans
« Reply #50 on: October 21, 2016, 09:25:31 AM »
As far as having to boost salaries of the public employees to compensate for the lack of a guaranteed pension, I think that's BS.  We don't mandate people work in either the public and private sector, and each individual makes their choice on what job they want to work at.  Will a few individuals who are good at math jump ship because the pension was the major reason they were willing to do that job, sure.  But others will be more than happy to step into that vacated position for the other benefits that they may value more than the pension.

IMO, you're hugely underestimating the impact of a removal of a pension without a corresponding increase to salary (and making current employees whole).  People aren't that dumb.  The people I work with are well aware of the value of a pension - not just a few savvy individuals.  Sure people will be happy to step in, but I doubt the quality will be the same, which means you likely need more people to cover the same number of jobs and still get worse work product from them. 

I've heard the "other benefits" touted a lot on this thread.  In my state, regardless of experience you start with only 2 weeks vacation (much less than what I had in the private sector), I pay 25% premium for my healthcare (the same as I paid in the private sector), I've been asked to work late and weekends, and our job security is diminishing - my state encouraged early retirements last year through the threat of layoffs.  They're doing the same thing right now, except that the carrot is virtually nonexistent, and I expect the layoffs will happen.  On the positive side, they can't actually force you to work extra hours and technically are supposed to pay when you do.  What "other benefits" are there that would entice someone to take a 30-50% paycut?
« Last Edit: October 21, 2016, 09:35:46 AM by Captain FIRE »

FIPurpose

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Re: Future of State Pension Plans
« Reply #51 on: October 21, 2016, 09:33:50 AM »

I think you're misreading a bit... when I look at 70 year olds, it says 70-year-old men are expected to live to 84.24, and women to 86.43. 

Of course there's also class, race, smoking, weight, exposure to abuse/war/trauma, etc that I imagine produce even bigger differences.

Thinking about this some more, I don't think it's fair to count from 70 years old onward. Men have much more probability to die early, even before a pension starts being paid out.

Usually people that die before retirement are entitled to leave their beneficiaries a lump-sum or potentially a monthly payment if they were vested. Thankfully most pensions aren't like Social Security. :/

TheOldestYoungMan

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Re: Future of State Pension Plans
« Reply #52 on: October 21, 2016, 09:58:36 AM »
Texas changed their plan a few years ago to address the results of the regular evaluation they conduct on the Teacher Retirement System.  That pension plan includes a lot of government non-teachers, such as every employee of a school or university.

The changes they eventually settled on were pretty subtle, and I can't imagine most people understood what was done to them.  The change was masterfully presented to the electorate by first introducing totally unnecessary cuts and changes.  After people freaked out about that, more minor changes were introduced instead, and changes affecting different groups, and those got passed.  Essentially benefits got increased to the folks already receiving a pension.  People who had been in the system a long time but not yet retired saw no change.  People in the system longer than five years saw a massive, hidden reduction in benefit, but no change to their retirement age, and people in less than five years saw a massive increase in retirement age and a massive reduction in benefit.  (If I was relying on TRS, my retirement age changed from 55 to 62.  I have one coworker who would've had 14 years added on to his retirement age, if he wasn't grandfathered into the old rules).  Somewhere, I'm sure, was a 19 year old who would've been eligible to retire at 50 or 51 who will have to work an extra 11 or 12 years and totally wasn't paying attention.

So for new participants, TRS is a terrible deal.  I mean, it is still better than social security, and the health benefits access will be nice if something happens to the ACA, but it isn't a reason to take a lower salary or anything.  You'll definitely be able to do better on your own, and if I had a choice I'd prefer to handle the investment myself.  I just look at it as extra pre-tax contributions I'm just no allowed to direct and that could be seized at any time if enough liberals move to Texas.

The one good thing about all the changes, is that they significantly bumped up the employer and state contributions, as well as the employee contributions, which was responsible and timely, and they did this before the pension was in a hole.  So, from my understanding, TRS is pretty well funded and is being managed in such a way that it will continue to be well funded.

The massive reduction in benefit I was talking about refers to if you try to take your money out of TRS.  Basically if that is your plan, you need to periodically quit your job and take it out as you go.  The amount they let you walk away with in 25 years is going to be laughably small compared to what they'll pay you.

In the old way, you were basically getting a lump sum you could use to go buy an annuity that would pay roughly what your pension benefit would have been.  Not quite, but close.  Under the new plan, you'll get about 10% of that.  The stated goal (and I believe it will work out this way) was to stop people from withdrawing from TRS.  They are basically banking on you leaving your money there and dying before it all gets paid out.

For whatever reason, the idea that if everyone withdraws their funds the pension would have no money is a bad thing.  Seems like the pension would also have no obligations..

nobody123

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Re: Future of State Pension Plans
« Reply #53 on: October 21, 2016, 10:10:39 AM »
As far as having to boost salaries of the public employees to compensate for the lack of a guaranteed pension, I think that's BS.  We don't mandate people work in either the public and private sector, and each individual makes their choice on what job they want to work at.  Will a few individuals who are good at math jump ship because the pension was the major reason they were willing to do that job, sure.  But others will be more than happy to step into that vacated position for the other benefits that they may value more than the pension.

IMO, you're hugely underestimating the impact of a removal of a pension without a corresponding increase to salary (and making current employees whole).  People aren't that dumb.  The people I work with are well aware of the value of a pension - not just a few savvy individuals.  Sure people will be happy to step in, but I doubt the quality will be the same, which means you likely need more people to cover the same number of jobs and still get worse work product from them. 

I've heard the "other benefits" touted a lot on this thread.  In my state, regardless of experience you start with only 2 weeks vacation (much less than what I had in the private sector), I pay 25% premium for my healthcare (the same as I paid in the private sector), I've been asked to work late and weekends, and our job security is diminishing - my state encouraged early retirements last year through the threat of layoffs.  They're doing the same thing right now, except that the carrot is virtually none-existent, and I expect the layoffs will happen.  On the positive side, they can't actually force you to work extra hours and technically are supposed to pay when you do.  What "other benefits" are there that would entice someone to take a 30-50% paycut?

Obviously every locality and employment agreement has different rules and benefits.  In my general observations (primarily knowing the benefits my teacher and police officer relatives get), the benefits like vacation and insurances are better than the private sector.  I am not saying abolish the pensions and don't offer anything in exchange;  I suggested a defined contribution into the public employees' retirement accounts.  If their take-home paycheck is roughly the same, I bet the vast majority of them don't care that the pension is now a 403(b) contribution given the general lack of financial knowledge in the country.  And I'd venture to guess that some would actually prefer the defined contribution so they have control of the funds instead of some future politician.

If there was some sort of changeover, I would assume it would happen in a phased approach where some folks are grandfathered into the old pension model so you're not pulling the rug out from under them 5 years from retirement.  If the youngsters don't like the deal they'll be getting, they're free to find employment elsewhere.  As far as the quality of folks willing to work for the wage / bennies offered by the government, I'm not worried.  I'm sure you'll find a bell-curve of competence in both public and private employees.  There will be outstanding teachers who do it because the love the job, and others that are only there for the summers off and pension.  There are people at my job that work 80 hour weeks out of some sense of duty, and others that watch the clock and won't put in a minute more than they are required. 
« Last Edit: October 21, 2016, 10:13:21 AM by nobody123 »

mm1970

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Re: Future of State Pension Plans
« Reply #54 on: October 21, 2016, 10:31:48 AM »
Quote
Thing is, state employees accept lower salaries for years in exchange for the pension in retirement.  If you want to get rid of the pensions, you're going to have to pony up more money in the short-term.

That might be true for some.  I think it's the whole safety thing for many.

I'm an employee.  I'm not self-employed.  I don't like risk.  I have been very tempted in the past to look at state jobs, like being an engineer at a state university.  Decent pay (though maybe lower than I make now), but better bennies.  More time off and a pension.

I realize the appeal of a pension, as my step-dad has one (retired at 55) and several other relatives have them. Some of them were teachers and their pensions are very good. Some worked manual labor union jobs, and their pensions are needed, because their bodies were pretty much worn out by 50.  It's that safety of knowing there will always be money and healthcare.

But that simply doesn't seem to be realistic, for the most part.  How many people really stay in the same job/ company for 20 years?  And, what is a realistic amount of time to work before being vested in a pension?  My brother is very excited to have a state job now, and his Air Force time counts, so he can FINALLY afford to retire some day (he and wife are spendy!)  So he only needs to work 15 years to get his pension when you add in AF time.  Not sure how affordable that is.

So anyway, is 20 years enough?  Or should it be an age?

I have this convo at least 2x a month at the gym at 5 am with the old guys.  There's a retired Navy Chief, and a retired Navy Captain among the group.  And the retired chief tells me that I should get back into the Navy (reserves) and do 15 years.  All I need is to finish 20 years before age 65 and I get a pension! (I'm 46.)

You know, if I'd wanted to do that, I'd have stayed in the reserves back in the 90s.  I didn't.  Now I'm 46.  I have a FT job, two small children.  I guess it's not how I want to spend my time?  Plus, I doubt I have any skills that the Navy would need.  I drove a desk at NR for crying out loud - those skills don't translate very well to the real military.

Anyway.

mm1970

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Re: Future of State Pension Plans
« Reply #55 on: October 21, 2016, 10:41:32 AM »
As far as having to boost salaries of the public employees to compensate for the lack of a guaranteed pension, I think that's BS.  We don't mandate people work in either the public and private sector, and each individual makes their choice on what job they want to work at.  Will a few individuals who are good at math jump ship because the pension was the major reason they were willing to do that job, sure.  But others will be more than happy to step into that vacated position for the other benefits that they may value more than the pension.

IMO, you're hugely underestimating the impact of a removal of a pension without a corresponding increase to salary (and making current employees whole).  People aren't that dumb.  The people I work with are well aware of the value of a pension - not just a few savvy individuals.  Sure people will be happy to step in, but I doubt the quality will be the same, which means you likely need more people to cover the same number of jobs and still get worse work product from them. 

I've heard the "other benefits" touted a lot on this thread.  In my state, regardless of experience you start with only 2 weeks vacation (much less than what I had in the private sector), I pay 25% premium for my healthcare (the same as I paid in the private sector), I've been asked to work late and weekends, and our job security is diminishing - my state encouraged early retirements last year through the threat of layoffs.  They're doing the same thing right now, except that the carrot is virtually nonexistent, and I expect the layoffs will happen.  On the positive side, they can't actually force you to work extra hours and technically are supposed to pay when you do.  What "other benefits" are there that would entice someone to take a 30-50% paycut?

So I don't know...annually, I get a letter from my company that discusses my total benefits.  We don't have any kind of 401k matching (blech), but they print out a copy that includes my salary *and* the amount of money the company pays for my medical, dental, vision, and life insurance benefits.  Maybe even social security, I don't know.

I assume that it wouldn't be terribly difficult for a state government to do the same thing.  Salary + vacation + health + current value of future pension.  (There has to be a calculation, right?  When you retire in 20 years, it will be worth X amount in dollars and Y amount of medical.  Current value is Z.)

If you phase out the pension, keep the total amount the same.

(And as far as people beings stupid with their money, yeah.  But you know, I know companies that do 401k match, or just flat out put money in there for you.  Won't prevent people from borrowing from the 401k but...)

Lagom

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Re: Future of State Pension Plans
« Reply #56 on: October 21, 2016, 10:47:27 AM »

Obviously every locality and employment agreement has different rules and benefits.  In my general observations (primarily knowing the benefits my teacher and police officer relatives get), the benefits like vacation and insurances are better than the private sector.  I am not saying abolish the pensions and don't offer anything in exchange;  I suggested a defined contribution into the public employees' retirement accounts.  If their take-home paycheck is roughly the same, I bet the vast majority of them don't care that the pension is now a 403(b) contribution given the general lack of financial knowledge in the country.  And I'd venture to guess that some would actually prefer the defined contribution so they have control of the funds instead of some future politician.

If there was some sort of changeover, I would assume it would happen in a phased approach where some folks are grandfathered into the old pension model so you're not pulling the rug out from under them 5 years from retirement.  If the youngsters don't like the deal they'll be getting, they're free to find employment elsewhere.  As far as the quality of folks willing to work for the wage / bennies offered by the government, I'm not worried.  I'm sure you'll find a bell-curve of competence in both public and private employees. There will be outstanding teachers who do it because the love the job, and others that are only there for the summers off and pension.  There are people at my job that work 80 hour weeks out of some sense of duty, and others that watch the clock and won't put in a minute more than they are required.

Former teacher here. You are clearly not familiar with the state of talent in education right now. The number of teachers willing to take a shit deal because they "love the job" is dwindling and increasingly skewed towards those already near-retirement (most of whom are at the top of the payscale and not in danger of losing their pensions because the union disproportionately protects them). Young, talented teachers are leaving in droves, or deciding never to start in the first place. My masters cohort graduated 12 people with me, and these were super interesting and talented individuals (former Chicago crime reporter, international business consultant for Deloitte, world traveling polyglot, etc.), many of whom had given up higher paying careers to make the switch. And yet, of that 12, only 4 have decided to commit to a long term career in teaching (2 of those were already long-tenured teachers), with the rest moving back to the private sector over the past 6 years.

Granted graduating in the middle of the recession didn't help with this, but most of them (including myself), left because the pay, benefits, and job security were getting worse all the time, right along with the level of respect we were getting considering we were highly trained professionals. I liked the job, but I value my life and future more. The increasingly exploitative practice of laying off young teachers before they hit tenure, ever-dwindling pension benefits, ever-increasing public disdain for a profession with "no value in the free market..." There is already a talent shortage in some markets and it's only going to get worse if pensions and benefits continue to be cut with no corresponding increase in salary.

Edit - Now to balance this, I think teaching is still a great profession for many. My wife is a very happy teacher of 9 years. I truly don't mean to sound bitter, but its clear that there is widespread misinformation out there.
« Last Edit: October 21, 2016, 10:50:41 AM by Lagom »

FIPurpose

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Re: Future of State Pension Plans
« Reply #57 on: October 21, 2016, 10:49:50 AM »
Calif has some pensions plans as high as 3% @ 50. There's lots of different plans with different percentages and retirement ages but all are at least 2% minimum and many range between 2% to 3% and require 5 years to vest. I am on a 2% @ 50 public safety plan.

Yeah after I made that comment I googled around some more and saw an article talking specifically about California's change to 3% after so many years. It also included that they underestimated the actual cost of the increase by about 50%. I can't find it now, but it's definitely a huge liability for the state. But California's plan is rare, when I tried going through several state pension plans for research most of them were about 1.5%. The worst states were about 1% and the better states were closer to 2% (but even then most required 30 years for that 2%). Then again they all had different salaries, contribution percentage requirements, pension tax requirements. I don't know of anyone that's done a study to try and compare all the systems, but it would be extremely difficult to compare pension plans, salary, and cost of living between states. Even for the Georgia example of 2%, you had to asterisk that to say that it may not be an equivalent 2% to California's 2% due to survivor,payout,et al. benefits.

Here's an interview with a Utah State Senator: http://www.teacherpensions.org/blog/what-does-it-take-reform-teacher-pensions-interview-former-utah-state-senator-dan-liljenquist

They went with what I interpret to be a half-way system where they will fund a pension up to a certain dollar-amount and then overflow to a defined-contribution plan. That way the state isn't caught with their pants-down in another economic downturn, and losses in pensions won't become huge line-item liabilities.

Northwestie

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Re: Future of State Pension Plans
« Reply #58 on: October 21, 2016, 10:58:22 AM »

With regards to your claim that it is heavily taxpayer subsidized - Well, yes, my whole paycheck is subsidized by taxpayers, that's how public employees get paid?  I'm sorry to inconvenience everyone on that regard.  However, I don't see why it's so different than the private sector.  In the private sector, businesses often give bonuses, and matches into 401K accounts.  Instead of this, in public education, that money is put into a fund for my pension (which we also contribute to).  Here's the part that I think many don't realize...once we quit working, the school is off the hook for us.  So, just like companies only provide matches to the 401K's and bonuses while employed, so do the schools, and in turn, the taxpayers.  So, if we choose to set up a system where our yearly bonuses get put into a pension account as opposed to a bonus check and 401K match, I don't see an inherent problem there? 

With regards to comments that we shouldn't do them because they are ALL underfunded - That would like me saying "we should abolish 401K's because most companies rip us off with fees that are too high".  No, what we should do is work to improve the system so that fees are appropriate.  And some are properly funded.  Mine is currently being managed responsibly.  If some are underfunded, which is the case, that doesn't mean we should discard the idea, rather we need to make sure they are managed properly. 

Your claim that in any properly funded pension, taxes of all sorts will go up:  Again, no.  The fact that they are funded properly means that the schools annual contributions are such that the fund will self-sustain itself after we retire, at which point the schools, and thus you, are off the hook for the contributions.  The union in Michigan is working to make sure that these funds are not being stolen from, and thus protecting teachers, and taxpayers from a crisis down the road.  That is good for teachers, and also taxpayers, because if your teachers are getting ripped off, your quality of your children's education will follow suit.

I know not all states and systems work properly, and that I am in a fortunate position to be in a state with a well run pension, but to say that they are all mismanaged, or that unions are inherently bad, is incorrect. 

Also, I'd like to add that I'm a super conservative person fiscally and am saving over 50% of my paycheck in index funds.  So, it's not like I need this pension because I'm a flaming liberal or that I suck at saving.  I just think it gets a bad rap, that's all. 

Take care!

I'm pretty liberal as is my spouse (a teacher) but we are both ready for defined benefits to end.  Here's the deal - they take a certain amount out of your paycheck and supposedly invest it - and then pay out on the investment to your over your lifetime.  The problem is that no state is doing this correctly and many states are in the hole for millions billions.  Eventually there are only two options - raise taxes or cut benefits - and more likely both.

The primary difference between the 401k items listed above and public pensions is that the private sector is private money - not taxpayer's money.  And there are the vast majority of states cannot meet their current obligations by a long shot - see these two articles.

Interesting article in the NYT about the actuarial vs. market method of assessing pension liabilities.

http://www.nytimes.com/2016/09/18/business/dealbook/a-sour-surprise-for-public-pensions-two-sets-of-books.html?_r=0

On the heels of that - Oregon's debacle:  http://www.oregonlive.com/politics/index.ssf/2016/09/this_is_becoming_a_moral_issue.html


Bad enough that Rukaiyah Adams, the normally polished investment professional who is vice chair of the Oregon Investment Council, broke down in tears recently as she spoke of passing a record $22 billion in unfunded promises to future taxpayers

In summary no one is using proper accounting to analyze liabilities and everyone is overestimating current and future returns.  Another reason why I favor moving towards 401ks instead of the pension system.
« Last Edit: October 21, 2016, 11:01:29 AM by Northwestie »

nobody123

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Re: Future of State Pension Plans
« Reply #59 on: October 21, 2016, 10:59:54 AM »
So I don't know...annually, I get a letter from my company that discusses my total benefits.  We don't have any kind of 401k matching (blech), but they print out a copy that includes my salary *and* the amount of money the company pays for my medical, dental, vision, and life insurance benefits.  Maybe even social security, I don't know.

Quick aside:  My company did that once about a decade ago.  Everyone got a personalized form that showed your salary, plus how much they were contributing toward your health / vision / dental / life insurance, 401k match, etc.  It was pretty nice to see it all laid out in an easy to read form.  I'm sure management intended it to be a reminder of how much the benefits are actually worth.  However, the powers that be also included all of the taxes the company paid because they employed you, the cost of your phone line, etc.  It went over like a fart in church because it seemed as though the company was telling us how grateful we should be because they had to spend all of this money to employ us.  Needless to say, they haven't done it since.

FIPurpose

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Re: Future of State Pension Plans
« Reply #60 on: October 21, 2016, 11:01:05 AM »

Obviously every locality and employment agreement has different rules and benefits.  In my general observations (primarily knowing the benefits my teacher and police officer relatives get), the benefits like vacation and insurances are better than the private sector.  I am not saying abolish the pensions and don't offer anything in exchange;  I suggested a defined contribution into the public employees' retirement accounts.  If their take-home paycheck is roughly the same, I bet the vast majority of them don't care that the pension is now a 403(b) contribution given the general lack of financial knowledge in the country.  And I'd venture to guess that some would actually prefer the defined contribution so they have control of the funds instead of some future politician.

If there was some sort of changeover, I would assume it would happen in a phased approach where some folks are grandfathered into the old pension model so you're not pulling the rug out from under them 5 years from retirement.  If the youngsters don't like the deal they'll be getting, they're free to find employment elsewhere.  As far as the quality of folks willing to work for the wage / bennies offered by the government, I'm not worried.  I'm sure you'll find a bell-curve of competence in both public and private employees. There will be outstanding teachers who do it because the love the job, and others that are only there for the summers off and pension.  There are people at my job that work 80 hour weeks out of some sense of duty, and others that watch the clock and won't put in a minute more than they are required.

Former teacher here. You are clearly not familiar with the state of talent in education right now. The number of teachers willing to take a shit deal because they "love the job" is dwindling and increasingly skewed towards those already near-retirement (most of whom are at the top of the payscale and not in danger of losing their pensions because the union disproportionately protects them). Young, talented teachers are leaving in droves, or deciding never to start in the first place. My masters cohort graduated 12 people with me, and these were super interesting and talented individuals (former Chicago crime reporter, international business consultant for Deloitte, world traveling polyglot, etc.), many of whom had given up higher paying careers to make the switch. And yet, of that 12, only 4 have decided to commit to a long term career in teaching (2 of those were already long-tenured teachers), with the rest moving back to the private sector over the past 6 years.

Granted graduating in the middle of the recession didn't help with this, but most of them (including myself), left because the pay, benefits, and job security were getting worse all the time, right along with the level of respect we were getting considering we were highly trained professionals. I liked the job, but I value my life and future more. The increasingly exploitative practice of laying off young teachers before they hit tenure, ever-dwindling pension benefits, ever-increasing public disdain for a profession with "no value in the free market..." There is already a talent shortage in some markets and it's only going to get worse if pensions and benefits continue to be cut with no corresponding increase in salary.

Edit - Now to balance this, I think teaching is still a great profession for many. My wife is a very happy teacher of 9 years. I truly don't mean to sound bitter, but its clear that there is widespread misinformation out there.

I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.

Lagom

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Re: Future of State Pension Plans
« Reply #61 on: October 21, 2016, 11:08:50 AM »
I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.

I actually really like this sort of idea. And I know no one in this thread is really advocating screwing over young teachers, fire fighters, etc., I just get sensitive when there's an implication that intrinsic satisfaction of a job should somehow make up for crappy employer behavior. Public sector is especially exposed to this sort of reasoning, which I find especially weird on a forum of people striving to retire early. Personally, I am all for bumping salaries and moving towards 401k style plans with low fee funds and a generous match or even an automatic employer contribution. Especially if a 457 is also on the offer, we could make huge progress on the pension crisis while attracting even more talent to these jobs.


DA

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Re: Future of State Pension Plans
« Reply #62 on: October 21, 2016, 11:13:16 AM »
I understand that the recipients of taxpayer-funded pension plans are very happy to have them.  But if I could make one change to public policy in the United States, at the state and local level at least, it would be to outlaw public pensions.  If 401(k) and Social Security is good enough for everyone else, it's good enough for state employees as well. 

Public sector unions and taxpayer-funded pensions--and yes, despite paycheck contributions, these pensions are heavily subsidized by taxpayer money--have a lot of pernicious effects.  First, it leads to a very unseemly quid pro quo between public sector unions that deliver votes to the politicians who in return deliver ever-more generous pensions or contribution terms.  Second, the pensions are almost always "gameable" such that people can artificially inflate their pensions with shady end-of-career antics.  Third, as a union that is literally organized against the taxpayers and the public interest, it places a substantial minority in direct conflict with the rest of the citizenry, and leads to an "entitlement mindset" among the unions.  Fourth, the pensions are NEVER fully funded, despite what any politician or union rep says. 

Ranting aside, for Mustachians who are geographically flexible and looking to settle down somewhere long-term, I would definitely consider the financial health of a state when choosing where to live.  The pensions will be paid out--the public sector unions are far more organized and politically connected than the dispersed general public, and so they will win.  This means taxes of all sorts will go up.  Valuable services may be reduced as well.  If you don't believe me, take a look at this link and see how enthusiastic you are about moving to Illinois:  https://www.illinoispolicy.org/reports/pensions-101-understanding-illinois-massive-government-worker-pension-crisis/

Illinois is probably the worst state in this regard, but there are plenty that are not far behind it.

Yeah, let's all race to the bottom!  Woo-hoo!  Team America, fuck yeah!

How would reforming one of the primary causes of the fiscal crises going in the states and localities be a "race to the bottom"?


Teacher here chiming in.  I see both points, but would like to defend the pensions.  Michigan is a good example of a properly run pension.

* * *

Your claim that in any properly funded pension, taxes of all sorts will go up:  Again, no.  The fact that they are funded properly means that the schools annual contributions are such that the fund will self-sustain itself after we retire, at which point the schools, and thus you, are off the hook for the contributions.  The union in Michigan is working to make sure that these funds are not being stolen from, and thus protecting teachers, and taxpayers from a crisis down the road.  That is good for teachers, and also taxpayers, because if your teachers are getting ripped off, your quality of your children's education will follow suit.


According to this recently published report, the Michigan Public School Employees’ Retirement System is only 66.2% funded.  Unless something is done, taxpayers will have to pay another $23 billion to cover this shortfall, and this is only one of many state-run pensions in Michigan.  See http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014  (scroll to bottom of report and download "state-by-state data").  All of the pension systems in Michigan are facing a 25% - 44% shortfall, except the Judicial Retirement System, which is miniscule in size compared to the others. 

Like I said earlier, if you're a recipient or future recipient of one of these pensions, I don't blame you for liking them, who wouldn't want someone else to pay for their (often early) retirement?  But your claim that Michigan's teacher pension is "properly funded" and that current contributions by teachers and the school will "self-sustain" are demonstrably false.   
« Last Edit: October 21, 2016, 11:48:28 AM by DA »

Northwestie

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Re: Future of State Pension Plans
« Reply #63 on: October 21, 2016, 11:20:53 AM »
...........and I would also note that MI, like many states, is not using the more reality-based market assessment method of analyzing their liabilities - so these are much more than they publish.

And even using this disputed method of accounting we have:

The Michigan Public School Employee Retirement System is underfunded by $26.7 billion, meaning only 61 percent of the money needed to pay its costs has been set aside


Only a few of the largest municipalities in Michigan fully fund their pension system, with the average city funded at only 67 percent — more than $5.4 billion in total liabilities. This has contributed to the fiscal crises in Detroit, Flint and elsewhere.
« Last Edit: October 21, 2016, 11:25:22 AM by Northwestie »

PhrugalPhan

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Re: Future of State Pension Plans
« Reply #64 on: October 21, 2016, 11:38:44 AM »
I would be surprised to know of a public pension that is at 2%. I think most states are somewhere between 1 and 1.5. The other side is to increase minimum retirement age. If people are living 10 years longer, retirement should be moved up and any early retirement should come at reduction of benefit or self-funded.
Like a few others have stated, I too have a 2% pension.  Of course we have to contribute a lot from our paycheck, and there is a sizable cut if you retire early.  We have a 457 plan, but no match, so I call the pension our retirement match.   And if you select spousal benefits on death, you take a haircut there as well.  And we are paid lots less than private industry, so I don't think ours is unfair to the citizens but you can't convince some of them of this.

Bicycle_B

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Re: Future of State Pension Plans
« Reply #65 on: October 21, 2016, 11:39:52 AM »
I think pensions can be an efficient form of payment that benefits taxpayers and is fair to employees.

In practice, America has moved to a dual track employment system where private workers use defined contribution plans (or nothing) in addition to Social Security, while public sector workers usually get enrolled in a defined benefit plan.  This is actually appropriate because defined contribution can advantageous for a highly stable employer.  Corporations aren't committed to the long term sufficiently to profit by offering defined benefit pensions, so they have largely shifted to defined contribution.  But public sector employers are mostly stable and can save taxpayer money by maintaining defined contribution plans.

Governments are very complex entities whose tasks are largely similar year to year.  Consequently they have more to gain by retaining employees.  Defined benefit plans increase employee retention per taxpayer dollar spent.  Properly run, they don't cost extra to the taxpayer, they bring more value per tax dollar. 

Remember, lots of people work for the government but do not stay long enough to qualify for the pension.  Not all employees get the "windfall" of a pension payout, some get bupkus despite serving the public quite well (think of the teachers Lagom described).  All public employees contribute anywhere from 6% to 9% of pay, with matching from the public of typically 6% or so.  The effect is that total expense overall is closer to the private sector's pay scale than people think.

Take the example of Texas state employees.  Texas produces an annual study of compensation and benefits, plus an analysis of employee turnover; pay rates for each job track are adjusted in response to turnover targets as part of an overall plan to keep pay and benefits at a level that benefits the taxpayer. Periodically the legislature changes the details of the pension agreement (similar to TRS as described by a previous poster).  The effect?  Texas state govt employees work for 5% lower pay than private sector employees of equal education/experience, in return for a 6% state expense toward the pension plan, which is majority funded by the employees themselves.  Roughly speaking a wash, but the compensation type is well tailored to the task at hand, arguably providing good value.

Look behind the surface.  Public sector pensions can be and often are an efficient compensation form that can save taxpayers money.

Here are reports summarizing the actual data in Texas' case:

http://www.sao.texas.gov/reports/main/16-703.pdf
(explains on page 2 that private sector employees get 30.3% of their pay as benefits, while Texas state employees get 36.3%, including the value of their pensions.  So the total cost of providing these benefits is only 6.0% more than private sector.)

http://www.hr.sao.texas.gov/Reports/Category/CompensationAndClassification/
(analyzes state's pay scale in comparison to private sector for various job groups.  The first report concluded in part that base pay was 5% less than the private sector, though that finding was buried in footnotes. Whether the skill of these stable employees is worth the remaining 1% can be debated, but I think the state gets good value.  In any case, the net difference is about 1%.)

http://www.hr.sao.texas.gov/Reports/Category/Turnover/
(analyzes pay and turnover rates for various jobs)

If you've never heard of the above studies, realize that behind the headlines, lots of logical and reasonable gets done all the time.  Many of our systems are working well.  They just don't get headlines because "taxpayers got a fair deal today just like yesterday" doesn't sell advertising.

« Last Edit: October 21, 2016, 12:06:40 PM by Bicycle_B »

Captain FIRE

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Re: Future of State Pension Plans
« Reply #66 on: October 21, 2016, 11:49:18 AM »
Like I said earlier, if you're a recipient or future recipient of one of these pensions, I don't blame you for liking them, who wouldn't want someone else to pay for their (often early) retirement?  But your claim that Michigan's teacher pension is "properly funded" and that current contributions by teachers and the school will "self-sustain" are demonstrably false.   

AGH!  Your compensation includes the whole package: salary, pension, health care etc.  You have two job offers:
1) Government: $100k, with pension
2) Private: $150k, no pension (but with 401k match and bonus)

You decide to accept job offer one.  Several years later the government realizes it screwed up and didn't save enough to pay for what it promised so it belatedly changes the game and decides to pay you $50k and asks for its money back.  Oh it can't do that?  So why can it take back the pension, which was part of the whole offer and you relied upon in accepting the job?

Can we not frame this as "someone else" paying for it?  You may not like the package that was offered to the government employees, but it was promised and rightfully earned by the government employees.

In regards to the early retirement slam, consider that we're on an early retirement board, which shows if you save your money, you can retire early.  The government is (theoretically) saving your money for you by not paying market rates and giving a pension instead - so is it any surprise some may retire earlier (with smaller packages)?  Yes, I could retire at age 52 with 20 years, and I'd get a yuge pension of 24%!  It'd take me 32 years to get a full pension of 80%.  On the other hand, according to the shocking simple math calculator, if I put away the extra money I could get in the private sector (60k per year - the extra 50k+the 10% going into my pension, for a total of 40% of my salary), I could retire in just 22 years....replacing 90% of the value of the government pension rather than just 80%*, plus I'd get social security.  That's 10 years sooner and 10% more if I'm disciplined enough to save the money myself.

*This is somewhat hand waving math that doesn't consider taxes I'd pay on the private sector salary, but it's to illustrate that early retirement if you save - as the government is doing for you with a pension - is very possible and here of all places shouldn't be a dig. 
« Last Edit: October 21, 2016, 12:14:55 PM by Captain FIRE »

Jack

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Re: Future of State Pension Plans
« Reply #67 on: October 21, 2016, 11:56:04 AM »
This is actually appropriate because defined contribution can advantageous for a highly stable employer.  Corporations aren't committed to the long term sufficiently to profit by offering defined benefit pensions, so they have largely shifted to defined contribution.  But public sector employers are mostly stable and can save taxpayer money by maintaining defined contribution plans.

Governments are very complex entities whose tasks are largely similar year to year.  Consequently they have more to gain by retaining employees.  Defined benefit plans increase employee retention per taxpayer dollar spent.  Properly run, they don't cost extra to the taxpayer, they bring more value per tax dollar. 

I disagree with this premise, especially when the management -- by design -- turns over every election cycle or so. I also disagree with the notion that governments are more complex than corporations, or that corporations' tasks aren't largely similar year to year too.

(Note that I'm not claiming that the opposite is true either. Instead, I'm suggesting that they might be equally good -- or rather, equally bad -- at being stable and thinking long-term.)



By the way, I thought the idea I proposed earlier was pretty good (other than the fact that such a radical change would be politically difficult). I'd love feedback on it!

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Re: Future of State Pension Plans
« Reply #68 on: October 21, 2016, 12:20:12 PM »
I think pensions can be an efficient form of payment that benefits taxpayers and is fair to employees.

In practice, America has moved to a dual track employment system where private workers use defined contribution plans (or nothing) in addition to Social Security, while public sector workers usually get enrolled in a defined benefit plan.  This is actually appropriate because defined contribution can advantageous for a highly stable employer.  Corporations aren't committed to the long term sufficiently to profit by offering defined benefit pensions, so they have largely shifted to defined contribution.  But public sector employers are mostly stable and can save taxpayer money by maintaining defined contribution plans.

Governments are very complex entities whose tasks are largely similar year to year.  Consequently they have more to gain by retaining employees.  Defined benefit plans increase employee retention per taxpayer dollar spent.  Properly run, they don't cost extra to the taxpayer, they bring more value per tax dollar. 

Remember, lots of people work for the government but do not stay long enough to qualify for the pension.  Not all employees get the "windfall" of a pension payout, some get bupkus despite serving the public quite well (think of the teachers Lagom described).  All public employees contribute anywhere from 6% to 9% of pay, with matching from the public of typically 6% or so.  The effect is that total expense overall is closer to the private sector's pay scale than people think.

Take the example of Texas state employees.  Texas produces an annual study of compensation and benefits, plus an analysis of employee turnover; pay rates for each job track are adjusted in response to turnover targets as part of an overall plan to keep pay and benefits at a level that benefits the taxpayer. Periodically the legislature changes the details of the pension agreement (similar to TRS as described by a previous poster).  The effect?  Texas state govt employees work for 5% lower pay than private sector employees of equal education/experience, in return for a 6% state expense toward the pension plan, which is majority funded by the employees themselves.  Roughly speaking a wash, but the compensation type is well tailored to the task at hand, arguably providing good value.

Look behind the surface.  Public sector pensions can be and often are an efficient compensation form that can save taxpayers money.

Here are reports summarizing the actual data in Texas' case:

http://www.sao.texas.gov/reports/main/16-703.pdf
(explains on page 2 that private sector employees get 30.3% of their pay as benefits, while Texas state employees get 36.3%, including the value of their pensions.  So the total cost of providing these benefits is only 6.0% more than private sector.)

http://www.hr.sao.texas.gov/Reports/Category/CompensationAndClassification/
(analyzes state's pay scale in comparison to private sector for various job groups.  The first report concluded in part that base pay was 5% less than the private sector, though that finding was buried in footnotes. Whether the skill of these stable employees is worth the remaining 1% can be debated, but I think the state gets good value.  In any case, the net difference is about 1%.)

http://www.hr.sao.texas.gov/Reports/Category/Turnover/
(analyzes pay and turnover rates for various jobs)

If you've never heard of the above studies, realize that behind the headlines, lots of logical and reasonable gets done all the time.  Many of our systems are working well.  They just don't get headlines because "taxpayers got a fair deal today just like yesterday" doesn't sell advertising.

Skimmed this paper: http://www.nasra.org/files/Issue%20Briefs/NASRAInvReturnAssumptBrief.pdf

I think you're really underselling the underlying assumptions that state governments use in their growth projections and by extension the risk that the government is taking on at the expense of tax payers. Most state governments assume that they will be making about a 7.5% return. Approximately 2/3 of state pension systems is made of investment returns. That means that the majority of money being managed and assumed to be there in the future is mostly dependent on how well the government estimates future returns.

If they're wrong, well it was promised so tax-payers have to pay up. I don't think anyone here on this board would pass-up a government backed 7.5% lifetime annuity. Because that offer doesn't exist in the private sector. Whereas for people with 401(k)'s, we plan for downturns, assume that we'll likely have to take a year or two where we cut back on spending to make it through rough periods. The pension managers have no such possibility. They have to face, head on, everything we discuss on this board that can go wrong with the 4% rule.

When the public pension system is managing $6 trillion and experiences a 20% loss, that doesn't come from nowhere. And you can only raise taxes so much before people start demanding claw backs.

Bicycle_B

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Re: Future of State Pension Plans
« Reply #69 on: October 21, 2016, 12:20:40 PM »
This is actually appropriate because defined contribution can advantageous for a highly stable employer.  Corporations aren't committed to the long term sufficiently to profit by offering defined benefit pensions, so they have largely shifted to defined contribution.  But public sector employers are mostly stable and can save taxpayer money by maintaining defined contribution plans.

Governments are very complex entities whose tasks are largely similar year to year.  Consequently they have more to gain by retaining employees.  Defined benefit plans increase employee retention per taxpayer dollar spent.  Properly run, they don't cost extra to the taxpayer, they bring more value per tax dollar. 

I disagree with this premise, especially when the management -- by design -- turns over every election cycle or so. I also disagree with the notion that governments are more complex than corporations, or that corporations' tasks aren't largely similar year to year too.

(Note that I'm not claiming that the opposite is true either. Instead, I'm suggesting that they might be equally good -- or rather, equally bad -- at being stable and thinking long-term.)



By the way, I thought the idea I proposed earlier was pretty good (other than the fact that such a radical change would be politically difficult). I'd love feedback on it!

Thought provoking points.

Policymakers are periodically replaced by voters, but that is not the same as turning over staff.  The key aspect is that while companies may go out of business, government needs to keep maintaining roads and doing its various other functions. 

The free market is premised on the idea that a percentage of producers will go out of business due to competition.  Government is not designed on purpose that way.  To be fair, there are companies that have outlasted most governments, though.

Funny story about that.  A friend read a history book describing how the Catholic Church in the early 1500s had a priest circulating around Christendom, accepting "donations" in exchange for "indulgences" that would keep people from going to hell for their sins.  When some wealthy burgher paid for his indulgence, he was directed not to hand his florins over to the priest, but instead to the friendly banker sitting next to him.  Said banker was from Fugger, a banking business to which the Pope owed big money.  Flash forward to 2008-09, and one of the banks in dire straits was the very same Fugger Bank!

aceyou

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Re: Future of State Pension Plans
« Reply #70 on: October 21, 2016, 12:25:34 PM »

Obviously every locality and employment agreement has different rules and benefits.  In my general observations (primarily knowing the benefits my teacher and police officer relatives get), the benefits like vacation and insurances are better than the private sector.  I am not saying abolish the pensions and don't offer anything in exchange;  I suggested a defined contribution into the public employees' retirement accounts.  If their take-home paycheck is roughly the same, I bet the vast majority of them don't care that the pension is now a 403(b) contribution given the general lack of financial knowledge in the country.  And I'd venture to guess that some would actually prefer the defined contribution so they have control of the funds instead of some future politician.

If there was some sort of changeover, I would assume it would happen in a phased approach where some folks are grandfathered into the old pension model so you're not pulling the rug out from under them 5 years from retirement.  If the youngsters don't like the deal they'll be getting, they're free to find employment elsewhere.  As far as the quality of folks willing to work for the wage / bennies offered by the government, I'm not worried.  I'm sure you'll find a bell-curve of competence in both public and private employees. There will be outstanding teachers who do it because the love the job, and others that are only there for the summers off and pension.  There are people at my job that work 80 hour weeks out of some sense of duty, and others that watch the clock and won't put in a minute more than they are required.

Former teacher here. You are clearly not familiar with the state of talent in education right now. The number of teachers willing to take a shit deal because they "love the job" is dwindling and increasingly skewed towards those already near-retirement (most of whom are at the top of the payscale and not in danger of losing their pensions because the union disproportionately protects them). Young, talented teachers are leaving in droves, or deciding never to start in the first place. My masters cohort graduated 12 people with me, and these were super interesting and talented individuals (former Chicago crime reporter, international business consultant for Deloitte, world traveling polyglot, etc.), many of whom had given up higher paying careers to make the switch. And yet, of that 12, only 4 have decided to commit to a long term career in teaching (2 of those were already long-tenured teachers), with the rest moving back to the private sector over the past 6 years.

Granted graduating in the middle of the recession didn't help with this, but most of them (including myself), left because the pay, benefits, and job security were getting worse all the time, right along with the level of respect we were getting considering we were highly trained professionals. I liked the job, but I value my life and future more. The increasingly exploitative practice of laying off young teachers before they hit tenure, ever-dwindling pension benefits, ever-increasing public disdain for a profession with "no value in the free market..." There is already a talent shortage in some markets and it's only going to get worse if pensions and benefits continue to be cut with no corresponding increase in salary.

Edit - Now to balance this, I think teaching is still a great profession for many. My wife is a very happy teacher of 9 years. I truly don't mean to sound bitter, but its clear that there is widespread misinformation out there.

I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.


Just want to point out that although I was defending the Michigan Pension earlier that I'm a part of...I'd LOVE this!!  I would stach every extra cent and wouldn't have to wait until I'm 48 to get my full benefit.  If Michigan did this I'd likely be done at 42 or 43.

Bicycle_B

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Re: Future of State Pension Plans
« Reply #71 on: October 21, 2016, 12:33:26 PM »
I think pensions can be an efficient form of payment that benefits taxpayers and is fair to employees.

In practice, America has moved to a dual track employment system where private workers use defined contribution plans (or nothing) in addition to Social Security, while public sector workers usually get enrolled in a defined benefit plan.  This is actually appropriate because defined contribution can advantageous for a highly stable employer.  Corporations aren't committed to the long term sufficiently to profit by offering defined benefit pensions, so they have largely shifted to defined contribution.  But public sector employers are mostly stable and can save taxpayer money by maintaining defined contribution plans.

Governments are very complex entities whose tasks are largely similar year to year.  Consequently they have more to gain by retaining employees.  Defined benefit plans increase employee retention per taxpayer dollar spent.  Properly run, they don't cost extra to the taxpayer, they bring more value per tax dollar. 

Remember, lots of people work for the government but do not stay long enough to qualify for the pension.  Not all employees get the "windfall" of a pension payout, some get bupkus despite serving the public quite well (think of the teachers Lagom described).  All public employees contribute anywhere from 6% to 9% of pay, with matching from the public of typically 6% or so.  The effect is that total expense overall is closer to the private sector's pay scale than people think.

Take the example of Texas state employees.  Texas produces an annual study of compensation and benefits, plus an analysis of employee turnover; pay rates for each job track are adjusted in response to turnover targets as part of an overall plan to keep pay and benefits at a level that benefits the taxpayer. Periodically the legislature changes the details of the pension agreement (similar to TRS as described by a previous poster).  The effect?  Texas state govt employees work for 5% lower pay than private sector employees of equal education/experience, in return for a 6% state expense toward the pension plan, which is majority funded by the employees themselves.  Roughly speaking a wash, but the compensation type is well tailored to the task at hand, arguably providing good value.

Look behind the surface.  Public sector pensions can be and often are an efficient compensation form that can save taxpayers money.

Here are reports summarizing the actual data in Texas' case:

http://www.sao.texas.gov/reports/main/16-703.pdf
(explains on page 2 that private sector employees get 30.3% of their pay as benefits, while Texas state employees get 36.3%, including the value of their pensions.  So the total cost of providing these benefits is only 6.0% more than private sector.)

http://www.hr.sao.texas.gov/Reports/Category/CompensationAndClassification/
(analyzes state's pay scale in comparison to private sector for various job groups.  The first report concluded in part that base pay was 5% less than the private sector, though that finding was buried in footnotes. Whether the skill of these stable employees is worth the remaining 1% can be debated, but I think the state gets good value.  In any case, the net difference is about 1%.)

http://www.hr.sao.texas.gov/Reports/Category/Turnover/
(analyzes pay and turnover rates for various jobs)

If you've never heard of the above studies, realize that behind the headlines, lots of logical and reasonable gets done all the time.  Many of our systems are working well.  They just don't get headlines because "taxpayers got a fair deal today just like yesterday" doesn't sell advertising.

Skimmed this paper: http://www.nasra.org/files/Issue%20Briefs/NASRAInvReturnAssumptBrief.pdf

I think you're really underselling the underlying assumptions that state governments use in their growth projections and by extension the risk that the government is taking on at the expense of tax payers. Most state governments assume that they will be making about a 7.5% return. Approximately 2/3 of state pension systems is made of investment returns. That means that the majority of money being managed and assumed to be there in the future is mostly dependent on how well the government estimates future returns.

If they're wrong, well it was promised so tax-payers have to pay up. I don't think anyone here on this board would pass-up a government backed 7.5% lifetime annuity. Because that offer doesn't exist in the private sector. Whereas for people with 401(k)'s, we plan for downturns, assume that we'll likely have to take a year or two where we cut back on spending to make it through rough periods. The pension managers have no such possibility. They have to face, head on, everything we discuss on this board that can go wrong with the 4% rule.

When the public pension system is managing $6 trillion and experiences a 20% loss, that doesn't come from nowhere. And you can only raise taxes so much before people start demanding claw backs.

Good points.

Re 7.5% return, if you take away 2% for inflation, isn't that a more reasonable 5.5%?  Where MMM's benchmark 4% withdrawal rate is a lower bound of expectations (95% of cases expected to survive 30 years), MMM's expected return is therefore higher.  If the higher typical return is around 5.5%, aren't the pension plans' fundamental assumptions pretty similar to those of the Trinity study?

Re a 7.5% lifetime annuity, employees don't get that.  Employees get a defined benefit - one that normally does not increase with inflation.  Direct clawbacks do occur periodically, but the need for them is moderated by the simple expedient of not giving Cost of Living Adjustments.  Texas doesn't give them unless the Lege proactively passes a bill to give a one-time increase.  Most years, there is no increase, your buying power of your fixed income pension just declines.  I don't advise anyone to delude themselves that their  $28,000 pension they get after decades of teaching will remain at $28k buying power.  My personal plan when I approach the date of receiving benefits is to configure my other investments in a way that gives inflation protection comparable to the decline that will occur assuming the Legislature never increases my benefit amount.

nobody123

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Re: Future of State Pension Plans
« Reply #72 on: October 21, 2016, 12:34:09 PM »

Obviously every locality and employment agreement has different rules and benefits.  In my general observations (primarily knowing the benefits my teacher and police officer relatives get), the benefits like vacation and insurances are better than the private sector.  I am not saying abolish the pensions and don't offer anything in exchange;  I suggested a defined contribution into the public employees' retirement accounts.  If their take-home paycheck is roughly the same, I bet the vast majority of them don't care that the pension is now a 403(b) contribution given the general lack of financial knowledge in the country.  And I'd venture to guess that some would actually prefer the defined contribution so they have control of the funds instead of some future politician.

If there was some sort of changeover, I would assume it would happen in a phased approach where some folks are grandfathered into the old pension model so you're not pulling the rug out from under them 5 years from retirement.  If the youngsters don't like the deal they'll be getting, they're free to find employment elsewhere.  As far as the quality of folks willing to work for the wage / bennies offered by the government, I'm not worried.  I'm sure you'll find a bell-curve of competence in both public and private employees. There will be outstanding teachers who do it because the love the job, and others that are only there for the summers off and pension.  There are people at my job that work 80 hour weeks out of some sense of duty, and others that watch the clock and won't put in a minute more than they are required.

Former teacher here. You are clearly not familiar with the state of talent in education right now. The number of teachers willing to take a shit deal because they "love the job" is dwindling and increasingly skewed towards those already near-retirement (most of whom are at the top of the payscale and not in danger of losing their pensions because the union disproportionately protects them). Young, talented teachers are leaving in droves, or deciding never to start in the first place. My masters cohort graduated 12 people with me, and these were super interesting and talented individuals (former Chicago crime reporter, international business consultant for Deloitte, world traveling polyglot, etc.), many of whom had given up higher paying careers to make the switch. And yet, of that 12, only 4 have decided to commit to a long term career in teaching (2 of those were already long-tenured teachers), with the rest moving back to the private sector over the past 6 years.

Granted graduating in the middle of the recession didn't help with this, but most of them (including myself), left because the pay, benefits, and job security were getting worse all the time, right along with the level of respect we were getting considering we were highly trained professionals. I liked the job, but I value my life and future more. The increasingly exploitative practice of laying off young teachers before they hit tenure, ever-dwindling pension benefits, ever-increasing public disdain for a profession with "no value in the free market..." There is already a talent shortage in some markets and it's only going to get worse if pensions and benefits continue to be cut with no corresponding increase in salary.

Edit - Now to balance this, I think teaching is still a great profession for many. My wife is a very happy teacher of 9 years. I truly don't mean to sound bitter, but its clear that there is widespread misinformation out there.

For every suburban teacher opening that is posted in my area, there are literally dozens of qualified applicants.  The local media routinely reports its something like 75:1 on most openings.  The nearby inner city school district has trouble filling their positions but that's because fewer people are willing to work in a combat zone for entry-level teacher pay (and I don't blame them).  I somehow doubt that there will be zero applicants at both if the pension was replaced with a defined contribution plan.

You voted with your feet and left your teaching job because you thought the compensation / future projected compensation wasn't worth it.  Everybody has that choice, I don't think that the profession of "teacher" is significantly different from any other profession insomuch that it should be exempt from the realities of the local economy.  Downsizing and cost cutting happens in every industry, even to other highly trained professionals. 

aceyou

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Re: Future of State Pension Plans
« Reply #73 on: October 21, 2016, 12:37:56 PM »



According to this recently published report, the Michigan Public School Employees’ Retirement System is only 66.2% funded.  Unless something is done, taxpayers will have to pay another $23 billion to cover this shortfall, and this is only one of many state-run pensions in Michigan.  See http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014  (scroll to bottom of report and download "state-by-state data").  All of the pension systems in Michigan are facing a 25% - 44% shortfall, except the Judicial Retirement System, which is miniscule in size compared to the others. 

Like I said earlier, if you're a recipient or future recipient of one of these pensions, I don't blame you for liking them, who wouldn't want someone else to pay for their (often early) retirement?  But your claim that Michigan's teacher pension is "properly funded" and that current contributions by teachers and the school will "self-sustain" are demonstrably false.   
[/quote]

Thanks for the link.  I look forward to reading it in detail tonight. 

aceyou

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Re: Future of State Pension Plans
« Reply #74 on: October 21, 2016, 12:40:24 PM »
...........and I would also note that MI, like many states, is not using the more reality-based market assessment method of analyzing their liabilities - so these are much more than they publish.

And even using this disputed method of accounting we have:

The Michigan Public School Employee Retirement System is underfunded by $26.7 billion, meaning only 61 percent of the money needed to pay its costs has been set aside


Only a few of the largest municipalities in Michigan fully fund their pension system, with the average city funded at only 67 percent — more than $5.4 billion in total liabilities. This has contributed to the fiscal crises in Detroit, Flint and elsewhere.

Can you link to where you found this.  This directly effects me and if I need to change my view of my pension's health, I'd like to do it with the right facts.  Thank you. 

Lagom

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Re: Future of State Pension Plans
« Reply #75 on: October 21, 2016, 12:48:55 PM »

For every suburban teacher opening that is posted in my area, there are literally dozens of qualified applicants.  The local media routinely reports its something like 75:1 on most openings.  The nearby inner city school district has trouble filling their positions but that's because fewer people are willing to work in a combat zone for entry-level teacher pay (and I don't blame them).  I somehow doubt that there will be zero applicants at both if the pension was replaced with a defined contribution plan.

You voted with your feet and left your teaching job because you thought the compensation / future projected compensation wasn't worth it.  Everybody has that choice, I don't think that the profession of "teacher" is significantly different from any other profession insomuch that it should be exempt from the realities of the local economy.  Downsizing and cost cutting happens in every industry, even to other highly trained professionals.

Yes and for open teacher jobs in my area (wealthy Silicon Valley suburbs), there is barely enough supply to meet the demand, especially in Special Ed, ESL, STEM, etc. But unlike with the tech market, there has been no commiserate increase in compensation. As I mentioned before, starting pay, with a masters, is 51k in my wife's district, where the median house price is almost $3m and rent is barely more affordable.

I got my masters in Chicago, and while there are plenty of job applicants for open positions there, the best and brightest are very much taking themselves out of consideration in increasing numbers, which is not something we want if we care about having a good education system (I do). The substitute teacher situation here in the Bay Area is an outright crisis, with teachers regularly (and illegally, I might add) pressured to work while sick because of the trouble finding subs. Not to mention all of the other issues I outlined.

I never said replacing a pension with a defined benefit plan would drive everyone away, just that it had to be done smartly, perhaps in ways suggested in this thread. In fact, I think the increased transparency resulting from a pay bump and 403b/457 with a match might attract more talent, even if the overall compensation package was technically a bit lower than it is now. The primary thing I was objecting to was the comment implying that intrinsic reward was the main reason people enter professions like teaching and thus made more justifiable any reduction in benefits. While the first part is true to a point, it's both silly to use that as an excuse to ignore mistreatment of those workers, and also demonstrably false that the best possible candidates will continue to enter the profession no matter what their potential working conditions.
« Last Edit: October 21, 2016, 12:56:02 PM by Lagom »

FIPurpose

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Re: Future of State Pension Plans
« Reply #76 on: October 21, 2016, 12:53:53 PM »
...

Skimmed this paper: http://www.nasra.org/files/Issue%20Briefs/NASRAInvReturnAssumptBrief.pdf

I think you're really underselling the underlying assumptions that state governments use in their growth projections and by extension the risk that the government is taking on at the expense of tax payers. Most state governments assume that they will be making about a 7.5% return. Approximately 2/3 of state pension systems is made of investment returns. That means that the majority of money being managed and assumed to be there in the future is mostly dependent on how well the government estimates future returns.

If they're wrong, well it was promised so tax-payers have to pay up. I don't think anyone here on this board would pass-up a government backed 7.5% lifetime annuity. Because that offer doesn't exist in the private sector. Whereas for people with 401(k)'s, we plan for downturns, assume that we'll likely have to take a year or two where we cut back on spending to make it through rough periods. The pension managers have no such possibility. They have to face, head on, everything we discuss on this board that can go wrong with the 4% rule.

When the public pension system is managing $6 trillion and experiences a 20% loss, that doesn't come from nowhere. And you can only raise taxes so much before people start demanding claw backs.

Good points.

Re 7.5% return, if you take away 2% for inflation, isn't that a more reasonable 5.5%?  Where MMM's benchmark 4% withdrawal rate is a lower bound of expectations (95% of cases expected to survive 30 years), MMM's expected return is therefore higher.  If the higher typical return is around 5.5%, aren't the pension plans' fundamental assumptions pretty similar to those of the Trinity study?

Re a 7.5% lifetime annuity, employees don't get that.  Employees get a defined benefit - one that normally does not increase with inflation.  Direct clawbacks do occur periodically, but the need for them is moderated by the simple expedient of not giving Cost of Living Adjustments.  Texas doesn't give them unless the Lege proactively passes a bill to give a one-time increase.  Most years, there is no increase, your buying power of your fixed income pension just declines.  I don't advise anyone to delude themselves that their  $28,000 pension they get after decades of teaching will remain at $28k buying power.  My personal plan when I approach the date of receiving benefits is to configure my other investments in a way that gives inflation protection comparable to the decline that will occur assuming the Legislature never increases my benefit amount.

CAGR of 7.5% (or even 5.5%) and safe withdraw rate (SWR) are not equivalent and cannot be compared. Sounds like Texas has a reasonable expectation for their pension system and has it well under control. That's not how every state operates. Some mandate increases with inflation, others regularly vote on increases. I haven't read anything on the Texan Pension Plan, but I would say that just because (I'm just going off of how you've presented it here) it's currently healthy does not mean they aren't opening themselves to a large risk. State pension plans aren't regulated like private annuities, so it's up to the citizens of that state to monitor and advocate for a healthy and reasonable pension system. (Or my preference would be a phase out)

Serve&Volley88

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Re: Future of State Pension Plans
« Reply #77 on: October 21, 2016, 01:36:07 PM »
Government pensions will survive for many years to come but the costs will continue to crowd out other budgetary needs. At the end of the day, unless a reduction of services is an option, the taxpayers will be forced to cough up more of their money.

Obviously some states are in better shape than others. My theory is that states with stronger economies (NY, CA, TX) will be able to find ways to shore up their systems. Other states like NJ and OR will need to make very difficult choices in the near future.

As a state government employee, I sure hope my future pension doesn't diminish before I'm six feet under!

Northwestie

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Re: Future of State Pension Plans
« Reply #78 on: October 21, 2016, 01:41:15 PM »
TX doesn't seem so great:

Eight of the Texas plans will never eliminate their unfunded liability at current funding levels, board records show. At the top of the list is the state's largest pension fund, the Teacher Retirement System of Texas. It accounts for about half of the $42 billion shortage, according to board records. TRS managers, however, since late 2009 have chopped in half its unfunded liability to about $23 billion.

Read more here: http://www.star-telegram.com/living/family/moms/article3827191.html#storylink=cpy

nobody123

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Re: Future of State Pension Plans
« Reply #79 on: October 21, 2016, 01:49:00 PM »
...The primary thing I was objecting to was the comment implying that intrinsic reward was the main reason people enter professions like teaching and thus made more justifiable any reduction in benefits. While the first part is true to a point, it's both silly to use that as an excuse to ignore mistreatment of those workers, and also demonstrably false that the best possible candidates will continue to enter the profession no matter what their potential working conditions.

I wasn't trying to say that the only reason all teachers enter that profession is because they are saints and we can mistreat them because they will just take it.  I am sure none of us would show up at our jobs if they stopped paying us, and I have no desire as a taxpayer to drive all of the quality teachers out of the workforce because of the societal impact that would have.  I don't expect a teacher to just accept a reduction in benefits, just as I wouldn't in my job.  But I also don't buy the argument that certain professions should be exempt from the possibility of a reduction in benefits because they are more noble than other professions, nor would I automatically classify any reduction in benefits offered as mistreatment.

We can have a lively debate on whether the best possible candidates or most talented teachers are even identifiable, and if so, do they provide enough value over a merely adequate teacher that paying them a premium is worth it to John Q. Taxpayer.  That's a topic for another thread, though.

Lagom

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Re: Future of State Pension Plans
« Reply #80 on: October 21, 2016, 03:08:34 PM »
...The primary thing I was objecting to was the comment implying that intrinsic reward was the main reason people enter professions like teaching and thus made more justifiable any reduction in benefits. While the first part is true to a point, it's both silly to use that as an excuse to ignore mistreatment of those workers, and also demonstrably false that the best possible candidates will continue to enter the profession no matter what their potential working conditions.

I wasn't trying to say that the only reason all teachers enter that profession is because they are saints and we can mistreat them because they will just take it.  I am sure none of us would show up at our jobs if they stopped paying us, and I have no desire as a taxpayer to drive all of the quality teachers out of the workforce because of the societal impact that would have.  I don't expect a teacher to just accept a reduction in benefits, just as I wouldn't in my job.  But I also don't buy the argument that certain professions should be exempt from the possibility of a reduction in benefits because they are more noble than other professions, nor would I automatically classify any reduction in benefits offered as mistreatment.

We can have a lively debate on whether the best possible candidates or most talented teachers are even identifiable, and if so, do they provide enough value over a merely adequate teacher that paying them a premium is worth it to John Q. Taxpayer.  That's a topic for another thread, though.

Fair enough. I'll save the buckets of ammo I have for that debate for another time. I will note that it's actually quite easy to assess teacher competence, it's just that it requires processes far different (and probably more expensive) than what is used currently. And for the record, I am totally in favor of merit-based pay, as long as proper assessment is used to determine that merit.

As for the rest, who said teachers should be exempt from reductions because they are more noble? My stance is that they are often not paid an appropriate rate relative to the level or professional expertise they need to be good at their jobs (edit - especially in HCOL areas). This happens in large part because people dismiss them as doing less than they actually do, so it's politically easy to attack the unions. Additionally, further reducing benefits is going to severely dilute the talent pool, even if this isn't obviously indicated by a drop in number of job applicants. Also, it's the state management of the pension funds that's the real problem here, not that they exist in the first place. So fine, drop the pensions, increase pay, and offer a 457 match. Works for me.

Nobility is the least of my concerns. Teachers serve a necessary societal function. The good ones demonstrably move the needle in fostering long-lasting positive outcomes for the benefit of everyone. The bad ones should be fired, but are often protected by the unions and/or lazy/corrupt administrators. I have no problem admitting that because it's true, but disincentivizing our best and brightest from becoming teachers is only going to increase the number of bad ones, to the benefit of no one.
« Last Edit: October 21, 2016, 03:38:53 PM by Lagom »

Bicycle_B

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Re: Future of State Pension Plans
« Reply #81 on: October 21, 2016, 03:31:27 PM »
TX doesn't seem so great:

Eight of the Texas plans will never eliminate their unfunded liability at current funding levels, board records show. At the top of the list is the state's largest pension fund, the Teacher Retirement System of Texas. It accounts for about half of the $42 billion shortage, according to board records. TRS managers, however, since late 2009 have chopped in half its unfunded liability to about $23 billion.

Read more here: http://www.star-telegram.com/living/family/moms/article3827191.html#storylink=cpy

I don't want to uncritically say Texas is great in all situations.  Still, since that article was written in 2011, the Legislature made some fairly big moves toward adequate funding.  Below is a short article from 2015 where the Lege solved part of the problem by jacking up the employees' contributions to the tune of 2.5% of pay (equal to increasing the state's contribution by 40%, without technically charging the taxpayer anything).  Not great for the employees, but likely to reduce the funding gap.  Having not studied this in enough detail, I'm open to clarifications.

https://www.texastribune.org/2015/05/22/senate-approves-state-employee-pensions-funding-pl/


Adam Zapple

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Re: Future of State Pension Plans
« Reply #82 on: October 22, 2016, 05:09:48 AM »
Quote
I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.



I'd be all for this.  Trade my pension in a heartbeat.  Although I think you'd find it was much more expensive than a pension system, even without the 20 percent pay increase.

As far as I know, most municipal employees do not receive social security if they have a defined benefit pension (this is true for me, at least).  This means their employers don't have to pay into the system.  In my municipality, they were looking to switch over to a 401K system with a match comparable to the private sector.  When they figured the extra cost of paying 6.5% (give or take) toward social security, plus the match, plus the cost of covering the pensions they were still on the hook for, they decided that increasing employee contributions and raising the retirement age was a much better option.  The tough thing about ending defined benefit plans is their Ponzi scheme nature.  The govt. is on the hook for a lot of money paying for that last guy/girl who receives a pension with new employees not contributing to the pension system.  I've heard of municipalities actually switching back to a pension system, after abandoning it, for just that reason.

TomTX

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Re: Future of State Pension Plans
« Reply #83 on: October 22, 2016, 07:25:07 AM »

Take the example of Texas state employees.  Texas produces an annual study of compensation and benefits, plus an analysis of employee turnover; pay rates for each job track are adjusted in response to turnover targets as part of an overall plan to keep pay and benefits at a level that benefits the taxpayer. Periodically the legislature changes the details of the pension agreement (similar to TRS as described by a previous poster).  The effect?  Texas state govt employees work for 5% lower pay than private sector employees of equal education/experience, in return for a 6% state expense toward the pension plan, which is majority funded by the employees themselves.  Roughly speaking a wash, but the compensation type is well tailored to the task at hand, arguably providing good value.

The Texas SAO report is a work of fiction with lots of numbers and graphs that are superficially correct.

It overstates employee pay by roughly 10%.

What's the fiction? The entire base premise of the report.

The SAO refuses to use actual employee pay in their calculations, they use theoretical employee pay by taking the allowable pay band for each position (Say, a Level 4 Tech makes somewhere in the $40k-$60k range) and applying  a bell curve with an even distribution above and below the midpoint. So, they assume the "average" tech makes $50k.

The reality is, it is very, very difficult to get paid above the midpoint - and even more difficult to get a raise once you're there. I've been there. Top 5% ratings repeatedly, boss and grandboss trying to get me a raise - gets shot down by their boss decreeing nobody above the midpoint of their pay band gets a raise.

I poked around the actual numbers one time and found some agencies paying literally bottom dollar for the majority of workers at a particular pay band. So, they paid all the Level 4 Techs exactly $40,000. That's not everywhere, but it is happening.

So the reality is, the "average" Level 4 Tech is making $45k, yet the SAO reports as if he's making $50k.

And it's not out of ignorance, if you go to old enough reports they actually make note of it.

Liars.
« Last Edit: October 22, 2016, 07:38:19 AM by TomTX »

TomTX

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Re: Future of State Pension Plans
« Reply #84 on: October 22, 2016, 07:39:40 AM »
TX doesn't seem so great:

Eight of the Texas plans will never eliminate their unfunded liability at current funding levels, board records show. At the top of the list is the state's largest pension fund, the Teacher Retirement System of Texas. It accounts for about half of the $42 billion shortage, according to board records. TRS managers, however, since late 2009 have chopped in half its unfunded liability to about $23 billion.

Read more here: http://www.star-telegram.com/living/family/moms/article3827191.html#storylink=cpy

I don't want to uncritically say Texas is great in all situations.  Still, since that article was written in 2011, the Legislature made some fairly big moves toward adequate funding.  Below is a short article from 2015 where the Lege solved part of the problem by jacking up the employees' contributions to the tune of 2.5% of pay (equal to increasing the state's contribution by 40%, without technically charging the taxpayer anything).  Not great for the employees, but likely to reduce the funding gap.  Having not studied this in enough detail, I'm open to clarifications.

https://www.texastribune.org/2015/05/22/senate-approves-state-employee-pensions-funding-pl/

Yeah, Texas got the pensions on much better financial footing, mostly on the backs of the employees. Somewhat bad deal for existing employees, but the new/recent hires really got fucked over.

FIPurpose

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Re: Future of State Pension Plans
« Reply #85 on: October 22, 2016, 08:05:00 AM »
Quote
I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.



I'd be all for this.  Trade my pension in a heartbeat.  Although I think you'd find it was much more expensive than a pension system, even without the 20 percent pay increase.

As far as I know, most municipal employees do not receive social security if they have a defined benefit pension (this is true for me, at least).  This means their employers don't have to pay into the system.  In my municipality, they were looking to switch over to a 401K system with a match comparable to the private sector.  When they figured the extra cost of paying 6.5% (give or take) toward social security, plus the match, plus the cost of covering the pensions they were still on the hook for, they decided that increasing employee contributions and raising the retirement age was a much better option.  The tough thing about ending defined benefit plans is their Ponzi scheme nature.  The govt. is on the hook for a lot of money paying for that last guy/girl who receives a pension with new employees not contributing to the pension system.  I've heard of municipalities actually switching back to a pension system, after abandoning it, for just that reason.

I agree that for a politician to do this would take a lot of courage. It would no doubt be upfront more money, but it's something that can be done now that's good for the future. But I don't think most states take SS into account. I know a few like California do, but I think most pension plans I looked into were in addition to SS. Removing a pension system that includes SS I don't think could involve any current employee. That just sounds too messy. If CalPers ever wanted to change, that would just have to be in the new wave of employees. Publish two different salary tables, let new employees know upfront the two plans, let them decide.

Maybe 20% isn't a comparable loss of benefit maybe 15%. In my mind it really depends on the terms the plan was under and what would a roughly equivalent 401k look like.if you're at a 2% multiplier with a 5% employee contribution making 50k, I would equate a 401k plan o about an additional 10k in salary, or a 10% salary bump with 10% match. You could move some numbers around, but this would definitely be more. You'd be trying to service old pensioners without new money (so any ponzing going on would come to the surface and would have to be paid for) and you'd paying people for their retirement more upfront. (This is good for the employee, it means that states like NJ can't just decide to stop adding their contributions)

Adam Zapple

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Re: Future of State Pension Plans
« Reply #86 on: October 22, 2016, 08:31:58 AM »
Quote
I wonder what kind of talent a state like North Carolina could attract if they raised teacher pay to 20%, removed the pension plan, replaced with an 8% 403(b) match.  Headlines that NC moved from lowest paid teachers to highest overnight. Average salaries bumped to $60k, future state liability plummets, and lots of high talent teachers come flooding back into the system.

I don't know what the exact numbers would be that could work, but at least with salary and 403(b) match, people can much more easily compare offers. As several people have mentioned before, pensions have been subject to legal mumbo jumbo, screwing people for 40 years down the road, and generally large confusing plans.  It's really time for states to start paying a typical salary of an educated professional, provide a reasonable match, drop the long-term liabilities, and provide a better system for employees to move from state to state.



I'd be all for this.  Trade my pension in a heartbeat.  Although I think you'd find it was much more expensive than a pension system, even without the 20 percent pay increase.

As far as I know, most municipal employees do not receive social security if they have a defined benefit pension (this is true for me, at least).  This means their employers don't have to pay into the system.  In my municipality, they were looking to switch over to a 401K system with a match comparable to the private sector.  When they figured the extra cost of paying 6.5% (give or take) toward social security, plus the match, plus the cost of covering the pensions they were still on the hook for, they decided that increasing employee contributions and raising the retirement age was a much better option.  The tough thing about ending defined benefit plans is their Ponzi scheme nature.  The govt. is on the hook for a lot of money paying for that last guy/girl who receives a pension with new employees not contributing to the pension system.  I've heard of municipalities actually switching back to a pension system, after abandoning it, for just that reason.

I agree that for a politician to do this would take a lot of courage. It would no doubt be upfront more money, but it's something that can be done now that's good for the future. But I don't think most states take SS into account. I know a few like California do, but I think most pension plans I looked into were in addition to SS. Removing a pension system that includes SS I don't think could involve any current employee. That just sounds too messy. If CalPers ever wanted to change, that would just have to be in the new wave of employees. Publish two different salary tables, let new employees know upfront the two plans, let them decide.

Maybe 20% isn't a comparable loss of benefit maybe 15%. In my mind it really depends on the terms the plan was under and what would a roughly equivalent 401k look like.if you're at a 2% multiplier with a 5% employee contribution making 50k, I would equate a 401k plan o about an additional 10k in salary, or a 10% salary bump with 10% match. You could move some numbers around, but this would definitely be more. You'd be trying to service old pensioners without new money (so any ponzing going on would come to the surface and would have to be paid for) and you'd paying people for their retirement more upfront. (This is good for the employee, it means that states like NJ can't just decide to stop adding their contributions)

I agree.  Every pension is structured differently.  The general premise of your idea is a great one.  On the surface, without crunching a single number, I think a 15% pay increase even sounds high (for my particular situation.)  Maybe I'll play with the numbers later and see where the break even point is for me.  I think getting public employees to swallow the idea would be a whole other mess.  The pension protects them because the employer is on the hook over the long term, the payments have to be made some way or another.  The Ponzi-ishness of the pension system acts as a bit of safety net for current employees since no politician wants to raise short-term liabilities...can kicking is just so much easier.  An employer match to a 457/401K, on the other hand, can be lowered or eliminated at any time in the future with no reprisal to the employer other than a couple angry phone calls and newspaper op-eds.  Gov't employees tend to grow pretty cynical of promises without any "teeth" to keep the politicians honest.  Lots of political courage would be needed, as you said.  Opponents would have a field day.  I can see the headlines now, "Governor raises worker pay by 15%."  People would go bonkers.  Its a shame because the idea could really be a win-win for everyone if executed correctly.

ender

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Re: Future of State Pension Plans
« Reply #87 on: October 22, 2016, 08:52:47 AM »
I'd be onboard for a mandatory 457 instead of pension. Instead of paying 8% with a matching g 8% by employer into pension system throw it all into a mandatory 457 plan (plus ability to add more employee contributions voluntarily for as much as they want) and have the ability to get it when they quit regardless of their age. No vesting time either.

My wife recently started a job and had to pick between a mandatory 403b (which includes a match of ~10%, vesting after 3 years) and a traditional, defined benefit plan vesting after I think 7.

I think the ultimate "conclusion" of state pension plans is they shift to defined contribution. It's logical, it manages risk better, and ultimately is more stable long term.


Also, for what it's worth, a reasonable number of Fortune 500 employers still offer some level of pension program. A quick google suggests about 25% do.


Bicycle_B

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Re: Future of State Pension Plans
« Reply #88 on: October 22, 2016, 09:19:32 AM »

Take the example of Texas state employees.  Texas produces an annual study of compensation and benefits, plus an analysis of employee turnover; pay rates for each job track are adjusted in response to turnover targets as part of an overall plan to keep pay and benefits at a level that benefits the taxpayer. Periodically the legislature changes the details of the pension agreement (similar to TRS as described by a previous poster).  The effect?  Texas state govt employees work for 5% lower pay than private sector employees of equal education/experience, in return for a 6% state expense toward the pension plan, which is majority funded by the employees themselves.  Roughly speaking a wash, but the compensation type is well tailored to the task at hand, arguably providing good value.

The Texas SAO report is a work of fiction with lots of numbers and graphs that are superficially correct.

It overstates employee pay by roughly 10%.

What's the fiction? The entire base premise of the report.

The SAO refuses to use actual employee pay in their calculations, they use theoretical employee pay by taking the allowable pay band for each position (Say, a Level 4 Tech makes somewhere in the $40k-$60k range) and applying  a bell curve with an even distribution above and below the midpoint. So, they assume the "average" tech makes $50k.

The reality is, it is very, very difficult to get paid above the midpoint - and even more difficult to get a raise once you're there. I've been there. Top 5% ratings repeatedly, boss and grandboss trying to get me a raise - gets shot down by their boss decreeing nobody above the midpoint of their pay band gets a raise.

I poked around the actual numbers one time and found some agencies paying literally bottom dollar for the majority of workers at a particular pay band. So, they paid all the Level 4 Techs exactly $40,000. That's not everywhere, but it is happening.

So the reality is, the "average" Level 4 Tech is making $45k, yet the SAO reports as if he's making $50k.

And it's not out of ignorance, if you go to old enough reports they actually make note of it.

Liars.

Wow, that's amazing!  I never knew that. 

Tom, before I go any farther, thank you for the good work you've been doing.  Sorry to hear about being screwed out of fair compensation for your performance.  That sucks.

You have provided the missing link on a mystery, though.  I've heard over and over that actual pay rate for the same job at the State of Texas is 15% lower than comparable private sector jobs.  Yet when I read the report, it says 5%.  You have pointed out where the other 10% goes: the difference between theory and practice, aka sneaky statistics. The real pay rate is being quoted in the 15% statistic.

On the bright side for anyone who (like most posters on this thread) thinks pensions must be expensive, you are proving that public pensions can be cheaper for the employer - the taxpayer.  Because real pay accepted by real employees doing real work is 15% lower in this case, in exchange for a 6% higher cost that comes from having a pension plan.  Texas taxpayers are making out like bandits by saving 9% on employee wages overall.  The stability promise of the pension is saving taxpayers money.

There are 315,000 Texas employees who have accepted an implicit 15% pay cut compared to the private sector in exchange for a 6% pension expense.  This is presumably saving the state billions.  Posters whose thought to date has been "we shouldn't pay expensive pensions, they cost too much", what do you think?

« Last Edit: October 22, 2016, 10:07:56 AM by Bicycle_B »

Captain FIRE

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Re: Future of State Pension Plans
« Reply #89 on: October 22, 2016, 11:41:04 AM »
I agree.  Every pension is structured differently.  The general premise of your idea is a great one.  On the surface, without crunching a single number, I think a 15% pay increase even sounds high (for my particular situation.)  Maybe I'll play with the numbers later and see where the break even point is for me.  I think getting public employees to swallow the idea would be a whole other mess.  The pension protects them because the employer is on the hook over the long term, the payments have to be made some way or another.  The Ponzi-ishness of the pension system acts as a bit of safety net for current employees since no politician wants to raise short-term liabilities...can kicking is just so much easier.  An employer match to a 457/401K, on the other hand, can be lowered or eliminated at any time in the future with no reprisal to the employer other than a couple angry phone calls and newspaper op-eds.  Gov't employees tend to grow pretty cynical of promises without any "teeth" to keep the politicians honest.  Lots of political courage would be needed, as you said.  Opponents would have a field day.  I can see the headlines now, "Governor raises worker pay by 15%."  People would go bonkers.  Its a shame because the idea could really be a win-win for everyone if executed correctly.

Private sector pays a lot more, and offers 401k matches and bonuses to boot.  I just don't see a 15% increase cutting it.  In the long run I'd prefer a 457b/401k match and increased salary, because I would 1) have control over the money and could leave the principal to my relatives/charity (right now, if I die the payment stream dies), and 2) not need to stick around for 20+ years to get this part of my paycheck (helpful if the match is changed as you suggest might happen above).  Despite that, I would walk out if a 15% bump was all that was offered to me to transition away from a pension.  That's a heck of a lot less than the jobs I was interviewing for elsewhere would pay (I withdrew due to discovering I was pregnant).

Right now, the govt makes money on the people that don't work for it long enough to vest.  I suspect they still make money on people who have a small pension as well.  It's only at the full pension that the equation starts to tilt more to the employee (although as I've argued above, it's questionable).

Don't forget in this ideal world planning that you also have the transition period to deal with - while the govt is paying the current pensioners, it now needs to pony up cash to fund the accounts of the current workers (457 matches / higher pay).  That's bound to be a budget crunch for any government.

Adam Zapple

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Re: Future of State Pension Plans
« Reply #90 on: October 22, 2016, 02:45:34 PM »

[/quote]

Private sector pays a lot more, and offers 401k matches and bonuses to boot.  I just don't see a 15% increase cutting it.  In the long run I'd prefer a 457b/401k match and increased salary, because I would 1) have control over the money and could leave the principal to my relatives/charity (right now, if I die the payment stream dies), and 2) not need to stick around for 20+ years to get this part of my paycheck (helpful if the match is changed as you suggest might happen above).  Despite that, I would walk out if a 15% bump was all that was offered to me to transition away from a pension.  That's a heck of a lot less than the jobs I was interviewing for elsewhere would pay (I withdrew due to discovering I was pregnant).

Right now, the govt makes money on the people that don't work for it long enough to vest.  I suspect they still make money on people who have a small pension as well.  It's only at the full pension that the equation starts to tilt more to the employee (although as I've argued above, it's questionable).

Don't forget in this ideal world planning that you also have the transition period to deal with - while the govt is paying the current pensioners, it now needs to pony up cash to fund the accounts of the current workers (457 matches / higher pay).  That's bound to be a budget crunch for any government.
[/quote]

Depends what you do, of course.  I think we are both looking at the same thing from our own perspectives.  Personally, I don't think I would be able to earn what I earn in the private sector, mostly because mine is one of those jobs whose skills don't directly translate to the private sector.  I'd have to fall back from square one with my now unutilized business degree.

TomTX

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Re: Future of State Pension Plans
« Reply #91 on: October 22, 2016, 04:03:54 PM »

Wow, that's amazing!  I never knew that. 

Tom, before I go any farther, thank you for the good work you've been doing.  Sorry to hear about being screwed out of fair compensation for your performance.  That sucks.

You have provided the missing link on a mystery, though.  I've heard over and over that actual pay rate for the same job at the State of Texas is 15% lower than comparable private sector jobs.  Yet when I read the report, it says 5%.  You have pointed out where the other 10% goes: the difference between theory and practice, aka sneaky statistics. The real pay rate is being quoted in the 15% statistic.

Thanks. Took some effort to dig it out.

accolay

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Re: Future of State Pension Plans
« Reply #92 on: October 23, 2016, 11:03:17 PM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I contribute to a well run public pension system. What is happening in NJ is exactly why I will never rely on it. I'll do my own saving and investing. All it takes is some lousy management, change in law or politics and it's all gone.

Metric Mouse

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Re: Future of State Pension Plans
« Reply #93 on: October 24, 2016, 12:39:10 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I think this has been covered pretty well in this thread. People dislike them because they're sometimes poorly run, and often underfunded, and when the shortfall from not being properly funded has to be made up, it's made up by taxpayer money, which is seen as 'taking' from taxpayers to give teachers or police officers etc.

ender

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Re: Future of State Pension Plans
« Reply #94 on: October 24, 2016, 06:13:45 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I contribute to a well run public pension system. What is happening in NJ is exactly why I will never rely on it. I'll do my own saving and investing. All it takes is some lousy management, change in law or politics and it's all gone.

People generally speaking dislike promised entitlements which are not funded, but instead funded on some future promise of effectively "we'll raise taxes."

The second part of your answer basically answers why a lot of people dislike public pensions.

accolay

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Re: Future of State Pension Plans
« Reply #95 on: October 24, 2016, 09:51:18 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I think this has been covered pretty well in this thread. People dislike them because they're sometimes poorly run, and often underfunded, and when the shortfall from not being properly funded has to be made up, it's made up by taxpayer money, which is seen as 'taking' from taxpayers to give teachers or police officers etc.

I did read the thread, but thank you for the summary.

I think it runs deeper than the "mismanagement equals more taxes blah blah" part of the argument. Yeah, that sucks. It's really disappointing to see problems that could have been fixed with good money management. But I also think that a lot of the anger around the country is the Great American "I don't have kids in the school system so I shouldn't have to pay for it anymore." type of thing. "I walked uphill in the snow both ways to school and I didn't have any fancy pension."

Would the anger be as substantial if the private sector still had their pensions?

So what are we going to do about it? What is the future, to answer the OP question? Nothing. It's going to implode in those places where they couldn't get right. You can't win this. Those who have those pensions better be saving like mad. But we all know most aren't. At least cat food is cheap.

DA

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Re: Future of State Pension Plans
« Reply #96 on: October 24, 2016, 09:53:30 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I contribute to a well run public pension system. What is happening in NJ is exactly why I will never rely on it. I'll do my own saving and investing. All it takes is some lousy management, change in law or politics and it's all gone.

You're in Minnesota right?  If so, you're correct that MN's public pensions are run relatively well.  But between the 10 public pension funds in MN, there is a nearly $73 billion shortfall.  The pensions range from 6% funded to 98% funded; the average funding level is 71% in Minnesota.  See here for further details:  http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014 (scroll to bottom and download the "state-by-state data" spreadsheet for the numbers).

This is why public pensions are so hated.  They represent a massive transfer of wealth to public sector workers, and most people don't think government workers deserve such rich benefits.   

accolay

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Re: Future of State Pension Plans
« Reply #97 on: October 24, 2016, 10:18:29 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I contribute to a well run public pension system. What is happening in NJ is exactly why I will never rely on it. I'll do my own saving and investing. All it takes is some lousy management, change in law or politics and it's all gone.
most people don't think government workers deserve such rich benefits.   

It'll either have to, as someone already said, convert to a defined-contribution plan, or as I said, implode. I think it'll be the latter. Sad. At least cat food comes in a variety of tasty flavors.

It's all relative. We gave a billion dollar industry $500 million for a new stadium (don't get me started) without blinking- that's what the masses give a shit about. Either way I'm not going to lose any sleep. I don't expect to be in this job for more than two or three more years, for a total of six-seven. It doesn't matter if I vote for the best and brightest to attempt to fix this problem. There will always be those who think working people, public or private, deserve shit.

Now get off my lawn!

Jack

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Re: Future of State Pension Plans
« Reply #98 on: October 24, 2016, 10:38:23 AM »
This is why public pensions are so hated.  They represent a massive transfer of wealth to public sector workers, and most people don't think government workers deserve such rich benefits.   

The trouble is, it's not the current lawmakers deciding to give "such rich benefits" to current government workers. Instead, it's debt that was occurred previously, and it was the previous taxpayers who should have been responsible for either (a) refusing to incur that debt in the first place, or (b) paying it themselves. The blame for the situation lies partially with the previous lawmakers who (fraudulently!) allowed the previous taxpayers to inflict the debt on the current ones, and the previous taxpayers who were either knowingly complicit or who, most charitably, at least failed in their oversight.

In other words, current taxpayers are justifiably pissed off for being left holding the bag for the previous generation's fraud (which is a statement that applies to so much more than just pensions!).

DA

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Re: Future of State Pension Plans
« Reply #99 on: October 24, 2016, 11:25:54 AM »
I don't understand why public pensions are so hated. Maybe because the private sector lost theirs over the years?

I contribute to a well run public pension system. What is happening in NJ is exactly why I will never rely on it. I'll do my own saving and investing. All it takes is some lousy management, change in law or politics and it's all gone.
most people don't think government workers deserve such rich benefits.   

It'll either have to, as someone already said, convert to a defined-contribution plan, or as I said, implode. I think it'll be the latter. Sad. At least cat food comes in a variety of tasty flavors.

It's all relative. We gave a billion dollar industry $500 million for a new stadium (don't get me started) without blinking- that's what the masses give a shit about. Either way I'm not going to lose any sleep. I don't expect to be in this job for more than two or three more years, for a total of six-seven. It doesn't matter if I vote for the best and brightest to attempt to fix this problem. There will always be those who think working people, public or private, deserve shit.

Now get off my lawn!

Obviously I'm not in favor of public sector pensions.  But you asked why public pensions are so hated.  I will try to explain why I think most people hate them, though I don't necessarily think all of these reasons are legitimate, it may be helpful for your understanding.  I think it primarily stems from bad experiences with state and local government:

  • The surly bureaucrat at the DMV or City Hall who wouldn't last a month in the private sector with that bad attitude.
  • Half the population thinks police routinely abuse civil rights, and even wrongfully kill citizens on a routine basis
  • Firefighters swaggering around town like they're above the law and then retiring at 50 with six-figure pensions, despite the fact that fires are very rare these days
  • The transparent "votes for benefits" deal cut between state and local politicians and state and local employees.
  • Correctional officers unions opposing criminal law reform (e.g. marijuana legalization) because it's bad for (their) business.
  • Ever rising taxes for stagnant or declining services (e.g., crumbling roads and infrastructure).
  • Public school teachers whining about pay and benefits when they already make more than the average worker, plus get 1/4 - 1/3 of the year off, can't be fired, and will get gold-plated pensions.
  • The state tax auditor who is auditing your business literally spending half the day sleeping on the job and making personal phone calls (not counting lunch break--this one is from personal experience).
  • You get a red light ticket in the mail from your friendly municipal government for turning right on a red light.

Like I said, these are not necessarily good reasons for opposing public pensions, but I think it explains why most people oppose them.  State and local employees argue that the pensions and other benefits are needed to draw high quality people.  The average person thinks, "you already have that and you still suck, and I don't think that will change by paying you even more."